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SpirE-Journal 2010 Q2

Gaming in the Asia-Pacific: What’s at stake

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Gaming in the Asia-Pacific: What’s at stake

The recent opening of Singapore’s two casinos has raised the stakes in Asia’s lucrative gaming market. Macau has already surpassed Las Vegas in gaming revenues. However controversy continues to dog the industry, as seen in voters rejecting a casino proposal in Penghu Country, Taiwan. Spire takes a look at the state of play in Asian and emerging market gaming.

Asian Gaming: Poised to advance?

Gaming is a multi-billion dollar industry world-wide, one where emerging countries have already begun to challenge the dominance of Las Vegas. Japan has long played host to an enormously lucrative pachinko parlour industry. In many countries, national lotteries (in some cases linked to national governments) generate massive revenues. It is anecdotally observed that online gaming is growing explosively, with a large share of customers originating in Asia. And of course casinos-cum-integrated resorts have mushroomed across the region, supported by governments anxiously pursuing the tourist dollar.

However the gaming industry continues to be dogged by controversy. Its opponents cite its tendency to be associated with organized crime. The US Mafia famously played a leading role in the inception of Las Vegas in the 1950s, though that role is now much diminished. NGOs bemoan how gaming can give rise to the social problem of compulsive gambling.

Closer to home, residents of Penghu county in Taiwan rejected a proposal to build a casino in a referendum held in September 2009. In Singapore, the decision to build the two casinos was opposed by a large grassroots campaign promoting the slogan ―”CasiNO”.

Whatever one’s position on the social and moral effects of gaming, its economic effects are attracting increasing attention from emerging country governments keen to pull in tourist dollars.

The figures explain why. Take the example of Macau. The territory of Macau depends on gaming and related services for most of its government revenue and over 50% of its GDP of approximately US$ 20 billion in Purchasing Power Parity terms. Macau experienced 13.1% GDP growth annually between 2001 and 2006, when the casino sector was being aggressively liberalized to allow the entry of foreign players. Macau attracts well over 20 million tourists annually (mainly from mainland China and Hong Kong).

The world-wide gaming industry was badly affected by the financial crisis of 2008-2009, which hit discretionary spending among the industry’s most lucrative customer segments. Since then, however, fortunes have recovered. The Casino Stocks Index has seen a strong upward momentum in 2010 to date, buoyed by the global economic recovery that has been strongly felt in emerging markets.

In this article, Spire takes a look at the centers of gaming in Asia and emerging economies world-wide, discussing the implications of the industry’s future development.

Macau

The territory of Macau, located in southern China near Hong Kong, is indisputably the largest gaming center in the Asia-Pacific region and the largest in the world by revenues, having surpassed Las Vegas in 2008. Its gaming industry currently accounts for 33 casinos, 4,610 tables, 14,175 slot machines and 43,975 employees. As at June 2009, Macau’s gaming industry grossed total revenues of 83.91 billion Macau Patacas (MOP) or approximately USD 10.6 billion.

More projects are due to come on-stream in the short-term. The flagship project of Galaxy Entertainment Group Ltd., which will contain 600 gambling tables, and another project of Sands China Ltd., seem on schedule for completion by mid-2011.

Over the next three years, however, the Macau government has announced that no new casino projects and only 500 additional gambling tables will be approved. This action was taken by the authorities with the aim of diversifying the city’s economy. The government is now striving to develop Macau as a more well-rounded leisure and entertainment destination.

Australia

A total of 18 legal gambling facilities are available in 8 states in Australia.

The gaming industry in Australia has made significant export contributions to the economy. More that 1 million international tourists made 2.4 million visits to Australian casinos during 2007/08. These tourists spent a total of $4.9 billion during their stays in Australia.

In addition, casinos in Australia employed 19,737 staff in 2007-08, making a substantial contribution to the country’s total employment. In 2007-08, casinos featured 1,525 gaming tables and 12,257 electronic gaming machines or EGMs.

One of the world’s leading suppliers of EGMs, the Aristocrat group, is based in Australia.

Singapore and Malaysia

Singapore’s first casino opened its doors during Chinese New Year in 2010. The $4.7 billion Resorts World Sentosa was built by Malaysia’s Genting group. This was followed by the $5.5 billion Marina Bay Sands, operated by Las Vegas Sands, which opened for business on 27 April 2010.

The casinos are intended to create tens of thousands of new jobs, as well as attract thousands of tourists across Asia to spend money on entertainment, hotels, shopping, and also gambling in the city-state. Singapore Tourism Board Chief Executive Aw Kah Peng said that the

Board was targeting a 20-30 percent rise in visitor arrivals to 11.5-12.5 million in 2010.

