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    Southeast Asia
     Jun 28, 2011

Singapore casinos defy odds
By Muhammad Cohen

SINGAPORE - Marina Bay Sands, the world's most expensive stand-alone casino resort at US$6.9 billion, held its grand opening a year ago in the teeth of a persistent global economic slump and in direct competition with the world's second-most expensive casino resort, the US$5.7 billion Resorts World Sentosa.

Many analysts doubted either resort could turn a profit and failed suitors for Singapore's two coveted gaming licenses eagerly awaited an opportunity to pick up these pricey properties at bankruptcy sale prices.

A year later, Marina Bay Sands and Resorts World Sentosa are the world's most profitable casinos. Singapore's economy grew a record 14.5% last year, and 8.3% in the first quarter. Booming

tourism has helped to fuel that growth, with visitor arrivals up 20% and expenditures up 49% last year.

Both measures have maintained double-digit growth so far this year. The Singapore Tourism Board says the casinos have helped to boost the sector's surge. As Prime Minister Lee Hsien Loong hoped when he proposed legalizing casinos in 2005, the two so-called integrated resorts (IRs) have spiced up the city state of five million.

"I don't know how I could have been so wrong," HSBC regional gaming analyst Sean Monaghan, a pre-opening skeptic, admits. "How could I think the market would be so small?" Monaghan estimates the two casinos' rate of return on assets is running between 18% and 22%, "even though they're not finished yet". Forecasts for this year project Singapore's casino revenue at US$6.4 billion, which would make it the world's number two gaming destination, just ahead of the Las Vegas Strip and trailing only Macau.

Last year, combined earnings before interest, taxes, depreciation and amortization (EBITDA) for Singapore's IRs totaled US$1.75 billion. This year, with both resorts operating for the full year, Monaghan forecasts combined EBITDA in the range of US$2.4 billion to US$2.9 billion.

He puts a market value on Marina Bay Sands of US$20 billion, representing about two-thirds of parent company Las Vegas Sands' (LVS) market capitalization. That valuation is virtually equivalent to the market capitalization of LVS' Hong Kong-listed Sands China affiliate that operates its Macau Venetian, Sands and Four Seasons properties and is building a new integrated resort with more than 2,000 hotel rooms due to open early next year.

More than money
But seeing Marina Bay Sands just in terms of money misses much of the story. "There is no doubt that the two integrated resorts have added a new sense of vibrancy to Singapore," University of Nevada-Las Vegas Singapore campus dean Andy Nazarechuk said. "In the past you would hear comments about Singapore being conservative or boring - you don't hear those comments any more."

Marina Bay Sands has become an architectural icon, with three hotel towers linked by the SkyPark 57 stories above Singapore's financial district. The resort includes 2,560 hotel rooms, a permanent production of Disney's The Lion King in one of its two theaters, the lotus-shaped ArtScience Museum, 121,000 square meters of convention space, a 74,300 square meter mall with 300 stores, and more than 50 food and beverage outlets, including cuisine by six celebrity chefs representing four continents.

Marina Bay Sands "has incorporated everything Las Vegas Sands had learned in Las Vegas and Macau and created one of the most exciting integrated resorts in the world," Nazarechuk says.

Despite some teething problems, including a construction site ambience throughout its early months, Marina Bay Sands attracted 19.6 million visitors in its first year. "We are now top of the minds of many leisure and business travelers and have received overwhelming and positive responses," a spokesperson for the resort said. "With the various attractions lined up and future plans to keep our visitors engaged, we are confident that we will not only sustain but broaden the type of tourists who visit Singapore."

Marina Bay Sands targets business travelers and the "meetings, incentives, conventions and events" sector, while Resorts World Sentosa, featuring a Universal Studios theme park, aims at the leisure and family markets. "They appear to be perfectly complementary with regard to their products, facilities and experience offered," said Robert Hecker, hospitality consultant Horwath HTL-Asia Pacific managing director. "They are mostly attracting and accommodating distinctly different demand segments."

As anyone who has visited Singapore recently knows, the addition of nearly 3,000 rooms at Marina Bay Sands hasn't torpedoed hotel rates. "There were initial concerns it might take a while to absorb the new rooms supply, but the scale of induced demand created extends beyond what the property itself can accommodate, so it's been beneficial to the entire market," Hecker said.

"The IRs have been a 9.5 out of 10," former Marina Bay Sands chief executive Thomas Arasi said. "There's a race going on around the region about tourism being part of the future economy. Singapore has just blown past everyone." Even better days may be ahead as the integrated resorts come fully online. Resorts World Sentosa still has a record-setting aquarium, a museum and a water park in the works.

