Corona crisis restarts talk of PAGCOR casino sale

The Covid-19 crisis has rekindled debate over the potential privatisation of the Philippine Amusement and Gaming Corp (PAGCOR) casinos to raise funds to fight the pandemic.

The regulator has so far resisted calls to sell off the properties, arguing that they are profit making and already generating funds for the government. However, concern has been raised on multiple occasions about PAGCOR’s dual role as regulator and casino operator.

The latest call for a sell off came from Senate Minority Leader Franklin Drilon, who has asked economic managers to review state assets that may be sold off immediately to generate funds. Among those mentioned were PAGCOR’s casinos and the Philippine Charity Sweepstakes Office (PCSO).

According to Jade Entertainment CEO Joe Pisano, any such sale would likely attract considerable interest amongst both local and international investors. 

“As PAGCOR operates under a congressional franchise, I expect that the sale of assets would require congressional approval,” he notes. “As PAGCOR doesn’t own the properties I would imagine that the sale would be for Operational and Leasehold rights.”

PAGCOR has nine branch casinos operating collectively under the Casino Filipino brand and a further 32 satellite casinos spread in popular tourism destinations across the country. Industry experts say many of the properties are outdated and will need investment to bring them up to international standards.

However, they are seen as attractive assets, giving an entry point into what has been one of the best-performing markets in Asia over the past few years.

In 2019, Philippine gross gambling revenue rose just over 15 percent to PHP248.4 billion. However, revenue from PAGCOR’s casinos came in at PHP36.9 billion, underperforming the market with a gain of just 2.8 percent. 

The casinos operated a total of 472 tables and 9,581 electronic table games as of the end of last year. 

The Philippines is one of the only countries in the Asian region where locals are allowed to gamble, providing an underpinning of domestic support. Its economy has been Asia’s star performer over the past few years and tourism numbers had been rising.  

If the privatisation gets the go-ahead, advisers will have the daunting task of how to price the assets.

“Prior to the pandemic, it would have been a fairly easy exercise to place a valuation on each gaming property,” said Andrew Klebanow of Klebanow Consulting. “Based on historical operating performance for each property and future demographic trends within each market, determining a fair price for each property would have been straight-forward. There would also have been a number of casino operators, both domestic and international, that would have been interested in acquiring some of those assets.”

“The challenge today is that it is now very difficult to determine gaming revenues once the casinos re-open. Without a predictable revenue forecasting model, it will be impossible to accurately determine future cash flows and the amount of debt that each property could support if they were to be sold,” Klebanow says.

Some of the questions that will need to be answered include how fast revenues are able to return to 2019 levels. Although the Philippines does have support from the local market, many small business owners will have taken a major knock from the crisis-imposed lockdowns.

Gross domestic product had already been slowing, coming in at six percent in 2019, the lowest level in eight years. This year, the economy may even tip into recession, according to government forecasts.

It’s also highly likely once the properties do reopen that some kind of social distancing measures will be put in place. 

Klebanow says these will probably include a reduction in gaming capacity with the elimination of chairs at gaming tables and slot machines being the simplest measures. Casino operators may also have to adhere to government mandates as to how many patrons can be in a casino at any given time, much like grocery stores limit the number of patrons that can be in the store at any given moment.  Patrons may be forced to wait in line outside and wait their turn for admission.  

Casinos may also have to come up with some sort of reservation system for their players, much like restaurants take reservations today.   

“These kinds of restrictions will certainly impact gaming revenues. The questions are, what will be the scope of those restrictions and how long will those restrictions last before revenues recover to pre-pandemic levels?”

PAGCOR will be under maximum pressure to receive the best price possible for its casino assets. And while there are players with the available capital to make a bid, they are unlikely to agree to pay top dollar until there is greater clarity over future gaming revenues. 

 “Given all these variables, it is unlikely that the seller (PAGCOR) and potential buyers will be able to agree on fair prices for those assets at this time,” Klebanow says. 

PAGCOR has not responded to a request for comment.