Publication

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Publication

March 2014 • MOP 30 • ISSN 2070-7681
Headed
to Cotai
SJM unveils its plans
for a grander Lisboa
In Focus
Why the smoking limits
in Macau aren’t working
INSIGHTS
Happy Marriage:
Crane buys MEI
Hedging on sports with
Priomha’s Brendan Poots
COVER STORY
C O N T E N T S
20 The Last Resort
IN FOCUS
SJM has something to prove with the
multibillion-dollar Lisboa Palace,
and it plans to do just that. Although
the property won’t open until 2017
at the earliest—the final splash of
Cotai’s next wave—it promises to be
worth the wait.
8
Breathe This
Macau may want China’s
tourists and its money, but
they come wrapped in a
massive cloud of tobacco
smoke. While the city is
something of a pioneer in the
region in attempting to impose
restrictions on smoking in
casinos, the limits aren’t
working.
INSIGHTS
32
Sporting Chance
Sports betting is becoming
a mainstream investment
opportunity, and Brendan
Poots’ Priomha Capital is at
the forefront. FEATURES
28
Born of Consolidation
Tom Nugent, Crane Payment Innovations’ president of
Gaming and Retail, extols the virtues of being bigger
and broader in the automated payment systems field.
36
Off to a Flailing Start
Growing pains are evident in New Jersey’s Internet
gaming launch, but the case for a sizable market still
holds.
40
Shifting Balance
State-owned PAGCOR
announces its intention
to further scale back its
operations in the Philippines,
while the private sector
continues expanding.
BRIEFS
CORRECTION
The February cover story, “Bright Future Ahead,” incorrectly stated the number of
gaming venues in Cambodia. Aside from NagaWorld there are approximately 70
casinos and slot parlors, including eight properties in the port city of Sihanoukville.
The same story misstated the ownership structure of Entertainment Gaming Asia,
which is 38% owned by EGT Entertainment Holding, a wholly owned subsidiary of
Melco Group. The story also was incorrect in its description of leading operators
in the Cambodia-Thailand border market. There are several, EGA, Crown, Holiday
and Star Vegas among them.
42
44
46
Regional Briefs
International Briefs
Events Calendar
EDITORIAL
From Tokyo, a Dispatch
I
Publisher
Kareem Jalal
Associate Publisher
Philip Annetta
Director
João Costeira Varela
Editor
James Rutherford
Operations Manager
Cheryl Kuok
Contributors
Richard Meyer, Juliette Boone,
Paul Doocey, Keith Kefgen, I. Nelson Rose
Graphic Designer
Rui Gomes
Photography
Ike, Gary Wong, James Leong,
Wong Kei Cheong
Inside Asian Gaming
is published by
Must Read Publications Ltd
5A FIT Center
Avenida Comercial de Macau
Macau
Tel: (853) 8294 6755
For subscription enquiries,
please email
[email protected]
For advertising enquiries,
please email
[email protected]
or call: (853) 6680 9419
www.asgam.com
Inside Asian Gaming
is an official media partner of:
www.gamingstandards.com
4 INSIDE ASIAN GAMING | March 2014
nvestment brokers CLSA have published a new report on Japan that envisions a market of upwards of
12 casinos and US$40 billion in gaming revenue over the next decade.
Novella in length at 136 pages, “It’s Raining Yen!” is its apt title, and Newsweek columnist and Le
Figaro correspondent Régis Arnaud helped put it together. Mr Arnaud is editor-in-chief of France Japon
Eco, the business and public affairs journal of the French Chamber of Commerce and Industry in Japan,
and a seasoned observer of the Japanese political scene. His involvement has resulted in an exploration
of the processes likely to govern approvals and licensing at the national and local levels—and the
complexities operators will have to navigate to get under construction—that digs a bit deeper than
anything yet published for general consumption.
It also features the results of an opinion survey CLSA conducted in January among 1,000 adults
across a range of age groups that provides a somewhat unsettling glimpse into what awaits the Diet’s
pro-casino forces once the debate on casino legalization gets under way, probably in May, and has to
be sold to the Japanese people. For example, one in five respondents weren’t even aware a legalization
effort is under way, and only 7% professed any awareness of the details.
“Survey results such as these,” the report concluded, “are an indication of the scope of how
uninformed the general Japanese populace is regarding IR/casino legalisation efforts.”
Yet, it wasn’t this that made headlines when the report was released in conjunction with an
investment conference CLSA hosted in Tokyo last month—instead it was Sheldon Adelson with his boast
that Las Vegas Sands will spend “whatever it takes” to ensure it lands one of the two licenses earmarked
for Tokyo and Osaka, presumably the coveted Tokyo license. “We can spend $10 billion without borrowing
money,” he said, talking down his competition on the first day of the conference. “They can’t.”
