2018 in focus: Cambodia, bitcoin and regulatory change

Wednesday 3rd of January 2018

The Year of the Dog is about to dawn in Asia, with most gaming markets in the region starting on a positive note after a strong 2017. The focus this year is likely to be on emerging markets, though regulatory change and disruptive technologies, such as the stellar growth of bitcoin are also expected to make their presence felt. The following are predictions from some of AGB's advisors on what to expect in the year to come. The comments are in alphabetical order:

Harmen Brenninkmeijer - founder, Dynamic Partners

“Asia will have an interesting year ahead with the expected positive news coming from the Japanese market, and an iGaming sector which will be under pressure due to the expected extended reach of the Chinese authorities and regular pressures of the land-based sector in Australia. Gaming will continue its path of legalization and expansion, with the Vietnamese considering to approve sports betting and various new product introductions in the Philippine market.

In Macau, the market will continue its forward positive trend but not with the double digits growth of the VIP sector as of late. It will be a smaller growth percentage moving forward. The junketeers will consolidate and they will start looking at operations they can get involved with beyond the VIP area. The industry as a whole will look at various ways to increase the tourism offering, as the imminent opening of the bridge with Hong Kong will considerably increase the number of visitors and mass players.

We will finally see the movement and a roadmap towards the legalization of casinos in Japan. The terms are not all that great, but as we learned from Singapore, we just need to start and the regulators will become more comfortable with the industry.

With its tax increases the casinos in Russia will be pressuring the government to be more realistic about what liabilities it can carry. The present proposals will not stand so either the government will relax the tax increases or the casinos will close or at minimum not expand.

South Korea will face direct pressure and less business from China. It will improve over the last 6 months but not be what was expected. However, the government will not change it’s mind to allow locals to play.

Vietnam will see grow with the opening of new properties and the start of sports betting. The acceptance of local play will change the industry and create a new level of excitement, while in the Philippines more casinos will be developed and business attracted. iGaming will be more regulated and controlled.

Australia will get more pressure to be regulating its industry and more pressure will be extended.

Tony Chan, CFO Asia Pioneer Entertainment

“2017 was a landmark year for APE as we successfully went public, listing on the Hong Kong Stock Exchange’s Growth Enterprise Market. As a Macau local gaming equipment supplier, we are tremendously proud of this achievement to be in the big listco leauges with the operators.

Our prediction for this year is to see Macau VIP rooms to start offering slots and electronic tables to their VIP customers. Traditionally they have only offered baccarat tables and the customers that want to play slots go down to the main floor to play.

APE looks forward to 2018 with much optimism on the growth of the mass market in Macau and across Asia.”

David Green - principal, Newpage Consulting

“There will be a global regulatory and law enforcement crackdown on sports betting, particularly "in the run" betting propositions. This will be precipitated by the FIFA World Cup, which will be conducted in Russia. The perennial problems of illegal gaming will surface, as per normal, but the far greater concern will be the capacity of organized crime to influence both game results, and the outcome of in the run propositions, such as first goal, first card, clean sheet, and so on. I expect the World Cup to be the most closely scrutinized in history.

There will be little to no progress on the renewal/re-tendering of casino concessions in Macau. It seems clear, at least to me, that no decision regarding either the process or the adjudication of concession renewals will be made while the current Chief Executive is in office. The "studies" announced recently present a further opportunity to "kick the can down the road". The sensitivities are many; what happens to the existing "sub" concessions; is Law 162001 to be amended to recognize 6 concessions, to reflect the reality of the current situation, or will there be a reversion to the original 3 operator concept? Should a new concession or concessions be created, and if so, what criteria should be applied to determine how those concessions are awarded?

Junket operators will seek new opportunities to forward-integrate, thereby bringing them into direct competition with established casino operators. China's crackdown on high-end players from mid-2014 has made it clear to junkets that they must diversify their operations in order to mitigate the risk associated with the business models they have customarily operated in Macau and the Philippines. They must internalize more of the value chain, which means being able to conduct mass gaming, as well as to broaden the commercial offerings associated with their gaming activities. In the short term, this will present more of a threat to second tier and regional casino operators than the multi-national/global operators.

Sudhir Kale - founder, GamePlan Consultants

“I would expect a slowdown in gaming revenues from Mainland China consumers toward the latter part of 2018. China’s economic growth will slow down from 2018 through to 2025, and is expected to fall to under 5 percent. This would signal a slowdown in industries such as construction, and would therefore negatively impact the liquidity of junket operators.

My second prediction is increasing competition for luring the casino punter from India. With new resorts opening in Nepal, and seasoned competitors such as Delta Corp entering the Nepal market, existing operators will have a tough time holding on to their market share. The gaming industry in Nepal seriously needs an overhaul, and hopefully increased competition will provide that impetus.

My third prediction relates to continuing softness in the Australian casino market. The domestic market has plateaued, and business from China is expected to decline. While high investments in facilities are expected to continue on the part of Crown and Star, it is doubtful whether these investments will pay off like they did in the past. To muddy the waters further, there exists little appetite among politicians to support gambling in Australia.”

Steve Karoul - president and CEO Euro-Asia Consulting

As an industry we have seen a recent resurgence leaning toward regulation, or increased regulation, with an even more critical look at the issues and problems related to problem gaming. Consequently I think it will be very prudent and timely for all casino operators, no matter where they are operating, to take a quick review of their compliance procedures, as well as how they address the issue of problem gaming. This timely exercise may enable them to react quickly to any unexpected changes in both of these areas.

