Published September 25, 2009

Low gaming tax may be key to IRs' success

Casinos can offer higher commissions to junkets to draw VIP customers: E&Y

By ARTHUR SIM

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(SINGAPORE) The success of the integrated resorts (IRs) here will depend largely on whether their casinos can attract enough of the right type of gamblers, namely the high rollers.

While there have been some doubts cast by gaming analysts and industry watchers that high rollers - and more importantly, VIP customers - will come, Ernst & Young (E&Y) believes that Singapore's low tax regime, especially for gaming, could help sway the odds.

In E&Y's 2009 Global Gaming Bulletin, it notes that: 'Given that Singapore has a lower gaming tax, its casinos can offer higher commissions to junkets to attract VIP customers.'

VIP customers are a special group of high rollers who often gamble with credit extended to them by junket operators. It is a practice common in Macau where VIP customers account for as much as 70 per cent of total gaming revenue.

In Macau, casino operator Melco Crown Entertainment was able to gain VIP market share when it raised junket commissions from a standard of about 1.2 per cent to about 1.3 per cent, sparking the 'commissions war' between it and other operators like Wynn and Las Vegas Sands.

The Macau government recently had to step in to regulate commissions, capping them at 1.25 per cent.

E&Y does not say what it expects commissions to junket operators will be.

But in its report, it highlighted the importance of junket operators, some of whom may have been affected by the credit crunch in Macau, by saying: 'Reports from various sources also indicate that junkets have been cutting lending and that patrons who have been gambling on credit have delayed or defaulted on repayments to the junket agents who bankroll their gambling sessions; this also causes erosion of revenues to operators.'

In Singapore, junket operators will be subject to regulation by the relevant authorities. Only licensed junket operators will be allowed to operate here.

However, according to guidelines for the IR operators as stipulated by the Request for Proposals, there are no caps on commissions.

The lower gaming tax here, regardless of whether any upside will be channelled to junket operators, will certainly be a boon for both IR operators Las Vegas Sands (LVS) and Genting Singapore. In March this year, LVS chairman and CEO Sheldon Adelson said: 'We will save 25 per cent on average on taxes.'

In Singapore, the tax rate on gross gaming revenue (GGR) is 5 per cent for revenue attributable to 'premium players' and 15 per cent for all other GGR.

In Macau, GGR starts at about 35 per cent.

E&Y's report looks at major global gaming jurisdictions including Macau, which is now the world's biggest gaming market with gaming revenues in 2008 hitting US$13.6 billion.

E&Y's comments on the Singapore market were made in relation to Macau and whether Singapore could gain market share.

Interestingly, while E&Y believes the low gaming tax will be an advantage, it believes Singapore's casinos will have little impact on Macau gaming.

Apart from the travel distance between Singapore and Macau's main source of clientele, China, E&Y added: 'Singapore also has no plans to develop into a gaming hub, and there will only be two casinos there versus 31 in Macau.'

It also believes that it will be harder for Chinese tourists to obtain visas to travel to Singapore than to Macau.

In this respect, China appears to be supporting the Macau market as it has recently relaxed travel restrictions to Macau.

It was recently reported that the Chinese government was allowing Guangdong residents to visit Macau once a month, up from two trips a year under previous rules.