Not to be outdone, another of the A-listers in attendance, MGM Resorts’ James Murren, vowed to call
his rival’s bet when he presented the next day. MGM offers more in terms of non-gaming attractions than
any operator in Las Vegas, he claimed, and he assured his Japanese audience, “We will overinvest early on
to ensure, as we have done everywhere else, that we have properties that are built to last and that would
stand additional competition.”
Mr Murren had been in Osaka the week before, where CLSA expects one of the two largest and most
expensive gaming resorts in the world will be built—the other will be in Tokyo—each commanding an
investment in the realm of US$8 billion, and LVS, Genting Singapore, SJM and Caesars Entertainment
have all made the pilgrimage to Japan’s second city in recent months to meet with the powers that be
and scout locations.
Nationwide, the market will be developed in two stages, as CLSA sees it. The first, dominated of
course by Tokyo and Osaka, will likely include one smaller regional license as well, probably in Okinawa—
“smaller” in this regard being a relative term as CLSA expects the investment there to total $2 billion,
which makes sense, considering the island’s proximity to Taipei and other prime target markets like
Shanghai. From there, a string of regional resorts will be licensed once government and the public have
had an opportunity to assess the benefits and impacts of the first three. This will begin after 2020, the
year Tokyo hosts the Summer Olympics. As in Okinawa it will proceed as a value-added political exercise
in regenerating local economies in resort areas on Hokkaido and in the south on Shikoku and on the
country’s westernmost main island of Kyushu, whose principal cities, Nagasaki and Fukuoka, are much
closer to mainland China than they are to Tokyo.
Pachinko giant Sega Sammy owns a golf resort on Kyushu, and they’ve made no secret of their desire
for a piece of the action. In South Korea they’re partnering with Paradise Group, the country’s largest
operator, on a destination casino in Incheon, and as of the end of the last financial year they were sitting
on the equivalent of US$1 billion in cash. The report goes into detail about the role they’re likely to play
and provides insight on a number of prospective Japanese partners, Konami Gaming, among them.
It’s a wide field, implicitly at least, and certainly an interesting one. It includes Fuji Media, owners of
the country’s largest terrestrial TV channel and a major play in film production and concert and event
promotion. Property giant Mitsui Fudosan and two of the biggest names in construction, Kajima and
Obayashi, are looking in as well, as are Mitsubishi and the Mitsui and Itochu conglomerates. Lawson
and Suntory, owners, respectively, of Japan’s second-largest convenience store chain and its thirdlargest brewery are spearheading an alliance of corporate and government leaders, tourism officials and
academics who will be working with lawmakers and making policy recommendations and advocating
with the public.
To this last point, while it’s difficult to know what to make of the glimpse “It’s Raining Yen!” provides
into how removed the Japanese people are from the process, the industry should welcome all the buy-in
it can get from mainstream business. It could prove critical when the battle for hearts and minds heats
up this spring.
James Rutherford
We crave your feedback. Please email your comments to [email protected]
In Focus
Photo: Karl Baron/flickr
Prying the cigarette out of a
gambler’s hand is never easy. Perhaps it’s a
little easier now than it used to be as smoking
rates generally have declined worldwide,
substantially so in the more developed nations,
and governments have moved aggressively to
restrict the habit or ban it outright as part of the
global war on public tobacco consumption they
began waging in earnest around 30 years ago.
Restrictions on smoking in casinos are hardly
new—California’s, for example, date back
to 1995, New South Wales’ to 2002—but
introducing them invariably is difficult and
expensive, particularly in terms of the blow to
the top line that accompanies them, at least
initially.
In Asia, a region whose love affair with
cigarettes has been long and deep, they are
unheard of in the gambling space, which
finds Macau as something of a pioneer in
its attempt, now a year in, to strike a balance
between public health and profits.
In essence this has involved carving the city’s
booming gaming floors into more or less even
halves, smoking and non-smoking. It’s not
working, to hear it from the representatives of
the croupiers and pit staff it was designed to
protect. This is not surprising, since the intent
hasn’t been to curtail the amount of smoke
in casinos but to corral it. It hasn’t been very
effective at this either, judging by air quality
tests, in part because the law doesn’t require
physical barriers between the halves, which
often exist side by side, especially on older and
smaller floors, and because management has
responded, as you might expect, by moving
more games, along with the dealers who
man them, into the halves where everyone’s
smoking.
On the plus side, at least they now provide
non-smoking areas, which they hadn’t given
much thought to before—and why would they,
with gamblers pouring in from mainland China
in increasing numbers every year, stoking a
market whose revenues are the amazement of
the world. The Chinese are as religious about
their smoking as they are their baccarat.
Breathe
This
In Focus
C
hina is the world’s largest consumer of tobacco. The World
Health Organization estimates that one of every three
cigarettes smoked on the planet is smoked there. It works out
to 7,000 cigarettes per smoker per year, an increase of 40% since 1980,
according to a global study conducted in 2012 by the University of
Washington’s Institute for Health Metrics and Evaluation. Nationwide
it averages out to 2,000 cigarettes for every adult.