The gaming market, meanwhile, could get a further boost from the introduction of junket promoters to bring in VIP players. Dozens of promoters have applied for licenses under the stringent regulations of Singapore's Casino Regulatory Authority, but none have won approval so far, even though gaming tax rates favor VIP play.

"Singapore said if you do junkets our way, you can have junkets," Arasi, now president and CEO of Harbinger Advisers, recalls. "The Singapore government isn't saying what junkets can do; it's about who the Singapore government is willing to license." He suggests "travel agents on steroids" might be what Singapore wants, rather then the junket promoters from Macau and other jurisdictions whose capitalization and collection practices are often murky. "It's a huge opportunity for junkets and for Singapore."

It's such a huge opportunity that Arasi thinks that successfully introducing junkets will give the Singapore market a big enough boost to convince authorities to license a third casino when the government's guarantee of exclusivity for the current IRs expires in December 2016.

"Even though licensing is only possible in 2016, it doesn't mean someone can't start building today to position itself as a favorite son for a license," Arasi notes. Just this week, US casino magnate and billionaire Steve Wynn told Bloomberg he's "dying" to do something in Singapore.

Political gamble
So with all this good news, why is there so much discontent circling the two resorts? After leading Marina Bay Sands to the best EBITDA margin for any property in the history of the Las Vegas Sands Corporation, Arasi left the company in February. Although neither he nor the company have elaborated on the circumstances, most experts believe he was pushed out - even though he made an attractive, articulate spokesperson for the resort.

Prime Minister Lee, the son of Singapore patriarch Lee Kuan Yew, championed the integrated resorts against unprecedented public opposition by local standards. His reward for their success in last month's general election was the lowest vote total in history for his ruling People's Action Party (PAP), down nearly 10% from the previous election, with two cabinet ministers losing their seats.

"It is, of course, hard to ascertain what impact the establishment of the casinos had on the support of the PAP," opposition Singapore Democratic Party leader Chee Soon Juan said.

The government imposes a S$100 (US$80.50) daily entry tax (or S$2,000 annually) for residents to enter a casino, has banned casino shuttle buses in residential areas, and has issued fines for local promotions in its effort to discourage Singaporeans from gambling. Yet there's still a public perception that too many Singaporeans are spending too much money at the casinos.

"It depends on who you ask," Workers' Party Member of Parliament Gerald Giam said in response to a question about whether the resorts are good for Singapore. "Undoubtedly tourism receipts have increased and the IRs have contributed to GDP growth, and the owners and developers of the IRs have benefited. However, the IRs' impact on families of gamblers and society as a whole will need to be better studied and quantified." Once there's a clearer picture of the impact, Giam said, "the government needs to adjust its regulations in order to minimize the IRs' negative impact on society".

The Singapore government doesn't release numbers on gaming revenue or gaming taxes, which encourages public perceptions that there's something to hide. In comparison, Macau, Las Vegas and Atlantic City release extensive monthly and quarterly information on their gaming markets, while Australia and New Zealand don't.

LVS president and chief operating officer Michael Leven told Inside Asian Gaming that 30% of gamblers at Marina Bay Sands are Singaporeans. He said the government is comfortable with that number but that it might not want to see it go any higher. Politicians in the neighboring Malaysian state of Johor Baru have complained about extensive casino bus operations there.

"The casinos bring with them moral and social costs," Chee said. "The kinds of jobs they create will not help Singapore generate the kinds of talent that will be required for our economy's future. The priority of pursuing GDP growth at all cost by this government is ultimately unsustainable."

Consistent with that thinking, one veteran gaming executive predicts the business will flatten out this year. "The fever is cooling. Indeed, there's a reduction in the locals' participation rate at both casinos, starting in the first quarter of 2011."

The executive is skeptical about the government's tolerance for junkets. "Analysts already realized that this market size is not what they initially had projected. It is at best 20% of Macau's casino revenue size, not 30% as predicted earlier on."

That estimate seems reasonable, the junket scenario is uncertain, and increasing competition from regional imitators may siphon off customers in the coming years. But so far, no one has won by betting against Singapore's IRs.

Macau Business magazine special correspondent and former broadcast news producer Muhammad Cohen told America's story to the world as a US diplomat and is author of Hong Kong On Air, a novel set during the 1997 handover about television news, love, betrayal, financial crisis, and cheap lingerie. See his blog and more at MuhammadCohen.com. (

(Copyright 2011 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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