Published September 15, 2008

No easy money in Asian casinos

Profit margin in Macau is just 10%, while in S'pore it's estimated to be nearly 40%

By ARTHUR SIM
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GIVEN the favourable tax regime here, Singapore's casinos in the upcoming integrated resorts look set to have higher profit margins, at least compared to Macau.

While the profit margin takes into account various operational costs, including junket commissions, the tax on gaming revenue is a big factor, and in Macau operators pay 35 per cent of gross gaming revenue in taxes.

In Singapore, the gaming tax rate will be 12 per cent (plus GST) for VIP play and 23 per cent (plus GST) for non-VIP play.

At the 13th Annual Asian Casinos Executive Summit 2008, which included industry players from Caesars Entertainment and Genting International, it also emerged that the profit margin for gaming operations in Macau work out to be about 10 per cent. In Singapore, it is estimated to be closer to 40 per cent.

Of course, taxes only matter to the extent that there is revenue to be taxed.

'Generally, gaming tax needs to be below 20 per cent if the operators are also expected to provide amenities like entertainment, retail and F&B, and still remain feasible.'
- Robert Stocker,
president of the International Master of Gaming Law (US)

Speaking at the summit, Robert Stocker, president of the International Master of Gaming Law (US), said that generally, gaming tax needs to be below 20 per cent if the operators are also expected to provide amenities like entertainment, retail and F&B, and still remain feasible.

In a Citi gaming report, Anil Daswani said that Macau gaming revenues have plateaued and forecast a 20 per cent drop for September, down from HK$9.2 billion (S$1.7 billion) in August.

While visa restrictions from China were cited as one reason for this, cut-throat junket commissions and easy credit lines are creating what Mr Daswani calls an environment of 'irrational competition'.

In this environment, he also noted that some Macau developers including eSun have failed to secure funding for projects.

CapitaLand has a 20 per cent stake in the eSun project, Macao Studio City. A spokesman said: 'Currently, the progress of the Macao Studio City project is dependent on when the site will be re-gazetted and its use extended to allow for additional hotel rooms and other entertainment activities. The pace of securing project financing will also correspond with this approval. At the same time, the current environment has also become more challenging due to the global credit crunch.'

With the Chinese government expected to curb casino development in Macau, other countries are ramping up efforts to attract investors.

Singapore may be ahead of the game here but even in small gaming jurisdictions like Cambodia, where there are already 28 casino hotels, the government is looking to build bigger and better facilities.

Also speaking at the casino summit, Secretary of State for the Cambodian Ministry of Economy and Finance, Chea Peng Chheang, said it was now hoping to build 'destination casinos'.

Casinos are only open to foreigners in Cambodia but the market is not heavily regulated. This is largely because, apart from Naga Corp's casino in Phnom Penh, casinos are located in border towns like Cam-Thai and Cam-Viet to stimulate the economies there.

Casinos are also imminent in Japan but this is more because the Japanese have a yen for gambling. Pachinko and Pachislo machines there generate more than US$10 billion in revenue every year.

Japan has just moved one step closer to legalising casinos.

Toru Mihara, adviser to the Casino Study Group of the Japanese Liberal Democratic Party, said that one of the main stumbling blocks - the lack of bipartisan support - had been recently resolved with a bipartisan group formed to study gaming issues.

He also revealed that 16 congressmen had travelled to Macau and Singapore recently for this purpose. 'We are now discussing not when casinos will be allowed, but how,' he said.

Political will could make all the difference. In India, for instance, where slot machines were legalised only in Goa in 1993, Sunder Advani, chairman and managing director of Advani Hotels and Resorts, says it is very unlikely that the government there would allow resort-style casinos anytime soon. 'There is too much resistance from anti-gambling bodies.'

For now, Mr Advani owns the only 'full-fledged' casino in India and that is located on a ship off the Goa coast. Five more off-shore licences are still pending.

Some investors are still gung-ho on the industry, though.

Canada's Asian Coast Development (ACD), which counts US-based Harbinger Capital as a partner, has already got US$1.5 billion funding to build a 2,300-room casino resort in Vietnam's Bang Ria-Vung Tau Province called the Ho Tram Strip.

The casino will have 90 gaming tables and 2,000 slot machines and the resort will have a golf course designed by Greg Norman.

Vietnam already has two casinos but entry is restricted to foreigners. ACD chief executive David Subotic is, however, optimistic that this will change. ACD's revenue model includes local gamers.

ACD is also eyeing other Asian markets. He said: 'Ho Tram Strip is a showpiece for Japan and Taiwan, to show the governments there that our model is the most successful.'

Mr Subotic concedes that competition will be intense, and if credit markets remain persistently bearish, funding will be challenging.

But he added: 'If you build something of substance in this region, we believe people will be attracted.'