WHO puts the smoking population at 300 million in its most
recent Global Adult Tobacco Survey, which was published in 2010
and focuses on 16 low- and middle-income countries where more
than half the world’s smokers live, eight of them Asian countries.
It amounted to 28% of the adult population at that time and is
supported by government statistics. The University of Washington’s
study, a mammoth undertaking encompassing 187 countries,
calculated China’s rate at 24%, or about 270 million adults, which is
in line with their estimates for East and Southeast Asia and Oceania
as a whole.
Either way it’s frighteningly high compared with a global rate
estimated at 18.7%—or, by way of comparison, 16% in North
Africa and the Middle East, 16% in Australia and New Zealand,
15% in North America, 13% in South Asia. China’s is not as high
proportionately as Laos’ (31%) or Indonesia’s (30%) or Myanmar’s
(30%). It’s much higher than Thailand’s (19%), Malaysia’s (18%) and
Singapore’s (12%).
Among Chinese men it skews much higher. But this is the
rule across Asia, where women generally make up less than 5% of
smokers, in contrast to the West, where prevalence rates tend to run
almost equal.
Something like more than half of Chinese men smoke, compared
with less than 3% of women, according to WHO’s 2010 estimate. The
institute puts it at 45% of men and 2% of women and finds it rising
dramatically above the age of 20—the average is 56% in the prime
casino demographic of men ages 35-54, which comprises more than
40% of all Chinese smokers, about 113 million people.
The World Health Organization puts the number of Chinese smokers at
300 million, or 28% of the adult population. A more recent University of
Washington study, calculated the rate at 24%. Either way it’s frighteningly
high compared with a global rate estimated at 18.7%.
March 2014 | INSIDE ASIAN GAMING
9
In Focus
Smoking Prevalence Rates – 2012
Adult Smokers
% of population
Male %
(millions)(millions)
31
Eastern Europe
55
Laos
1.331 ––
Indonesia
5330573
Myanmar
7.1 30 5111
Central Europe
28
27
–
Female %
–
–
–
Western Europe
892526
22
China
27024 452
Philippines
1524408
S. Korea
1024416
Japan
262335
11
Cambodia
2.2 21 423
Vietnam
1420412
Thailand
1019372
World
1,00018.7 32 6
Malaysia
4.1 18 372
Taiwan
3.4 17 323
Australia/NZ
3.7 16 1715
N. Africa/ME
5116294
United States
391516
14
India
120 13 223
Singapore
0.4312 224
Sub-Saharan Africa
38713
2
Source: University of Washington, Institute for Health Metrics and Evaluation
China is a signatory to WHO’s 2003 Framework Convention on
Tobacco Control, which monitors public policies in areas such as
prevention, treatment, awareness, marketing and advertising and
taxation, but government’s efforts to curb the country’s habit have
been, at best, spotty.
Some of this can be blamed on the fact that China isn’t just
the world’s biggest tobacco consumer, it’s the biggest producer,
home to a vast and flourishing business that’s run as the monopoly
of a state-owned enterprise known as the China National Tobacco
Corporation, whose operations extend across 33 provincial
administrations and more than 70 state-owned sub-enterprises
and another 1,000 commercial enterprises employing in all more
than half a million people and specializing in everything from
cultivation to sales to the machinery of manufacturing to imports
and exports. In 2010, according to data compiled by the State
Tobacco Monopoly Administration, it cranked out 2.78 trillion
cigarettes. The taxes and profits this throws off amount to more
than 7% of central government revenues. In Yunnan, the country’s
main tobacco-producing province, it’s more like 92%.
“Money is at the center of the problem when it comes to
resolving to ban smoking in public,” says the Chinese Association
on Tobacco Control, a non-profit agency that operates under the
auspices of the ministries of Health and Civil Affairs. “Governments
are addicted to the economic gains generated by the tobacco
industry.”
The bottom line for Macau’s casinos and their world-beating
US$45 billion casino market last year may have been 3.7 million
smokers, quite possibly more, and this isn’t counting Hong Kong and
Taiwan and the city’s other major sources of visitation.
Design for Evasion
The Macau restrictions that took effect 1st January 2013 allow
casinos to designate up to 49% of their gaming areas for smoking. All
six concessionaires applied for the space in an initial range of 34% to
49% of the floors of 44 casinos.
Within days it was clear that
what
the
government
in fact
Source:
John D.
Kasarda
and Taoyuanhad
Aerotropolis
instituted was a giant loophole with some regulation around the
edges.
In Focus
Something like more than half of Chinese men smoke, compared with
less than 3% of women, and the rate rises dramatically above the age
of 20. About 42% of smokers are men from the ages of 35 to 54. It’s the
Asian casino industry’s principal demographic.
