Wednesday, August 10, 2022

Beijing sends shockwaves through igaming

After years of turning a blind eye to the booming online gambling markets in Cambodia and the Philippines, authorities in China have finally had enough, triggering a clampdown across the region. 

Beijing’s decision to put pressure on the Philippines and Cambodia to crackdown sent shockwaves through the sectors in both Southeast Asian countries. 

Cambodia’s Prime Minister, Sandech Techo Hun Sen, subsequently announced in late August that the Kingdom will not issue any more online gambling licenses and not renew any existing ones once they expire. Online licenses are typically renewed every January, which means existing licenses will only run until the end of the year. 

A brick-and-mortar casino license automatically allows a property to offer igaming, so online has been the main revenue stream for many Cambodian casinos. Quite clearly, the government’s decision is a hammer blow to the coastal city of Sihanoukville, but border towns of Poipet and Bavet where casinos are also situated will be hit too. 

“Around 80 to 90 percent of the casinos in Sihanoukville were built for online guys,” said an industry investor with slot operations in Sihanoukville, who has asked to be unnamed. 

“With no online gaming, a lot of the purpose behind most of them becomes completely redundant.” He adds: “It seems pretty clear that online is over in Cambodia.” 

A potential knock-on effect is that Chinese construction workers building new resorts in the once sleepy backpacker resort could find themselves laid off as projects are halted. In addition, the future looks uncertain for all the restaurants and entertainment venues established to cater for the influx of Chinese nationals. “All your Chinese businesses set up to support that big Chinese population could go as well,” he said. 

“What they will leave Cambodia and Sihanoukville with is a lot of high-rise casino resorts and apartment blocks a quarter full, or worse. All the Chinese investors who own the buildings will write the whole thing off and go back to China, you would presume. It will become a bit of a ghost town.”  

According to reports, Chinese are already leaving in droves, with chaotic scenes reported at Sihanoukville airport.

In the Philippines, the Philippine Amusement and Gaming Corporation (PAGCOR) suspended the issuing of new online licenses at least until the end of 2019. It came hard on the heels of pressure from Beijing for Manila to address the issue of Chinese citizens working in the Philippines’ gambling industry in conditions described as “slavery.” 

The Chinese government also expressed in a strongly worded statement, issued via its embassy in Manila, that rampant online gambling posed a threat to China’s financial social stability and would not be tolerated. PAGCOR chairperson Andrea Domingo says she plans to use the suspension to address all the concerns, yet it seems unlikely this will appease Beijing which would like to see online gambling banned in the Philippines. 

Speaking two weeks ago at a press conference, Domingo said there were 58 licensed Philippine Offshore Gaming Operations, or POGOs, and another three applications pending. For the Philippine government, the burgeoning online gambling sector has been a boon for the economy and state coffers. 

Annual online license fees cost $140 million, which is an 11-fold increase since 2016, while POGOs are projected to generate an additional P8 billion (US$156.5 million) in gaming revenues this year, up from P7.37 billion last year. The country’s whole gambling industry, including offline, is expected to reach revenue in excess of US$4 billion this year – a 400 percent rise in the past three years.  

The gambling explosion turned the country into the Far East’s third-most lucrative gambling hub after Macau and Singapore. Speaking on the condition of anonymity, one Asia-based industry expert and consultant says: “Online gambling is completely unregulated, and now the Philippines is scrambling to say, ‘no more new licenses and we are going to license the people in the industry’. It’s a bit late for that. 

“You should have done that from the beginning, and obviously they didn’t. All you had to do was pay money for the license and essentially you could operate without any restriction whatsoever as long as you didn’t allow Philippine nationals or anyone under the age of 18 to gamble on your site.”  

According to Domingo, there are 130,000 to 135,000 Chinese nationals working in the gambling industry in the Philippines, although others claim the true figure is far higher. 

Many have been lured from Mainland China to the Philippines by attractive salaries and sometimes free accommodation, free meals and other perks. However, China’s crackdown has resulted in reports of Chinese nationals packing their bags and heading home. In Cambodia, an exodus began when it looked like the writing was on the wall for online. 

“If your employment visa is tied to an online license, you don’t have the right to work anymore. So out you go,” said the Sihanoukville investor. 

But why has China acted now after appearing to sit on its hands for years and allow online gambling illegally serving its citizens to flourish for years? Well, that’s the $64,000 question right now as no-one knows for sure. Perhaps the problem had grown so large that it reached a tipping point. Or maybe the Chinese authorities had grown tired of money illicitly leaving the country and all the shady activities in the Philippines and Cambodia as the industries in both countries became a magnet for organised Chinese criminal gangs into all kinds of rackets. 

The investor said: “Every week, without fail, a plane comes into Sihanoukville or Poipet with Chinese policemen in it to arrest, detain and fly back to China criminals who are doing scams and loansharking. I think the Chinese are just sick of it. And who could blame them?” As to whether some form of online gaming and proxy betting continues surreptitiously in the country once licenses expire, that is a distinct possibility. Indeed, it could be a ‘whack-a-mole’ scenario, although this underground industry would be a tiny fraction of what existed before. 

When you think about it, Hun Sen may have played his hand particularly well. With most of the Chinese gone after being accused of destroying Sihanoukville, perhaps Cambodia gets to purchase the luxury casinos and hotels at knock-down rates in what is the Kingdom’s main coastal resort. 

The Philippines is in a tougher spot, though. While the locals are up in arms because they see the influx of Chinese pushing up property prices and rents, the country has a lot to lose if President Rodrigo Duterte pulls the plug on online gaming. Duterte does seem to be pushing back against China on this issue, yet he would at least want something substantial in return if he does give in and acquiesce to China’s demands. 

In the end, of course, China still wields the power and holds all the cards in the region. It seems Cambodia and Philippines flew too close to the sun and sparked China into a reaction. “Ultimately, it’s up to China,” says the anonymous source. “If China wants to turn off the tap, they can. In Macau they have done it and the market has changed because China wanted it to change. If they want to stop online gambling coming out of Cambodia and the Philippines, it’s always been very easy for them to do it. This seems to be a sea-change moment – but why now? None of us know.”

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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