IN EARLY JANUARY, when Japan’s lower house of parliament reconvenes, a group of more than 150 MPs on both sides of the aisle will file a motion to introduce a bill that could dramatically reshape the casino industry in Asia. Getting what is essentially a private member’s bill through Japan’s bicameral Diet can be an arduous task, and with the support of at least 241 MPs needed to get any legislation through the lower house, the MPs are still way short of a majority.
Still, if you speak to casino industry watchers in Asia these days, they will tell you that clearly the momentum is now in favour of a Japanese casino. Although Japan has debated the pros and cons of a casino for decades, 2012 is likely the year when it takes the leap of translating the idea into a concrete plan.
Although casinos are officially banned, Japan is already a huge gaming market. Walk around any part of urban Japan and you would inevitably pass pachinko gaming parlours operated by ethnic Koreans. And Japanese history books claim that it was a Japanese ruler, not a Chinese emperor, who invented the game of keno to fund his government without raising taxes. Japan’s problem is that it has a huge and growing public debt — estimated at US$13.5 trillion ($17.5 trillion) in the next fiscal year — and needs up to US$250 billion more to pay for the rising cost of rebuilding the tsunamiand nuclear disaster-stricken northeast region of the country.
Politicians wary of raising taxes for their already-weighed-down voters have been warming to out-of-the-box solutions such as the licensing of mega casinos. Ryosaku Sawa, an economics professor at Osaka University of Commerce, estimates that within three years of being legalised, the Japanese casino industry could be chalking up US$44.5 billion in revenues annually, or about seven times what Singapore’s two casinos will rake in this year, which is almost on a par with what the global gaming mecca, Macau, will be taking in next year.
Across the waters, in South Korea, where there are dozens of small foreigners- only casinos, mainly inside large hotels with annual revenues of US$2.7 billion, the government is closely watching Tokyo’s moves. If Japan throws its gates open to legalised casino gaming, it is unlikely that Seoul will drag its feet. The last thing South Korea wants is for its citizens to hop across on short-haul flights to Japan to roll the dice.
One “black-swan” event that would trigger the fast-paced opening of the South Korean casino market — ahead of even Japan — is the collapse of the North Korean regime. Last week, the hermit kingdom’s “Dear Leader” Kim Jong Il died of a heart attack and was replaced by his 28-year-old son “General” Kim Jong Un. Korean reunification would be an incredibly costly exercise and one of the many ways to pay for that is a highly deregulated gaming market, which would help boost government revenues.
TAIWAN AND THAILAND NEXT
Elsewhere in Asia, Taiwan and Thailand are seen as the next big opportunities for large casino resorts that draw in tourists and also tap a captive pool of local punters. Asia is already the epicentre of the global gaming boom. Casino revenues in Asia are forecast to grow 37% this year and a recent report from PricewaterhouseCoopers (PwC) estimates that Asian casino spending is likely to surge from US$34.3 billion in 2010 to US$79.3 billion in 2015, accounting for 43.4% of total global casino revenues, from 29.2% last year. Yet, after several years of heady growth, gaming in Asia is slowing to more sustainable rates. Standard & Poor’s says growth rates in the Asia-Pacific gaming industry are likely to moderate in 2012 to between 15% and 20%.
Asia’s gaming industry has dramatically transformed since the Big Bang deregulation in Macau ended the decadesold monopoly of billionaire Stanley Ho in 2004, allowing for the entry of global gaming players such as Las Vegas Sands, MGM Resorts International, Wynn Resorts and Australia’s Packerfamily- run gaming giant Crown Ltd. Since then, gross gaming revenues in Macau have grown tenfold and are likely to touch US$34 billion this year. As the only place in the Greater China region where gambling is legal, Macau has morphed into China’s playground, catering to tens of millions of affluent Chinese not just from the immediate catchment area of southern China but, with the advent of a high-speed railway network in the country, as far as Beijing and beyond.
HIGH-SPEED LINKS TO MACAU
Infrastructure is the key to driving growth in Macau. New high-speed trains connecting the rest of China with southern China is making it easier for punters from all over the country to roll the dice in Macau. The completion of the MRT connection from Guangzhou to the Gongbei Gate, the land crossing between Zhuhai and the Macau peninsula, in April is likely to further boost Macau’s revenues, as it will make it even easier to travel seamlessly, almost to the doors of the some of casinos, without taking ferries and changing buses.
Moreover, the opening of the last large piece of infrastructure — the Hong Kong-Zhuhai-Macau road bridge — is just three years away. The bridge will allow Hong Kong and southern China residents to drive right into Macau.
Macau is likely to keep on growing from an expanded base. Having grown 57% last year, gross gaming revenue in Macau grew 44.1% yearon- year in the first 11 months of 2011. Citigroup’s Asian gaming analyst Anil Daswani recently revised his forecasts for Macau, from 15% annual growth next year to 20%, generating US$40.1 billion in revenues, as new casinos in Cotai Central are opened between late January, in time for the Chinese New Year, and end of next year.
In recent months, commentators and politicians in Japan and South Korea and even Spain as well as other European countries that are toying with deregulating their gaming sectors, have pointed to Singapore’s success with its two integrated resorts (IRs) — Marina Bay and Sentosa — that came onstream early last year and have helped boost tourism revenues. In 2011, the first full year of the two local resorts, gross gaming revenues are likely to have just pipped that of Las Vegas. “And Singapore is just getting started,” notes Aaron Fischer, Asian gaming analyst at CLSA in Hong Kong.
Although Asia has been ground zero in the global casino boom, governments around the world, from Europe to Latin America, have been racing to deregulate gaming. The main drivers behind the willingness of policymakers to open up the gaming sector is the growing revenue shortfall in the aftermath of the recent global financial crisis. With the burgeoning budget deficits, governments need to somehow grow their revenue base but have little ability to raise taxes. Deregulating gaming presents an easy way to raise revenues — both direct taxes from casinos as well as indirect revenues from the tourism boom.
CLSA’s Fischer forecasts gross gaming revenues in Marina Bay Sands and Resorts World at Sentosa to reach US$6.5 billion this year and US$8 billion next year. That’s without the licensing of junket operators. He expects the Casino Regulatory Authority, which is currently reviewing the applications of the junket operators, to license some next year or in early 2013.
The two Singapore casinos have the potential to generate between US$1.5 billion and US$2 billion each in annual free cash flow within the next two to three years, he says. While he readily concedes that Singapore’s growth trajectory isn’t Macau-like, it is still phenomenal, given that the first casino opened its doors only 22 months ago.
Casinos are now also taking hold in several other smaller Asian markets. The Philippines, which has long had legalised gaming, now takes in more than US$600 million in gaming revenues every year, while Malaysia’s Genting casino will register revenues of more than US$940 million this year. A new IR-style casino will open in Manila Bay within the next 18 months and PwC expects the Philippines’ gaming revenues to double to US$1.2 billion by 2015. Vietnam, which opened a small casino in Da Nang, will open its first mega-casino, MGM Grand Ho Tram, in 2013.
When Japanese lawmakers start debating the bill on casino deregulation in just two weeks, the payoff that Singapore has reaped from Marina Bay and Sentosa will be cited repeatedly by MPs on both sides of the aisle. Less than two years after Resorts World at Sentosa threw open its doors to punters, Singapore may not be a gaming mecca like Macau, but the larger benefits from the boost to tourism and related sectors have helped grow the economy and the island’s attractiveness as a destination.
Next year might well turn out to be the year when the rest of Asia learns from Singapore’s bold IR experiment.
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