“Our front-line workers told us that casino operators are
assembling the most popular games and the manually operated
games together into the smoking zones and leave the automatic
ones such as slot machines in the non-smoking areas,”said Choi Kam
Fu, deputy director-general of the Macau Gaming Enterprises Staff
Association.
“As a result,” he told the English-language Macau Daily Times,
“most workers are still working in areas constantly filled with secondhand cigarette smoke. Air quality has not improved significantly, it
might have deteriorated, and that’s the worst scenario, the one we
were most worried about.”
The association estimated at the time that twice as many
dealers were working in the new smoking areas as in non-smoking
and suggested the government remedy this with some form of
ratio of smoking to non-smoking tables. Nothing was done.
Around the same time, another workers’ rights group, Forefront
of Macao Gaming, called for a variation of the ratio idea. They
suggested eliminating slot machines and unmanned automated
table games from areas counted as non-smoking. This was not taken
up either.
“The government doesn’t know the difference between 50%
of floor area and 50% of gaming tables, and that’s why we’re
inhaling more cigarette smoke,” Forefront said. “If they don’t use
the number of tables instead of floor areas for measuring nonsmoking areas, the new rule should be scrapped, otherwise we
only suffer more.”
So what Forefront did was deliver a petition to the office of
SJM Holdings Executive Director Angela Leong, who was running
COVER STORY
13
In Focus
China isn’t just the world’s biggest tobacco consumer, it’s the biggest
producer, home to a vast and flourishing business that’s run as the monopoly
of a state-owned enterprise known as the China National Tobacco
Corporation. In 2010, according to data compiled by the State Tobacco
Monopoly Administration, it cranked out 2.78 trillion cigarettes.
for re-election to the Legistlative Assembly. SJM’s operating entity,
Sociedade de Jogos de Macau, the successor to Stanley Ho’s
monopoly and the town’s largest portfolio of casinos, had applied
for smoking areas at the top end of the 49% range and had secured
44% on average across 19 properties. Seventeen of these casinos
are leased to third parties and operate independently of corporate
management, making it difficult to crack down on things like tableshifting. Which is one reason why SJM would have a tough time
complying with subsequent air quality tests. The other reason is that
most of the third-party casinos are also among the oldest in town
and they’re relatively small and characterized at some locations by
tightly packed pits under low ceilings serviced by aging, inadequate
ventilation systems.
Representatives of a labor group called the Association for the
Promotion of Casino Workers’ Rights directly petitioned the Health
Bureau and the Labor Affairs Bureau. That got them a meeting but
little else beyond an assurance that the division by floor space, such
as it is, would be strictly enforced and that the results of the air
quality tests would be made public. Separately, the Health Bureau
issued a directive to the industry requiring it to exempt employees
suffering from heart or lung ailments and those at least three months’
pregnant from working in smoking areas.
By early February the complaints had made their way to the
Legislative Assembly, where some members responded with the
radical notion of a full smoking ban. This would bring the casinos
into line with other public spaces in the city, most of which have
been off limits to smokers since 2012. Interestingly, it was Ms Leong
who spoke out the loudest for this. The government resisted, which
is even more interesting. The Health Bureau’s plan is to review the
law in 2015, and it appears they’re not budging from that no matter
how patently flawed the rules have shown themselves to be, which
proved convenient for Ms Leong, at any rate. She was re-elected
handily later in the year.
Failing Grades
Last April, the Macau Health Bureau released the promised results
of an initial round of air quality tests, which showed 28 of the 44
casinos failing in at least one of six criteria. Sixteen were in the SJM
portfolio, Melco Crown Entertainment had eight (mostly its Mocha
Clubs slot halls), Galaxy Entertainment had three (two of them
managed under the company’s City Clubs franchise), and the other
was Wynn Macau.
Eight failed for carbon dioxide. Six failed for a class of pollutants
known as “volatile organic compounds,” which can occur naturally or
can be man-made and tend to be found in all indoor environments.
They’re produced by plants, animals, microbes and molds and fungi,
others are the detritus of paints and coatings, cleaning solvents
and gases such as methane. Benzene, a known human carcinogen,
is one of them. It’s found in stored fuels, automobile exhaust and
environmental tobacco smoke.
Most of the failures were for “inhalable suspended particulates”.
These can be solid or liquid and work like aerosols when they mix
In Focus
To get an idea of the risks
a croupier in Macau might
encounter on a given day, it’s
been estimated that a bartender
working around smokers
passively inhales the equivalent
of 10 cigarettes during an
eight-hour shift.
with the atmosphere of a room. The smallest can range from “gaseous
contaminants” at 0.001 micrometers and viruses at less than 0.01
micrometers to bacteria at 0.5-10.0, mold spores, which can grow as
large as 100 micrometers, and heavy dust, which can be big enough
to be visible.
