Upstart Singapore outstrips Las
Vegas By Muhammad Cohen
SINGAPORE - The current exhibition at
Marina Bay Sands' ArtScience Museum commemorates
this year's centennial of the Titanic's
fateful voyage. When Singapore began its journey
to create the world's two most expensive casino
resorts, many experts expected a titanic-scale
failure. After all, the conservative nature of the
Singapore state could hardly be more different
from the well-deserved Sin City reputation of Las
Vegas, until recently the world's biggest gambling
center.
Yet something titanic has happened
with Singapore's casinos - success. In their first
full year of operations last year, Singapore's
pair of casinos likely registered more gambling
revenue than the 39 casinos along the legendary
Las Vegas Strip. Singapore's
minimum table bets of
S$10 (US$7.71), more often S$25, are only part of
the answer.
"While most of us understood
that Singapore possessed unique attributes that
would allow it to achieve prodigious results, no
one anticipated how quickly that market would grow
into a US$6 billion a year [gaming] industry,”
Gaming Market Advisors principal Andrew Klebanow
says.
Singapore didn't just get two
casinos - it got two integrated resorts (IRs) with
a wide range of attractions. Profits for 2011 at
the two IRs were on track to surpass US$1.5
billion, ranking them among the most profitable on
earth. Exact figures will be made public when the
operators - US and Macau giant Las Vegas Sands
(LVS) and Malaysia's Genting Group - release
financial results in the coming weeks.
In with the in-crowd Singapore
tourism has also benefited grandly. In 2010, the
year the IRs opened amid continuing construction,
Singapore's visitor arrivals rose 20% and visitor
expenditures rose 49%. The latest figures show
additional rises of 15% for arrivals and 18% for
expenditures. Growing visitor numbers also help
explain the double-digit rise in hotel rates and
average revenues despite some 4,000 rooms being
added to supply.
"Perhaps 25% of tourism
growth is from the IRs," HSBC senior gaming and
consumer analyst Sean Monaghan estimates. He adds
that the IRs have encouraged other investments,
for example, a boom in new restaurants.
As
the statistics suggest, Singapore didn't just
steal a page from Las Vegas; the Lion City has
rewritten the book on casino resort development
and has done it so well that people now speak
about a "Singapore model" for gaming development.
"The Singapore government's approach was
to carefully plan the development of its casinos.
Las Vegas' growth was driven by entrepreneurs -
not by government," Klebanow, a longtime Las Vegas
executive who now consults globally, says.
"From [US entrepreneur] Jay Sarno's
development of Caesars Palace and Circus Circus,
to Steve Wynn's Mirage Resort and Sheldon
Adelson's Venetian Casino Resort, each of these
individuals recognized what the market needed and
created transformational properties. Government
merely provided the regulatory environment and
infrastructure that allowed the industry to grow
and prosper."
Super model Even
though free markets are presumed to be best for
business, it's the heavy-handed Singapore model
that other Asian destinations and international
gaming companies are starting to envy. "Everyone's
saying, 'We don't want to be left behind'," former
Marina Bay Sands chief executive officer Thomas
Arasi observes.
Niall Murray, director of
operations development for Macau market leader
Sociedade de Jogos de Macau, adds, "New
destinations have no excuse for getting it wrong."
Even so, Chee Soon Juan, chairman of the
opposition Singapore Democratic Party counters,
"There are many economic activities that
contribute to societal health and sustainable
progress: the gaming industry is not one of them.
Being a model for the gaming industry is not
something we should aspire to."
There are,
in fact, two sides to the Singapore model, one
geared toward the public interest and one that
keenly interests international gaming companies.
In the public interest, the Singapore
model's key feature is tying casino development to
a package of non-gambling attractions to boost
tourism and the local economy overall. The
government set up a competitive bidding process
for each of the two designated IR sites with
evaluation criteria that drove bidders to maximize
investment and create new facilities to boost
Singapore's tourism appeal.
Wish
list One longstanding government hope was
to get a world class convention center. Marina Bay
Sands (MBS) includes 111,500 square meters of
convention space. Built at a record cost of US$5.7
billion, MBS also has two theaters, a museum, a
mall with 300 predominantly luxury shops headlined
by a Louis Vuitton flagship outlet that appears to
float in Marina Bay, and six celebrity chef
restaurants. Its 2,541 hotel rooms in three towers
are connected across the top with the world's
largest elevated infinity pool and an observation
deck 57 stories above downtown, a new signature
for the Singapore skyline.
