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The New York Times
As Singapore gets ready to open its first casinos, there is little doubt that the controversial decision it made five years ago to allow gambling is going to pay economic dividends for the city-state. But whether the operators of the two giant resorts will be reaping jackpots anytime soon remains the big question.
The two resorts have very different focuses — Resorts World Sentosa is targeting families with a Universal Studios theme park, while Marina Bay Sands’s huge convention center floors are seeking to lure business travelers.
Many analysts believe the combo will allow the government to reach its goal of raising the number of visitors to 17 million a year by 2015 — and bringing their annual spending to $21.3 billion. In 2008, Singapore attracted 10.1 million visitors who spent $10.5 billion.
The government expects the two projects will create about 35,000 new jobs and add up to 1 percentage point to gross domestic product growth.
For the gambling companies, the openings present a fresh chance to tap into Asia’s booming economies at a time when growth — and discretionary income — in the United States and Europe is lagging. But Singapore’s tight restrictions on junket operators and high entry fees for local visitors could hurt business. Cost overruns have already put the two resorts deeper in the hole than planned.
When Genting won its bid for Resort World Sentosa in 2007, it planned to spend $3.1 billion to develop the site; the final bill now totals $4.7 billion. Las Vegas Sands was planning to spend about $3.2 billion for its Marina Bay resort, but the cost has ballooned to $5.5 billion.
The Sentosa resort has started to receive some of its first hotel guests, but the casino and the theme park are not yet open. The Sands is not expected to open before April. Both resorts must open a significant portion of their floor space before the casinos can start operations.
With noncasino revenues expected to account for only 20 percent of the resorts’ earnings, both companies will need to generate significant gaming business to recoup their investments.
“I think the gaming revenues will not be enough to justify the capital investments that have been required between the two of them,” said Ben Lee of IGamix Management and Consulting, a gambling consulting firm in Macao. “I don’t think the market is big enough to have two profitable” resorts.
Aaron Fischer, an analyst at CLSA, was somewhat more positive.
“The returns on invested capital will be lower in Singapore than in Macao or other markets, because the capital expenditure was very, very high,” he said. “Yes, they’ve spent much more than they planned, but that’s not uncommon with these types of projects. But over time, the returns should ramp up significantly, because the additional capital investment required to run the casinos will be fairly low compared with the initial investment.”
Mr. Fischer said that, unlike Macao, which has 33 casinos, Singapore will have just two. Taxes are also lower in Singapore compared with Macao, so the casinos should be able to generate better returns over time versus other markets, he said. Gambling revenue in Macao last year totaled more than $14.7 billion, according to the territory’s Gaming Inspection and Coordination Bureau.
The gambling tax rate in Singapore will be 15 percent for mass market and 5 percent for V.I.P. players who deposit more than the Singapore equivalent of $72,000 to play in private salons. By comparison, Nevada has a 6.75 percent tax, New Jersey collects 8 percent, Pennsylvania 56 percent and Macao 39 percent.
Some more bullish gambling analysts are forecasting that the two casinos could generate around $3 billion in revenue in 2010, rising to as much as $4.4 billion in 2011.
Based on his own gambling revenue projections, which are lower at $2.1 billion for 2010 and $3.5 billion in 2011, Mr. Fischer anticipated that it would take five to seven years for the operators to recoup their investments. In 2004, the Sands Macao recouped its investment in less than a year, but the stand-alone casino cost only $240 million to build.
At a recent news conference in Singapore, the Genting Group chairman, Lim Kok Thay, would not project gambling revenue or how fast the company would recoup its investment. But he said he expected 12 million to 13 million visitors in the first year of operation, 60 percent of them from overseas.
The Las Vegas Sands chairman, Sheldon Adelson, has been more forthcoming, predicting annual earnings of $1 billion for the resort. Mr. Adelson also said his resort could recover its capital investment in five years.
Genting, based in Malaysia, is Southeast Asia’s largest gambling company and the biggest casino operator in Britain. It returned to profit in the third quarter after cutting costs at its British casinos and getting higher earnings from its Malaysian gambling resort, posting net income of $109 million after a small loss a year earlier.
Las Vegas Sands, meanwhile, has been struggling because of the sharp downturn on the Vegas strip. In the third quarter, it posted a net loss of $123 million, compared with a year-earlier loss of $32.2 million. Still, the company is optimistic about trends for meetings and conventions in Las Vegas in 2010 and is getting a boost from resurgent business in Macao. In November, Sands China, its Macao spinoff, raised $2.5 billion in Hong Kong through an I.P.O.
One factor in the success of the Singapore resorts may be the entry charge of 100 Singapore dollars, or $71, the government plans to levy on locals each time they visit a casino. (Alternatively, locals can opt to pay 2,000 dollars per year for unlimited visits.)
Anil Daswani, global head of gaming research at Citigroup Investment Research, says that could hurt earnings; Citigroup is forecasting that the two resorts will generate only $2.8 billion in gambling revenue in 2011.
But Melvyn Boey, an economist at Bank of America Merrill Lynch, said the levy was only a concern insofar as it might discourage locals who want to go to the casinos for fun; those who go to wager will not be deterred because they would have to pay more than that to travel to gamble somewhere else.
Mr. Boey said restrictions placed on junket operators — independent operators who bring in high-rolling clients in exchange for earning a commission between 0.6 percent and 1.8 percent of the value of what the clients play — would have a bigger effect.
The Singapore authorities have mandated strict probity checks for junket operators. For example, applicants have to declare whether they, their spouses or children have made loans of more than 25,000 dollars in the last 10 years. They also have to list all assets, bank accounts (foreign and domestic) and business activities for the last 15 years.
Junket operators will have to keep a record of every junket — including each player’s full name, nationality, passport number and taxpayer identification number. Details of their stay and the amount of commissions, rebate or freebies given to each player will also have to be recorded and kept for five years.
Junket operators play a key role with high rollers that the casinos cannot easily replicate, said Mr. Lee.
“They not only identify the players, organize their trips and somehow get their money out of the country to the casinos, they are also able to generate far more frequent repeat visits than a casino salesperson can do, through the use of techniques such as peer group pressure, far more liberal credit granting than casino operators and other incentives,” he said, noting that in Macao, the volume of business attributable to the junkets is around 70 percent.
Mr. Lee believes the regulations will be “a huge deterrent” for junket operators, who operate more freely in Macao and whose Chinese clients often want to keep a low profile.
Mr. Boey, though, believes the controls on junket operators in Singapore will not substantially affect the size of the V.I.P. market in the long term.
“In any other casino markets outside Macao, casino operators do not rely on junkets,” he said, adding that direct V.I.P. is probably 70 percent to 80 percent of the V.I.P. business in Malaysia or Australia.
It is more profitable for the casinos to attract high rollers on their own, he said. “So net-net, in the short term, it’s negative,” he said of the junket rules, “but, in the long term, it gives the casino more sustained income and less volatility.”