The Health Bureau tested for 10 micrometers and 2.5
micrometers. The former (PM10, as it’s known) includes coarser stuff
like dirt, dust, mold, spores and pollen. Eleven casinos failed in this
category, all operated under the SJM concession. Three of them are
directly operated by SJM—Casino Lisboa, the monopoly era flagship
whose original structure dates back to 1970, Casino Oceanus and the
adjoining Casino Jai Alai. (Jai Alai has since closed for remodeling.)
PM2.5 is of greater concern because these smaller particles
are produced by toxic organic compounds and heavy metals—
tobacco smoke is a leading source—and because, being smaller,
they burrow deeper into the lungs. Researchers suggest that even
short-term exposure at elevated concentrations can significantly
contribute to heart disease. To get an idea of the risks a croupier
in Macau might encounter on a given day, it’s been estimated
that a bartender working around smokers passively inhales
the equivalent of 10 cigarettes during an eight-hour shift.
The American Medical Association associates PM2.5 with high
vascular inflammation and atherosclerosis, the cause of a range
of cardiovascular problems, including heart attacks. The World
Health Organization blames it for about 3% of deaths from
cardiopulmonary disease, about 5% of deaths from cancer of the
trachea, bronchus and lungs and about 1% of deaths from acute
respiratory infections in children under 5.
Smoking Bans — What We Know, What We Don’t
Where research has purported to turn up pronounced linkages
between gambling and smoking, psychologists refer to this as “comorbidity,” a problem with impulse control that heavy smokers, problem
gamblers and alcoholics share in common.
The American Gaming Association, the national lobbying arm of the US
casino industry, asserted some years back that in Nevada the proportion
of gamblers who smoked was as high as 70%, more than triple the rate
of the population at large. Academics disputed this, and probably it was
inordinately high. At the time the AGA was fighting an attempted statewide
smoking ban that ultimately was defeated.
Australia’s National Institute of Economic and Industry Research looked at
this back in 2003 when New South Wales, Victoria and other states were leading
the way for most of the world in eradicating smoking in public places. Their
analysis showed no difference between the proportion of smokers and nonsmokers who played machines games in Victoria. They did, however, find that
smokers gambled on average three times more per capita than non-smokers.
In a state whose smoking prevalence rate at the time was just over 20%, betting
and gambling operator Tattersalls determined that 36% of its gaming machine
players were smokers and they contributed 50% of revenues.
Where the linkage seems this clear-cut, smoking restrictions should
be readily quantifiable in visitation numbers and revenue results. Yet, this
hasn’t been the case. In fact, it has hardly been studied. Isle of Man-based
Global Betting and Gaming Consultants aimed to rectify this about six years
ago at a time when smoking bans were sweeping the European Union and
Scotland had banned it in its casinos and bingo halls and England and
Wales were soon to follow.
Their study found that in Australia and New Zealand and those US
casinos where smoking had been banned, gaming revenues initially
dropped between 10 and 20%. The effects tended to be more significant
where nearby markets offered smokers convenient alternatives, as they did
in Ontario, Canada, which competes with several casinos on the American
side of the border, and in US states such as Delaware, which is a couple hours’
drive from Atlantic City. Ontario’s decision to declare smoking off limits in
all enclosed public places in 2006 would cost it as much as C$500 million
in gaming tax a year, according to a forecast by the province’s Ministry of
Economic Development.
Conversely, GBGC found that spend eventually recovers, albeit
from a lower base. They cited the instance of a US poll in which 31%
of casino customers said they would visit more often if their favorite
gambling hall was smoke-free, compared with 11% who said they
would go elsewhere.
Singapore’s casinos provide special areas for non-smokers, as do others
in Asia, and the restaurants, shops and convention and entertainment
facilities in the two Singapore megaresorts must comply with the citystate’s no-smoking laws. Aside from this, no market in Asia outside Macau
has attempted to tackle the problem in a comprehensive way.
Late in 2012, there were investment analysts looking ahead to this
and predicting a fall-off of several percentage points of gaming revenue
in Macau. Instead, the first year in which the restrictions were in force saw
revenues surge almost 19%. Thirteen months in, February set a new monthly
record at $4.8 billion, an increase of 40.3% over February 2013. Through the
first two months of this year, gaming revenue is up almost 24%.
15
In Focus
China — Smoking Prevalence by Age and Gender
Male %
Female %
15 – 19
170.5
20 – 24
410.86
25 – 29
440.65
30 – 34
481.2
35 – 39
521.5
40 – 44
562.4
45 – 49
582.4
50 – 54
572.8
55 – 59
533.2
60 – 64
493.5
65 – 69
435.5
70 – 74
385.7
Source: “Smoking Prevalence and Cigarette Consumption in 187 Countries, 1980-2012,”
University of Washington Institute for Health Metrics and Evaluation
“The government doesn’t know the
difference between 50% of floor area
and 50% of gaming tables, and that’s
why we’re inhaling more cigarette
smoke. If they don’t use the number
of tables instead of floor areas for
measuring non-smoking areas,
the new rule should be scrapped,
otherwise we only suffer more.”