Singapore's
government also coveted a world-class theme park
for its designated leisure zone on Sentosa island
off Singapore island's southeastern coast. Resorts
World Sentosa (RWS) brought in Universal Studios
as part of a S$6.59 billion IR that also includes,
six hotels, a post-modern circus stage
spectacular, and a maritime museum that later this
year will link with what will be the world's
largest aquarium.
The Singapore model also
includes strict regulation designed to discourage
local residents from gambling and keep criminal
activities out of the casinos. The tax rate of 15%
for mass market play and 5% for high rollers (plus
7% goods and services tax [GST] on each)
encourages casinos to chase high rollers rather
than small fries.
However, Singapore's
Casino Regulatory Authority has strict licensing
criteria for junket operators, the agents that
bring VIP players to casinos and act as money
lenders (and collectors). Those roles have made
them crucial cogs in Asia, and led to suspicions
of ties to organized crime.
Keep it
clean Singapore's requirements include
probity checks on junket agency owners and
employees plus full scrutiny of financial records.
So far, no junkets have been licensed. Reports of
unlicensed junket activity persist, but for the
most part casinos have to find their own VIP
players and engage them directly, including by
lending them money.
"The challenge for
Singapore gaming operators is collecting on the
credit that they extend to players," Klebanow
says. "Since gambling debts are unenforceable in
China, there is always the risk that players will
not pay back their obligations. Uncollectable
debts are a cost of doing business in the casino
industry and are factored into operators'
financial statements."
To discourage local
players, Singapore citizens and permanents
residents have to pay a casino entry tax of S$100
for 24 hours or S$2,000 for a year. No forms of
casino advertising are permitted in Singapore, and
the government keeps restricting their marketing
activities. In 2010, it stopped casino shuttle
buses and last year it barred loyalty card
promotions outside the IRs.
"The
government is determined to cap casinos' impact on
the domestic market," Platform Asia senior
consultant Felix Ling says. "Singapore casinos'
future scenario: Limited mass gaming market growth
with a direct VIP market. Junkets will not be
allowed to play a major role here as they do in
Macau."
Outstanding qualities It
may seem the Singapore model forces casinos to do
business with one hand tied behind their backs.
But in less apparent ways, the Singapore model
provides an ideal business environment, at least
for companies that can afford the multi-billion
dollar price of admission.
For example,
Singapore allows 100% foreign ownership of casinos
and long-term leases on land. Its tax rates are
also low compared with Macau's 39%. Gambling debts
are enforceable in local courts. More basically,
there's rule of law. Those attributes are not
common elsewhere in Asia.
Even measures
that seem to run counter to casinos' interests may
actually benefit them. The tax on domestic players
to enter the casino appears to be an extreme
hindrance, until you consider the alternative of
barring local players. The entry tax presents
markets with a middle ground between
open-to-all-approach of Macau and the Philippines,
and the foreigner-only approach of South Korea and
Indochina's mostly tiny casinos.
Arasi,
now president and chief executive officer of
Harbinger Advisors, says South Korea and Japan
could attract the same level of casino-related
investment and revenue as Singapore, but only with
domestic player participation. In Thailand,
international gaming companies consider the
wagering-mad local market vital to building what
experts say would be fabulously successful casino
resorts in what's already a prime global tourist
destination. The biggest roadblock to
increased gambling revenue in Singapore remains
the lack of licensed junkets, and many observers
believe the government never will grant junket
licenses. Platform Asia's Ling believes that is
the way the casinos prefer it: In Macau, he notes,
junkets provide more than two-thirds of revenue
but take more than half of profits.
"Profit margins in Macau for most casinos
are real bad," Ling, a former Macau casino
executive, says. "Those operators basically invest
and build casinos for junkets and the government
to make money."
The Singapore model has
the best interests of investors and the government
at heart. That's what's put the sin in Singapore,
and makes it more successful than Sin City itself.
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. Follow www.MuhammadCohen.com
for his blog, online archive and more.
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, a novel set during the 1997
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