SINGAPORE - The improbable notion of casinos in Singapore has come closer to
reality as bidders present their multibillion-dollar visions to the Singapore
Tourism Board. The government's decision to offer two sites for integrated
resorts (IRs) - mega-complexes including casinos - indicates how far Singapore
has come from the Asian values asceticism of Lee Kuan Yew.
But who wins the bidding will reveal just how much Singapore has really changed
under the son of its founding father.
Singapore first considered casino liberalization when Lee Hsien Loong became
prime minister in August 2004, as a step to
reverse its sliding share of Asia's tourism revenue. Announcing the decision to
build integrated resorts at Marina Bay downtown and Sentosa, an island just
south of Singapore that the government has tried to develop for tourism with
patchy success, Lee told parliament in April 2005, "We want Singapore to have
the X-factor - that buzz that you get in London, Paris or New York."
Macau was also on Lee's mind. Ending the gambling monopoly set the economy in
Portugal's former China colony surging (see
Gambling boom awakens sleepy Macau,
September 8, 2005). Tourist visits are approaching 20 million a year, more than
double Singapore's total, but mainland China's loosening travel restrictions
has been the biggest growth factor.
US$3 billion answer
The real Macau eye-catcher is the billions in new investment from Hong Kong and
global gaming giants. If Macau under Chinese rule, with its dodgy courts and
fungible rules, can attract that level of foreign capital, imagine how much
Singapore could likely get. Bids for the 20.6-hectare Marina Bay site submitted
by US casino giants Las Vegas Sands, MGM Mirage, Harrah's and Malaysia's
Genting gave ballpark answers starting at $3 billion.
When the two IRs go into full operation, probably in 2010, economists estimate
they will take a 20% share of the projected $20 billion (legal) gambling in
Asia, generate combined profits of $750 million and give a 0.5% kick to
Singapore's overall gross domestic product.
They will add 35,000 or more jobs to the local economy, and not all of them
making beds or dealing cards. The Sands Marina Bay proposal - Singapore is
keeping the proposals under wraps but says the bidders are free to announce
their plans; one bidder says it won't reveal its bid out of "respect for
Singapore" - includes 2,500 hotel rooms, 1 million square feet for conventions,
1 million square feet for shopping, three halls for concerts and stage shows, a
museum, and, of course, the casino, limited by law to 14,960 square meters.
The Sentosa resort will likely include similar facilities built around a
world-class theme park on 48 hectares, expected to cost about $2 billion.
Bidding documents for Sentosa will be issued in late April with proposals due
in October. Harrah's, Genting and Kerzner International, developer of the
Atlantis resort in the Bahamas, have expressed interest. Each resort will go to
a different bidder.
At your service, finally
The two resorts will do more than introduce casino gambling and bring in more
tourists. Analysts, including the local public-private think tank Institute of
Policy Studies and Merrill Lynch, see them as a bellwether transition toward a
more service-oriented economy. Singapore's economy remains stubbornly reliant
on manufacturing. While factories have astutely moved up the value chain to
specialties such as microprocessors and complex pharmaceuticals, it's
increasingly difficult to stay ahead of China and other low-wage economies.
With its highly educated workforce, Singapore's competitive advantage lies in
services. Moving the economy in that direction may also keep more of that
workforce at home, rather than emigrating to Australia and across the Pacific.
The real buzz from the resorts may emanate from the ancillary opportunities it
unleashes, not only to service the gargantuan properties, but, since gaming now
accounts for less than half of Las Vegas resorts' revenue, to creatively empty
visitors' wallets. Singaporeans need to show ingenuity to meet that challenge.
Introducing the resorts fits a pattern of liberalization in Singapore
unthinkable even a decade ago. On the streets and in the malls, racy
advertisements for lingerie and spas abound. The 700 or so legal prostitutes
have been joined by about 10 times that number of freelancers, largely from
mainland China, with authorities apparently turning a blind eye. The biggest
step - resolutely bold or absolutely pitiful - was the opening of a branch of
the famed Parisian strip club Crazy Horse.
Despite these changes, and even though Singapore already has gambling including
lotteries, horse racing, football pools and even some slot machines in
government clubs, the resorts will represent a quantum leap. And the choice of
the developers will show the true extent of Singapore's political and economic
transformation.
The four questions
The government has established four criteria for assessing the Marina Bay bids:
tourism appeal and contribution - 40%; architectural concept and design - 30%;
development interest - 20%; and strength of the consortium and partners - 10%.
A footnote to the criteria adds: "The proposer consortium's track record in
successfully creating, managing and marketing world-class IRs, as well as their
commitment to bring in top-tier talents from the international business,
creative and marketing communities to ensure the long-term sustainability of
the IR are embedded under 'tourism appeal and contribution' as well as
'architectural concept and design'."
Merrill Lynch analyst Sean Monaghan, who worked in business development at
casinos in Manila, observed, "Even with this latest release of the information,
there appears to be a high degree of subjectivity with respect to the selection
process, and this could ultimately cause problems." Specifically, those
problems revolve around the government's ties to two syndicates through the
Ministry of Finance's Temasek investment arm (see
Singapore Inc peels a veil in the dark,
March 26, 2004).
In a report issued in February, Monaghan wrote, "If transparency and
independence do become serious issues, we suggest that the syndicates including
the Temasek controlled companies may ultimately have to clearly 'out bid' the
private sector syndicates for the government to be able to award the casino
license on defensible grounds."