— Forefront of Macau Gaming
Eighteen properties failed for PM2.5. These were the Wynn/
Encore Macau complex, two of Galaxy’s City Clubs casinos and 15
properties affiliated with SJM: the Lisboa and the Oceanus/Jai Alai
complex, three slot venues (one of them since closed) and the rest
third-party operated.
Ms Leong, who has emerged as SJM’s voice on the smoking issue,
responded soon after the results were publicized, saying the company
would act quickly to make improvements. Which it did. In October,
the results of a second round of tests were released, showing failures
reduced to 16 properties market-wide. But Secretary for Social Affairs
and Culture Cheong U pronounced the results “unsatisfactory,” and the
Health Bureau ordered the offenders to submit plans to reduce their
approved smoking areas by 10%, as the rules prescribe. By the middle
In Focus
One million people will die in
China this year from tobaccorelated diseases. An estimated
100,000 of these deaths will
come from exposure to secondhand smoke, which will afflict
some 740 million non-smokers
on a daily basis. The World
Health Organization expects the
country’s tobacco-related deaths
to increase to 3 million over the
next generation.
of December, all of them had: five Mocha Clubs (two of which have
since closed under unrelated rules limiting gambling in residential
areas), eight SJM third-party satellites and Galaxy’s StarWorld.
At that point, the six concessionaires had already suggested
that providing gamblers with airport-style smoking rooms might
help and asked for permission to set them up. But, again, strangely,
the government appeared to be in no hurry to act and instead
referred the request to what Mr Cheong called a “cross-departmental
government team“ for deliberation. SJM went ahead and set one
up anyway at the Casino Crystal Palace, an aging two-story wing of
the old Lisboa. Ms Leong said the rooms might be added at other
properties.
Problem China
Across the border in China, 1 million people will die this year from
tobacco-related diseases. An estimated 100,000 of these deaths
will come from exposure to second-hand smoke, which will afflict
some 740 million non-smokers on a daily basis. The World Health
Organization expects the country’s tobacco-related deaths to
increase to 3 million over the next generation.
The central government has set itself the lofty goal of banning
indoor smoking in public areas by the end of this year, and to set an
example government officials have been told not to puff in public
places such as hospitals, public transport or schools while on duty.
Critics have their doubts. The Ministry of Health issued guidelines
three years ago prohibiting smoking in places like hotels and
restaurants only to have them routinely flouted because they aren’t
“strictly enforced,” according to Xinhua.
The Chinese Association on Tobacco Control notes that about
half the country’s 300 or so cities have ordinances restricting
smoking. Guangzhou, the capital of Macau’s neighboring province
of Guangdong—the casinos’ second-largest single feeder market
after Hong Kong—has one of the strictest. The deputy director of the
Standing Committee of the Guangzhou Municipal People’s Congress
saw the effects for himself when he showed up at the city’s main bus
17
In Focus
Fifteen government
departments are responsible
for enforcing Guangzhou’s
smoking restrictions. Since they
were introduced, more than
120,000 checks have been
conducted and more than 4,000
“rectification notices” issued. As
of January, in a city where it’s
estimated that more than one
in five adults smoke, only one
person and five companies have
been punished with fines.
terminal on an inspection tour last October to find people smoking
everywhere. With a flock of bureaucrats and journalists at his heels
he confronted one of the offenders, an elderly man, who promptly
offered him a cigarette.
Fifteen government departments are responsible for enforcing
Guangzhou’s restrictions. The staff involved totals more than 2,700.
Since the curbs were introduced 13 months ago, more than 120,000
checks have been conducted and more than 4,000 “rectification
notices” issued. As of January, in a city where it’s estimated that more
than one in five adults smoke, only one person and five companies
have been fined. To date these have totaled 26,550 yuan, or a little
over US$4,000.
In 2008, with an eye on its Summer Olympics image, Beijing
enacted a law requiring restaurants and bars to provide non-smoking
sections and set a goal to ban smoking in all indoor spaces by 2010.
Last year, with the games well back in the rearview mirror, the ban
was postponed to 2015. CATC says that in five years the law has not
resulted in a single fine.
Xinhua reports that the National Health and Family Commission
is now working on a law for all of China that spells out clear
punishments. But anti-smoking advocates contend that until
government breaks its dependence on the revenue from its own
tobacco conglomerate, enforcement will continue to be lax.
“China stands on its own in the magnitude of the problem,” said
“China stands on its own in the
magnitude of the problem. Unless
there is change in China, we won’t
proceed further in reducing the
tobacco epidemic in the world.”
