Saturday, August 13, 2022

Of silver linings and inconvenient truths: Singapore casino expansion


Singapore’s two integrated resorts will cast a longer reflection on the island state but new shadows cloud the horizon across the southern shoreline.

By Daniel Cheng*

I am a Singaporean, born and raised, red, white and true. In circumstances such as this, I feel my being wrestle with internal conflict. I shift between decrying and rationalizing the course of the integrated resorts industry in Singapore.

The government last week announced it will extend the exclusive concession of the two integrated resorts for another 13 years to 2030. In exchange, both companies committed to invest S$4.5 billion each to renew their respective attractions, creating about 5,000 new jobs in the process.

As a citizen, it stirs mixed emotions. While relieved that the spectre of a possible third casino is at least put to bed for the foreseeable future, my brows furrow on the bestowal of additional casino floor space and gaming machines. At least the entry levies are going up immediately although I figure the absolute increase will do little to deter regular patrons of the casino.

What is more disappointing is the annual levy. Even with the increase to $3,000 per year, it is still a whopping 95 percent discount compared to purchasing the daily levy. Putting it another way, it represents a too-good-to-refuse promotion, where if a patron purchases 20 daily entry levy passes, he or she will then have free entry access for the next 345 days of the year! It would have been better in my view if the annual entry levy was eliminated altogether.

In the aftermath of the announcement, Genting Singapore’s stock price fell almost 10 percent. Not surprising given the scenario that the company has to fork out such a substantial outlay of S$4.5 billion, essentially to extend the life of its casino duopoly exclusivity. The extra gaming space and gaming positions for both operators are paltry and inconsequential in the grand scheme of things, but they will covet the new hotel room inventory. The latter more so for Genting, which frequently laments that having a third less keys than Marina Bay Sands amounts to a big competitive disadvantage.

But it was the enterprise of Las Vegas Sands, under the “never enough” directive of Chairman Sheldon Adelson, that lead to its executives aggressively lobbying the Singapore government for more land to accommodate its grand expansion plans. Not surprising given that the low-tax regime helped propel MBS to become the group’s most profitable unit, and perfect insurance against the uncertainty of the Macau market, where its operating license expires in 2022. However, it was likely that all this might not have come to pass had the PAP government not been in a critical leadership transition phase, as the next generation of ‘4G’ party leaders are on the cusp to take over the helm of the country. There is also the possibility of a national election happening as soon as the close of the year, and rumblings of an opposition alliance under the stewardship of a retired former PAP stalwart.

Under a more stable political scenario, a third casino license would have materialized instead and all of Adelson’s huffing and puffing would have been for nought.

As it is, Adelson’s reward is also Genting’s gain because the government has to give fair treatment to both licensees. How much of a “reward” it is remains a moot point as Genting Singapore’s stock price reaction has shown.

From the government’s standpoint, this is the best it can do as mandating a new casino license puts too much political capital at risk. Even then, the government could have just let the status quo be as there’s still some risk, albeit more manageable, in the duopoly license extension. But it is an opportunity for one of the potential Prime Minister-elects to flex his muscles in the spotlight, to show his mettle and hopefully win some brownie points with denizens. And certainly, he can rationalize that it was far from a cavalier decision.

Both resorts are into their tenth year of operations, and are beginning to look a tad tired with peeling paint and cracked walkways, particularly the resort island property. Revenues have flattened in the last couple of years.

RWS’s original show productions dried up a few years ago. MBS has been regurgitating the same musical productions of late. How many times can one watch ‘Wicked’ and ‘Lion King’? Locals shun the retail and food offerings in the resorts for wider choices and less pricier fare in more convenient locations, such as Orchard Road. Across the border, Resorts World Malaysia is almost done with a billion-dollar do-over.

Further north, the threat of spanking new multi-billion dollar Japanese resorts looms in the next five years. If I put on my citizen’s hat, I too grudgingly admit that these are all telling signs for the Singapore government to act.

Slipping my feet into a pair of shiny snakeskin brogues of the casino executive, try as I might, I can’t shake off the nagging sense of having been given a raw deal. Yet, it is an offer I can’t refuse, I dare not refuse because what recourse do I have?

For both operators, the properties are their best money spinners. Genting chairman, Lim Kok Thay, has affectionately called RWS his “cash cow.” But you have to admit the Singapore government is quite forgiving because Adelson once scoffed that MBS was a “warm up” in comparison to his planned Japan casino resort.

Adelson’s casino business operating principle is quite simple really, you must have enough hotel rooms to accommodate customers within the perimeter of your property because that equates to the highest possible propensity of them entering your casino. More hotel rooms begets more players, begets more gaming revenue.

It was what Genting had bemoaned and adding another hotel in western Singapore isn’t really the same, although that was more of a real estate play than anything else. So if I hazard a guess, the first structures to be built and open in their expansion plans would be the hotels. With more keys and captive customers, both operators should enjoy an uptick in gaming revenue. The quantum increase is a math with no possible empirical support.

While we suppose that Japanese casinos will come online sometime in 2024 or 2025, the major barometer (as it always has been) is the grudging spigot of the Chinese central government.

At worst, Lim and Adelson hope that RWS and MBS can maintain the present level of revenue turnover as the regional market gets more crowded over the next decade. Both companies would welcome this period of tranquil to navigate through top leadership changes that will happen over that time.

It is entirely possible to see the new generation of the Lim clan assuming the RWS captaincy as the present guard of loyal cadres reaches retirement age.

With signs of Adelson already beginning to loosen his fingers on the reins of Sands, this license extension could be the final major business decision for MBS directed by the founder.

We can almost picture the casino executives snapping their expensive leather valises close and rising wearily to exchange handshakes with their Singapore government minders. One-nothing to the Singapore government but at least it wasn’t a rugby score, and they now secured the gates for thirteen more years.

But wait! There’s more? In the best low-ball technique that would make the best-performing door-to-door vacuum cleaner salesman blush, the Singapore government announces a 50 percent increase for all casino entry levy fees to come into immediate effect. And while it had taken a while to sink in that they had left a lot of money on the table in the original 2006 agreements after the two casinos skyrocketed to become the most profitable in the world, the full realization hit like the Titanic when casino firms clambered over each other in offering to invest US$10 billion to build a casino resort in Japan, despite a 30 percent casino tax rate (and potentially additional 10 percent consumption tax).

So come March 2020, the 5 percent and 15 percent tiered casino tax will be revised to a new banded tiered tax structure. And with GST set to increase to 9 percent as early as 2021, gaming revenue for VIP gaming will incur a 16 percent to 20 percent tax band, while that of mass gaming carries a 25 percent to 29 percent tax band. Still a bargain compared to Japan, with duopoly protection to boot.

So take the silver lining, but also accept it comes with inconvenient truths.

 

*Daniel Cheng is a gaming professional-at-large who had held senior executive positions with U.S. gaming corporations, Hard Rock International and Bally International; as well as Genting International.

 

Asia Gaming Brief is a news and intelligence service providing up to date market information for worldwide executives on relevant gaming issues in Asia.

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