Two bidders have Temasek-linked partners. Harrah's is partnered with Keppel
Land, which has a stake between 20% and 30% in the Marina Bay bid. Keppel will
also join Harrah's Sentosa bid. MGM Mirage has a 60-40 partnership with
CapitaLand, Southeast Asia's largest developer, for Marina Bay. MGM Mirage has
said it will not bid on Sentosa, and CapitaLand has partnered with Kerzner for
that site.
Playing favorites
Monaghan previously rated MGM Mirage and Las Vegas Sands (LVS) co-favorites for
Marina Bay, but in February downgraded the chances for Temasek-linked groups,
leaving LVS and Genting as the top contenders.
Monaghan rates LVS the favorite, based on its experience in developing IR
property, the Venetian in Las Vegas, and in the Asia market with its wildly
successful Sands Macao casino. LVS has committed vast sums to Macau, building a
$2 billion Venetian Macao as part of developing "Asia's Las Vegas" along the
Cotai landfill linking Macau's two outer islands, but says it can comfortably
finance its $3.6 billion proposal for Singapore's Marina Bay.
LVS chairman Sheldon Adelson is the godfather of the Las Vegas convention boom,
and the so-called "BT MICE" market - business traveler meetings, incentives,
conventions and exhibitions - will be a principal component of Marina Bay. "The
IR at Marina Bay is envisaged to cater to business and convention visitors, and
will have extensive convention, meeting and exhibition facilities," Singapore
Tourism Board director of integrated resorts Margaret Teo said. "With the new
MICE infrastructure in place, Singapore will be in a better position to draw
mega conventions to our shore. We will also be able to attract new BT MICE
visitors both from the region and also long haul markets."
Genting, like LVS, has experience building and operating an IR property. Its
Genting Highlands Resort in Malaysia attracts more than 17 million visitors a
year, including many Singaporeans. That also gives it experience with the Asian
high roller market that Singapore is targeting with the world's lowest tax on
premium-play revenue. Genting's stakes in US, Middle East, Australian,
Caribbean and UK properties, as well as its Star Cruises subsidiary, give it a
global customer base. Its Sentosa proposal with a Universal Studios theme park
makes it the front-runner there, likely diminishing its chance at Marina Bay.
Genting and LVS represent solid choices for the IRs, with the lowest risk.
Casinos do fail, and Singapore can't afford a failure. With half the population
initially opposed to casino liberalization according to polls, Lee needs the
IRs to succeed in a big way to maintain his political credibility. MGM Mirage
and Harrah's are fine companies, but neither has ever served a single customer
in Asia. It would border on madness for Singapore to let its IRs serve as on
the job training for them.
Against all odds
Yet on the eve of the bidding, a report from brokerage house DBS Vickers
declared MGM Mirage and Harrah's the front-runners for Marina Bay. It would be
easy to dismiss that analysis as simply wrongheaded - following stockbrokers'
recommendations is a good way to go broke - except that DBS is a
Temasek-controlled company, just like MGM's and Harrah's local partners. Lee's
wife Ho Ching chairs Temasek, which manages billions of dollars worth of
domestic and overseas investments, so the government could be
Temasek-controlled, rather than the other way around.
MGM Mirage is building a casino in Macau in partnership with Pansy Ho, daughter
of Macau gambling tycoon Stanley Ho. That will give the gaming company some
valuable Asian operating experience starting in 2008, but its unlikely that the
Hos will tolerate cross-marketing a Singapore property appealing to the same
target market through the partnership. MGM Mirage entertains Asian high rollers
in Las Vegas, but thinking that experience qualifies it to operate in Asia is
like believing you can cook Japanese because you know the recipe for sashimi.
MGM Mirage runs several famed Las Vegas IRs, including the Bellagio and Mirage,
but it acquired rather than established them. (Steve Wynn, who built many of
those iconic properties, walked away from the Singapore bidding in a huff,
claiming government micromanagement.) MGM Mirage has the $7 billion Project
CityCenter in Las Vegas on its plate, which dwarfs LVS' Macau commitments.
Harrah's is the world's largest casino operator with 40 properties, but they're
all in the US and cater to the grind, rather than high-roller market. It's
never built or run a property with the proposed scale or scope of the Singapore
IRs. One key to Harrah's growth has been its incentive programs that keep
customers coming back to its tables. Given social concerns in Singapore about
problem gambling, frequent-bettor programs could rate as a disqualification.
Singapore's stock market ran to six-year highs following the DBS report, with
CapitaLand and Keppel leading the way; the smart money thinks the fix is in for
a Temasek-linked company. Assuming its proposal isn't obviously inferior, MGM
Mirage is a risky but defensible choice for Marina Bay. However, Harrah's is a
bad choice for either site. It's bidding in Singapore in sheer desperation,
fearful that being shut out of the Asian market will torpedo its US stock
price. If it wins a Singapore site, it will be for no reason other than its
association with Temasek. That will mean, despite casinos, strippers and
hookers, it's the same old Singapore, a family business that can't help
thinking small.
Gary LaMoshi has worked as a broadcast producer and print writer and
editor in the US and Asia. Longtime editor of investor rights advocate
eRaider.com, he's also a contributor to Slate and Salon.com, and a counselor
for Writing Camp (www.writingcamp.net).
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