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.
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