In Malaysia on the other hand, one gaming center has been legally established since 1971 – the Casino de GENTING in the Genting highlands, about an hour’s drive from Kuala Lumpur. It is owned and operated by Genting Berhad, a Malaysian-based conglomerate with interests in gaming companies world-wide as well as the cruise line Star Cruises. With gaming centers in Singapore, Malaysia, the UK, Canada and aboard its cruise ships, the Genting conglomerate can claim to be one of the world’s largest gaming operators.

The Philippines

There are 19 casinos in the Philippines7. According to the head of the state gaming regulator, the casino industry in the Philippines is expected to grow even faster in 2010, thanks to the economic recovery driving the growth of inbound tourism.

“On average, Pagcor and the gaming industry has an 8%-10% year-on-year growth. But it’s possible that we can exceed this target with the good news that we have been getting about the economy,” cited Philippine Amusement and Gaming Corp (Pagcor) President and Chief Operating Officer Rafael Butch A. Francisco in an interview on the sidelines of Asia’s Gaming and Entertainment plus Leisure Expo Manila.

Pagcor reported 60 billion Philippine pesos of revenue in 2009 (approximately USD 1.3 billion). Pagcor plans to establish casino operations in an upcoming hotel in the former San Lazaro racetrack in Manila.

Taiwan

After repealing a ban on gambling on Taiwan’s outlying islands in early 2009, the Taiwanese administration of President Ma has continually attempted to grow a domestic casino industry.

However the residents of Penghu County, a group of islands off southwestern Taiwan, rejected a government proposal to build a casino resort in a referendum in September 2009, according to Taiwan’s Central Election Commission.

The result of the referendum has meant that the Taiwanese government will have to wait for three years to conduct another referendum on the same subject, according to Chang Jui-Tung, director-general of the Penghu County government’s Civil Affairs Bureau.

Sri Lanka
There are nine legal casinos in the island nation, and eight out of these nine are located in Colombo.

Sri Lanka’s casinos are among the rare few that are legal in South Asia. Traditionally the country has not accorded too much attention to the gaming industry as an economic growth driver. But in the climate of post-war reconstruction following the cessation of the civil war with Tamil Tiger rebels, the government may eventually explore alternative growth engines such as gaming.

The Middle East

Only three countries in the region have licensed casinos – Israel, Lebanon, and the United Arab Emirates, with Israel’s licensed casinos being entirely cruise based.

No licensed casinos operate in Bahrain, Iran, Saudi, Syria, UAE, Yemen, Iraq, Jordan and Kuwait.

Russia

Under a 2007 law which came into force on 1 July 2009, casinos and other gaming establishments can operate only in four gambling zones — in the Baltic exclave of Kaliningrad, South Siberia’s Altai Territory, Primorye in the Far East, and in southern Russia.

The first new casino opened on 30 Jan 2010 in southern Russia, seven months after all legal gambling establishments in major cities like Moscow had to close or relocate to the four designated gaming areas.

The State Duma (Russia’s Parliament) is currently drafting legislation relating to underground casinos that have been mushrooming after the crackdown on legal casinos in Moscow.

“It’s preposterous to think these gaming zones in remote locations proposed by the Russian legislation could be up and running soon,” Samuel Binder, deputy executive director at the Russian Association for Gaming Business Development, told Reuters in July 2009. “Even those who have investments for gaming have realized they’d rather take their money elsewhere in the ex-Soviet Union or to Latin America,” Binder said.

Online gaming

The global online gaming industry spans a wide range of sites, including sportsbooks, online casinos, bingo parlors, poker rooms, lotteries and horse racing sites.

The industry’s huge competitive advantage has traditionally been its ability to serve customers in localities where gambling is illegal or frowned upon.

In March 2010, the American Gaming Association (AGA) reversed its previous position and decided to support legalized online gambling as long as it was regulated by the government. This move by the AGA suggests the inevitability of online gaming’s advance within the broader gaming industry.

However, there is no consensus yet in the EU on how the online gaming industry should be regulated. The European Commission has not enacted any specific laws to govern the sector.

Conclusion

As discussed in the last edition of the Spire E-Journal, one of the three trends which will fundamentally shape the development of emerging economies in the decade of the 2010s is the rise of the entertainment and leisure sector. The gaming market has linkages to other sub-sectors within the tourism sector. Provided governments adopt a supportive regulatory stance, the gaming industry is bound to benefit from the general growth of leisure within emerging economies.

And recent years have seen governments veering towards a more positive stance towards the industry. The fact that the Singapore government, seen as obsessed with law and order, has embraced casinos will no doubt embolden other governments to re-consider their regulatory stance.

However the controversy that has dogged the industry in Taiwan, Singapore and elsewhere underlines the need for governments to provide adequate safeguards and social support to control the risks of compulsive gambling and organized crime that are perceived to be associated with the gaming industry. Only with sufficient investment in such safeguards to protect vulnerable segments of the population will governments (and industry players) succeed in winning broad public support for expanding the gaming industry.

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