— Dr Judith Mackay, senior advisor, World Lung Foundation
Dr Judith Mackay, the senior advisor to the World Lung Foundation.
“Unless there is change in China, we won’t proceed further in
reducing the tobacco epidemic in the world.”
The consequences are far-reaching, as she points out. “It’s a huge
economic problem. There’s all these things ranging from medical
and health care costs, the costs to the families, and there’s the cost of
second-hand smoke.”
All of which Macau and its people and those whose job it is to
promote their welfare have only begun to tally.
In Focus
19
COVER STORY
SJM’s vision for Cotai
—very French, very aspirational.
The Last Resort
Lisboa Palace won’t open until 2017 at the earliest
—the final splash of Cotai’s next wave—and it promises to be worth the wait
T
he company founded by Stanley Ho to take his gaming empire
forward in the post-monopoly era is still the best-known
among players and probably the most respected. But its Hong
Kong-listed stock consistently lags the competition in valuation, the
much smaller peninsula operations of Wynn Macau and MGM China
included. Sands China has outstripped it in terms of hotel rooms and
floor space. In February, the Sands juggernaut on Cotai dethroned
it from its longstanding position as the market leader in gaming
revenue.
“SJM’s only problem is it has only ever been a gaming company,”
says David Green, who heads Macau-based industry advisors
Newpage Consulting. “It is a company so ingrained in gaming,” as he
recently put it to Reuters, “that it could be a limiting factor.”
Ambrose So, a protégé of Stanley Ho’s going back more than
three decades and chief executive of SJM Holdings, the company’s
publicly traded parent, acknowledged as much in his remarks at a
ceremonial groundbreaking for Lisboa Palace on 13th February.
“Ten years back the main thing for [the customers] was really
gaming-centric. They just wanted to go to the casino and were glued
to the tables. We have seen there is a gradual change.”
COVER STORY
Change is what is driving the company’s thinking on Cotai. “We
are mindful,” Mr So said, “this is a new area we have come into in
which we compete with the other operators.”
So SJM has something to prove with the multibillion-dollar
Lisboa Palace, and it plans to do just that.
Grant Govertsen, a principal of Las Vegas-based boutique
brokerage Union Gaming Group and founder of the firm’s Macau
office, was among the numbers guys who came away from the
groundbreaking a fan.
“We believe that the Lisboa name has exceptionally high name
recognition with mainland visitors to Macau and should result in a
natural attraction to the site,” he stated in a client note issued the
same day. He would have been “disappointed,” he said, if SJM hadn’t
brought the brand to Cotai.
He likes the overall design, too, the fanciful recreation of a palace
in the grand style of Versailles—“certainly not the only new project
with a French theme being constructed on Cotai,” he wrote, but “We
think the theme resonates well with mainland consumers. Ultimately,
mainland consumers view Europe in general and France in specific as
very aspirational destinations.”
It doesn’t get any more aspirational for China’s nouveau riche
millions than Versace, and their participation as a hotel brand—a
270-room “Palazzo Versace” will be one of two six-star hotels at the
resort—is part of what stands the project apart from the rest of the
lavish competition that will already be up and running when Lisboa
Palace opens in 2017 as the last of the six new Cotai megaresorts.
Karl Lagerfeld is lending his cachet to the other ultra-luxe room
tower. The Karl Lagerfeld Hotel, containing around the same number
of rooms as Versace’s, is the famed Chanel designer’s first foray into
hospitality.
Plans for a third tower, SJM’s own “Lisboa Palace,” call for 1,450
five-star rooms.
Mass Market Share
2013
Jan ‘14
Sands China
29.7%
30.8%
Galaxy Entertainment
16.0%
15.7%
Wynn Macau
7.6%
7.0%
SJM
26.7%25.5%
Melco Crown
12.9%
MGM
7.0%7.9%
13.2%
Figures may not total 100% due to rounding
Source: DICJ, company data
Slot Market Share
2013Jan‘14
Sands China
31.2%
30.5%
12.2
11.8%
13.5
14.4%
Galaxy Entertainment
Wynn Macau
SJM
10.0%9.8%
Melco Crown
17.5%
MGM
15.5%15.5%
18.0%
Figures may not total 100% due to rounding
Source: DICJ, company data
The Bridal Pavilion reflects the core theme
of Lisboa Palace as a blend of Chinese and
classical Western architectural motifs.
21
COVER STORY
Change is what is driving SJM’s thinking about Lisboa Palace, which the
company hopes to expand by another 180,000 square meters with adjoining
land controlled by the youngest and last of Stanley Ho’s consorts, Angela
Leong, who is an executive director of SJM and a major shareholder. “We
are mindful,” said Chief Executive Ambrose So, “this is a new area we have
come into in which we compete with the other operators.”
