Muhammad Cohen
Asia Times
Results from Singapore’s first full quarter of the city having a casino duopoly in its own backyard cooled some of the gambling frenzy – at least in the local stock market. Shares of Genting Singapore, which operates the Resorts World Sentosa casino resort fell 12% from their high following the company’s third-quarter earnings report late last week. That retreat came after gaining 180% since March.
The results show that Marina Bay Sands (MBS) has erased the surprising gaming revenue lead that Resorts World Sentosa (RWS) established in the second quarter, but also that both so-called integrated resorts face challenges ahead.
Las Vegas Sands, the US parent company of MBS, reported a more than doubling of net revenue at the Singapore resort, to US$485.9 million from US$216.4 million in the second quarter, when it operated for just 65 days following its April soft opening. Earnings before interest, taxes, depreciation and amortization (EBITDA) jumped to US$241.6 million from US$94.5 million, with EBITDA margin increasing to 49.7% from 43.7%. Daily casino revenue rose to US$4.5 million from US$2.9 million.
“We are proud that Marina Bay Sands has already enhanced Singapore’s reputation as an international business and leisure destination,” Las Vegas Sands chairman and chief executive Sheldon Adelson said in a statement accompanying the earnings release. “Looking ahead, we are confident that Marina Bay Sands will provide an ideal platform for strong growth and outstanding returns for our company.”
By contrast, Resorts World Sentosa stumbled in its first full non-monopoly reporting period after beating expectations in the second quarter. RWS revenue fell 15% from the second quarter to S$731.8 million (US$563.2 million) and EBITDA dropped 31% to S$346.5 million. Its overall margin narrowed to 47% from 58%.
Genting Singapore, a subsidiary of Genting Malaysia, operator of the Highlands Resort outside Kuala Lumpur, doesn’t break out casino revenue for RWS separately in its accounts. Industry observers estimate daily casino revenue in the range of US$4.4 million to US$5 million, down from US$5 million to US$5.8 million it recorded in the second quarter.
Ghost of a chance
Some analysts cited August, the traditional Chinese ghost month, an inauspicious time for testing fortune, as a factor behind the decline in RWS gaming revenue. A bigger factor was likely the full quarter of competition from MBS. The latest figures suggest the two casinos now hold virtually equal market shares, compared with the 60-40 or better advantage that RWS commanded in the second quarter while MBS was still ramping up.
A bigger story behind the numbers is that the Singapore gaming market may have grown by 25% from the previous quarter, depending on your preferred guess about RWS casino revenue. Most analysts blithely predict casino revenue, the resorts’ most profitable cash stream, to grow in the present, fourth quarter but that may not be a valid assumption.
Singaporeans, perhaps representing 50% of present gaming revenue – Las Vegas Sands president Michael Leven suggested that local player share for the first year – may start to play less as the novelty factor wears off. The government could also step up its anti-gambling campaign aimed at Singaporeans.
In September, the government banned the resorts’ free shuttle buses within Singapore – except to and from the airport for hotel guests – after RWS extended its service into the island state’s middle-class public housing estates. Singapore already imposes a tax of S$100 daily or S$2,000 annually on Singaporean citizens and permanent residents who enter casinos, and it could raise the tax or impose limits on visits, especially with elections expected next year.
Lee’s line
Prime Minister Lee Hsien Loong’s proposal to legalize casinos in 2004 provoked unprecedented open dissent in Singapore. Polls showed an even split on the question, in sharp contrast to the usual Singaporean habit of falling in line, at least publicly, with government initiatives. More than 30,000 people signed an online petition against the resorts. Singapore’s Association of Women for Action and Research estimated that casinos would cost Singaporean families more than S$500 million (US$355 million) annually due to problem gambling.
Many anti-casino arguments echoed this 2002 analysis. “There may be economic merits to setting up a casino in Singapore. But the social impact is not negligible. By making gaming more accessible and even glamorous, it could encourage more gambling and increase the risk of gambling addiction. … Although one can try to mitigate these effects, the long-term impact on social mores and attitudes is more insidious and harder to prevent.”
The author of those words was Lee Hsien Loong, then prime minister in waiting, as head of an economic task force evaluating an early casino proposal. Two years later, Lee, the son of Singapore’s founding father Lee Kuan Yew, made his case for integrated resorts in the name of tourism, cautioning that without them Singapore would fall behind its neighbors. The resorts weren’t about gambling, they were about the tourism facilities, the Universal Studios theme park at RWS and the 121,000 square-meter convention center at MBS, plus museums, shows and hundreds of new retail outlets.
Gaming regulations further encourage the resort operators to look away from the local mass market. Revenue from so-called VIPs with more than S$100,000 on deposit with a casino are taxed at 5% versus 15% for mass market play; a 7% goods and services tax is added to both rates. Along with casino legalization, Singapore promoted its wealth management industry for the very rich. That effort tried to give a respectable face to the city-state’s longstanding status as a haven for questionable funds on deposit from Asia and beyond.
No picnic for junkets
Oddly, though, Singapore regulators placed heavy restrictions on junkets, a crucial link to big money players because they provide credit. As a further disincentive, casinos must notify authorities before the arrival of junket VIPs, who generally want to be discreet or at least choose when and how to be conspicuous. Singaporean authorities apparently believe money that’s welcome in banks and the real estate market is somehow suspect for gambling.
Nine months after the first casino opened, no junket agents have been licensed. It was believed that no junket operators had even applied – Singapore’s Casino Regulatory Authority routinely ignores requests for information – but there’s now market talk about possible approvals of applicants next year.
Without junkets, casinos are on the hook for whatever credit they’ve granted to VIPs. “RWS tried to impress the market with huge self-churning through a large amount of credit exposure,” Platform Asia managing director Felix Ling said. “The third-quarter results show it could not sustain such a heavy hand.”
The other alternative is working with unregistered junkets that designate an operator or agent as a VIP and distribute that VIP’s chips to the actual junket customers. In August, a Korean man was arrested for failing to declare S$7 million he had stuffed into two suitcases. He told authorities he was bringing the money to his uncle, a junket agent in Macau, who won the money at MBS and whose parent company operates three casinos in Macau through its Sands China affiliate. The agent’s nephew paid a S$30,000 fine for his error.
Record arrivals
Visitor arrivals in Singapore have set records since last December, predating the openings of the two resorts, mainly due to the Asian economic recovery. Meanwhile, at this point, the casinos at the resorts are virtually complete while many other facilities are months if not years away from operations. Universal Studios’ headline attraction, the world’s tallest twin rollercoaster, has been out of order since the second week of operation in March.
Yet tourists may not prove to be a great gambling crowd. Perhaps it’s Singapore’s strait-laced reputation that doesn’t make it anyone’s top choice for fun. Or maybe it’s the high cost of visiting Singapore: after a paying for a US$200 hotel room and another couple hundred for a family outing to Universal Studios, what vacationer from India or Indonesia has got the bankroll or the stomach to lay down big money at the baccarat table?
A business traveler, getting it all on the company tab, is more likely to have a flutter in the casino. That means getting the convention sector and all of the other non-gaming components up and running will be the key to the resorts’ long-run financial success. Funny, that’s just the way nanny state Singapore wants it.
Macau Business magazine special correspondent Muhammad Cohen told America’s story to the world as a US diplomat and is author of Hong Kong On Air