Singapore hits plateau, few growth drivers seen

Singapore took less than five years to catapult itself to the third spot in the global gambling industry, but that heady early growth now seems to have hit a plateau with few new drivers for growth expected in the short term.

Strict government regulation, limited real estate and other resources, cautious economic sentiment, and newly developing regional rivals threaten to stall industry growth in the coming years.

“The outlook for the industry in Singapore remains cautious,”  Lucius Jesudason Chong, an analyst at CIMB Research, says. “Government regulation is still the major deciding factor in the growth prospects of the industry."

The government tightened legislation last year, with amendments to the country's Casino Control Act that include an increase in the maximum financial penalty that casino operators may face, from S$1 million ($800,000) up to 10 percent of annual gross gaming revenue for breaches of regulations.

This indicates the government's stance on gambling is “unlikely to change,” said Chong.

The industry generated gambling revenue of $6.07 billion in 2013, up 3.8 percent from the previous year and a far cry from the 18 percent spurt recorded in Macau. Though this was a turnaround from 2012, when the industry saw a decline of 2.5 percent to $5.85 billion from $6 billion in 2011.

In their first year of operations, Singapore’s two integrated resorts - Las Vegas Sands’ Marina Bay Sands and Genting Singapore’s Resorts World Sentosa, generated revenues of more than $3 billion and created over 50,000 jobs. In 2010, the country also saw its sharpest increase in the number of tourists, growing 19.6 percent to 11.6 million from 9.7 million in 2009, according to a report from Singapore’s Department of Statistics.

Marina Bay Sands is considered the most expensive stand-alone integrated resort property in the world, with Las Vegas Sands investing a total of S$8 billion to complete the construction of the waterfront city centre.  Marina Bay Sands occupies 15.5 hectares of reclaimed land with a gross floor area of 581,000 square metres.

Resorts World Sentosa, on the other hand, is located on the island of Sentosa, off the southern coast of Singapore. Also considered as one of the most expensive casino properties in the world, Resorts World was developed for $6.59 billion or $4.93 billion. The resort occupies over 49 hectares (121 acres) of land. It features Universal Studios Singapore, the region’s first Universal Studios theme park.

However, recent results have been mixed.

In the latest quarter ended March 30, 2014, LVS reported that Marina Bay Sands recorded revenues of $835.4 million, up 5.1 percent from $794.9 million. Its rolling chip win percentage of 3.41 percent for the quarter was above the expected range, and above the 2.51 percent achieved in the first quarter in 2013.

Meanwhile, Genting Singapore reported stellar Q1 results, but warned that the situation is getting tougher and that it plans to streamline operations and introduce new products to lure tourists.

Q1 net profit soared 77 percent, boosted by a pickup in its gambling business. Revenue rose 24 percent to S$828.8 million, while net profit came in at S$257.6 million. The company said its gaming business saw revenue rise 29 percent on the back of higher rolling volume and a higher win percentage in the premium market.

Most pundits agree that the casino and gaming business in Singapore is leveling off as economies in the region soften.

On a year-over-year basis, Q1, 2014 GDP grew by 4.9 percent, similar to the growth rate seen in the previous quarter.

The Ministry of Trade and Industry maintained its GDP growth forecast for 2014 at 2.0 percent  - 4.0 percent, saying it expects the economy to grow at a modest pace in 2014; however, it also sees a continuing tightness in the labour market, which could weigh on labour-intensive sectors, including the casino/gaming and hotel/hospitality industries.

The slowdown in economic growth in the region from countries such as India, Indonesia and China -- the top three tourist-receipt generating markets in 2013 -- has also reduced the number of international visitors to Singapore’s tourist destinations, including integrated resorts.

According to the Singapore Tourism Board, international visitor arrivals declined 0.6 percent year-over-year to 5.17 million for the first quarter of 2014. Arrivals from China, one of the largest markets for the integrated resorts, fell 21.9 percent compared with the prior year period.

While government regulation has supported the industry, it has also sought to keep it under strict control.

“Casinos are an attraction for tourists, but the government is cautious in promoting it as the centrepiece of Singapore’s economy,” Chong explains.

It is not just the government – but also civic groups, such as the Responsible Gambling Forum, which is made up of representatives from the community and gambling industry, that have stepped up to help curb the spread of gambling addiction among the local populace.

Singapore has some of the strictest regulations in the gaming industry, with heavy fines for violations. For one, Singaporean locals and permanent residents have to pay SG$100 or $79.98 just to enter the casinos, and have the option to voluntarily ban themselves (or close family members) from casinos and even other non-casino gambling venues. Integrated resorts that allow locals and permanent residents to enter their premises without paying are fined heavily.

Secondly, the government has to approve any expansion of the current integrated resorts, particularly in adding land area and hotel rooms. Real estate is a sought after commodity in the country and with casinos contributing less than 5 percent to Singapore’s gross domestic product, allocating valuable real estate to integrated resorts is not the government’s priority.

For example, in March 2014, Marina Bay Sands said that it wanted to increase the rooms at its hotel by 60 percent, planning to add 1,500 more rooms as well as new meeting rooms, ballrooms and exhibition spaces. However, in the latest earnings conference call of LVS, Sheldon Gary Adelson, the company’s chairman and CEO, said he did not expect the Singaporean government to approve its request, noting that the bureaucratic processes in Singapore “don’t work as fast as other cities.”

Lastly, the VIP segment in Singapore’s casinos has no junkets to provide credit and/or financing to VIPs, unlike the VIP sector in Macau. The government has required junket operators to disclose not only the names of repeat customers or so-called “high-rollers,” but also the amount of commissions, rebates, or gifts given to each player. These are kept on record for five years. Assets, foreign and domestic bank accounts, and business activities are also monitored.  Such close monitoring discourages VIP players, and there are few incentives for junket operators to entice VIP players.

Another challenge the industry faces is the prospect of new players entering the casino playing field. South Korea, Japan and the Philippines have all started or are planning to start developing the same combination of casinos with hotel, leisure and entertainment facilities.

However, analysts said the new rivals are unlikely to draw business away from Singapore’s integrated resorts.  “The industry in the whole of Asia Pacific, even with Macau and Singapore as top destinations for gambling, still has a lot of room to grow,” Chong says. “The industry is a long ways away from being oversaturated.”