Andrew Klebanow - partner, Global Market Advisors

"There are a couple of markets that will deserve particular attention in 2018. The Philippines is at the top on my list. While throughout 2017, there were mixed signals as to what PAGCOR intended to do with its casino assets, it appears that PAGCOR now has a clear mandate to divest its Casino Filipino properties. Their immediate task will be to assign appropriate valuations to each property, based both on the current value of each asset and their expected returns in the future. As casinos become available for sale, expect to see a number of international operators taking a look at acquiring casinos in the Philippines, especially in and around the capital region."

"Cambodia also is a market to watch, particularly Sihanoukville. With Air Asia's recent start of four times a week service from Kuala Lumpur, Sihanoukville now has a sufficient amount of airlift to grow its tourism market. Add in additional flights from China and there is potential for significant growth in the market's land-based casino offerings. Should another airline start direct flights from Bangkok, then Sihanoukville has tremendous potential to develop into a true gaming-resort destination, assuming the development of a sound regulatory environment."

"Expect to see two additional licenses issued for integrated casino resort developments in Queensland, Australia. The current casino-hotel offerings have grown tired and the government recognizes that nothing stimulates capital investment from existing operators more effectively than new competition. Queensland offers major casino operators a robust regulatory environment, a fair tax rate, and great airlift into a number of cities, which is appealing to travelers from Asian countries, particularly China."

"India is an extreme long shot for integrated casino-resort development in 2018, but possesses characteristics that would allow it to rival Macau as the world's largest gaming destination. It will of course, require a collective will among various political and business stakeholders to embrace IR development as a tool for economic development, along with sound economic objectives and strategies to move gaming legislation forward."

"Japan will be front and center in the minds of many within the industry but the work on integrated resorts will be focused on legislation and regulatory structure, with some attention paid by individual cities and prefectures conducting RFIs. The major work for prospective operators will be in 2019 but savvy operators that want to compete for these coveted licenses will have to spend a considerable amount of time in 2018 conducting Nemawashi (due diligence)."

Jay Sayta - founder, G.Laws.in

2017 has not been a great year for the Indian gaming industry with a key state, Telangana, banning online skill games for stakes and imposing stringent punishment on all kinds of games played for stakes. At the same time there has been a positive decision recognising fantasy sports in another High Court and lot of initiatives in poker, e-sports and social gaming.

The year ahead will be crucial, as an intense legal and legislative battle is expected to take place that will determine whether online skill games like poker, rummy and fantasy sports will be permitted. 2018 is also likely to see expansion of casino gaming in Goa, with a roadmap to shift offshore casinos to land expected to be put in pace. The coming year will also see expansion of casinos in Nepal, with Silver Heritage launching gaming operations in its Tiger Palace resort in Bhairahawa and couple of other casinos expected to launch in Kathmandu.

Tim Shepherd - founder and managing director, Fortuna Investments and senior advisor to Silver Heritage Group

“This year Bitcoin will continue to make noises in the casino industry, but it is in online that this will have the most impact. Expect this to blow people away in the online world, although it will continue to confuse the dinosaurs in the land-based world as they seek to figure it out. Junkets are leading the charge with it and not telling anyone how, so it’s out there.

The Cambodian coastline is the hottest place to be right now for land based. What is being built there is nothing short of breathtaking. Its claim to the “the next Pattaya” is becoming a reality. But with a difference as this one is going to have amazing resorts and of course casinos.

Expect at least one crash and burn casino somewhere in Asia. It’s not all smelling of roses out there in the real world. If Donald Trump can lose money running casinos, then there’s a couple of other people who can do same.”

Augustine Ha Ton Vinh - senior advisor to the Van Don Economic Zone

“The year of the Rooster 2017 is nearing its end and is something to crow about. The government of Vietnam started in January with the release of two key gaming decrees on casino and sports betting, followed by the release of two casino gaming and sports betting circulars this past October.

The first decree on casino gaming opened the floodgate, allowing local Vietnamese to enter the two integrated resorts (IR) on the Phu Quoc and Van Don islands. Come the Year of the Dog, more activities are expected. First, the Phu Quoc IR is scheduled to open in early 2018 and the Van Don casino in mid or late 2019. The Van Don international airport, however, is nearing its completion and international inaugural flights will commence in the summer of 2018.

The construction of the Hoiana IR project near the Hoi An World UNESCO site is moving ahead swiftly and the Ho Tram IR is adding an upscale residential area. In addition to the above four IR’s, there are an three additional sites vying for new licenses. They are the Nha Trang - Cam Ranh IR in Central Vietnam, Lang Son at the China-Vietnam Northern border, and the North Van Phong IR in the Special Economic Zone, also in Central Vietnam.

The second decree related to sports betting and released also in January 2017 has international investors and operators jockeying for a position. The government has pushed the Ministry of Finance to release the international bidding documents for the sole 5-year soccer betting pilot license. Well-known sports betting groups have expressed their strong interest.

The New Year 2018 - the Year of the Dog will certainly see the gaming flood gate opened and investors as well as operators will have a very busy year realizing their dream projects now that the legal framework is in place.