In total the resort will encompass 521,000 square meters knit
together by rooftop gardens under a glowing dome that will be
visible inside and out. High-end retail covering 34,000 square
meters and a luxury spa, musts for a 21st century destination, will
help round out the offering. There will be swimming pools indoors
and out. SJM’s reputation for good food will be on ample display
(36,000 square meters of restaurant and entertainment space is
contemplated). A further romantic touch is planned in the form
of a “wedding pavilion” richly detailed with symbols (dragons,
the phoenix, the lotus) associated in Chinese lore with love and
marital harmony.
The design has been 18 months in the making, according to
architect Perry Brown, senior vice president of Southern California22 INSIDE ASIAN GAMING | March 2014
based WATG and the firm’s partner in charge of the project, which will
come together as a three-way collaboration involving also a sister
firm of WATG’s, Beverly Hills-based Wimberly Interiors.
The selection of WATG, creators of The Venetian Las Vegas and
Atlantis Paradise Island in the Bahamas, is emblematic of SJM’s
commitment to achieving what Mr Brown calls a “total experience”.
“It’s taking it to that next level,” he explains. “It’s what’s going to
make this a unique destination.”
WATG has designed resorts from Dubai to the Maldives, from
Palm Desert, Calif., to Orlando, Fla., from Uncasville, Conn., to Egypt’s
Red Sea coast, but few have been more satisfying for him as a work
in progress than this one. “SJM, they set the vision, they’re clear with
it, they continue to pursue it,” he says. “They respect the quality of
COVER STORY
It may be good public relations to expound the fact, as SJM does,
that it is the only operator with historical roots in south China. But
there is history to back it up.
Stanley Ho’s grandfather was a stepbrother of Sir Robert Ho Tung,
the Hong Kong businessman and philanthropist who financed the
Xinhai Revolution of Sun Yat Sen that established the Republic of
China. Sir Robert was one of the few Chinese to live on colonial Hong
Kong’s Victoria Peak and was twice knighted by British monarchs.
He founded a library in Macau on the site of a mansion where he’d
taken refuge when the Japanese invaded Hong Kong in the Second
World War.
Stanley Ho, was born in Hong Kong in 1921 and planned
to attend the University of Hong Kong on a scholarship, but his
education and his stay in his native city were similarly cut short by
the invasion. He also fled to Macau, where it’s reputed he made his
first fortune smuggling luxury goods to the mainland during the
war. One of his early partners in Sociedade de Turismo e Diversões
de Macau, the private company he founded in the early 1960s to run
Macau’s last casino monopoly, was Hong Kong tycoon Henry Fok,
a native of Guangzhou who had also fled the colony ahead of the
Japanese and who ran guns, steel and rubber to Mao’s China during
the Korean War. Renowned for his philanthropy, Mr Fok would serve
as vice chairman of the National Committee of the Chinese People’s
Political Consultative Conference. Prior to his death in Beijing in
2006 he was viewed by many as possibly the most powerful Hong
Konger in China politics. Since the handover, only three Hong Kong
citizens have had their caskets draped in the national flag. He was
one of them.
SJM will be wearing its patriotism on its sleeve on Cotai. This is
what Perry Brown refers to when he talks about the intensity of SJM’s
engagement with the look and feel of Lisboa Palace, whose faux Gallic
classicism will be informed by an aesthetic fancifully characterized as
“Chinoiserie” but which will at some level, indeed on several levels,
attempt to convey through its décor and via an attraction called
“A Fantasy World of Sino-Western Cultural Interchange” a sense of
Macau’s significance as the first and still one of the more profound
encounters between China and the West.
The company views itself as the guardian and promoter of a
heritage, and it continues to devote a portion of its considerable
resources to ensure the resorts it directly operates serve as
repositories of it. Ambrose So is an active patron of education and the
arts. He also is a noted practitioner of traditional Chinese calligraphy.
His work has graced a set of stamps issued by the Macau Post Office
and it’s been exhibited in collections in Hong Kong and as far away as
Princeton University and the US Library of Congress. It’s an everyday
thing in the lobby of the Grand Lisboa to see crowds of tourists from
the mainland snapping photos of the many fine examples of the
decorative arts displayed there, some of them genuine antiquities,
like the bronze horse’s head that Stanley Ho—the only living person
to have a street in Macau named after him—donated to the Chinese
government, part of a set of two he bought at foreign auction (the
other a pig’s head, now in Beijing) that formed a “water clock” of
sculptures from the Chinese zodiac looted by Anglo-French forces
when the Summer Palace of the Qing emperors in Beijing was razed
in the Second Opium War.
The groundbreaking ceremony was all about how China
influenced Europe (and vice versa) through the stylistic ethos of
chinoiserie. Macau’s Secretary of Finance and the Economy Francis
Tam was in attendance. The horse’s head was brought up from
the hotel lobby for the occasion. A scale model of the resort was
displayed for the press in a room at the Grand Lisboa decorated floor
to ceiling with paintings, reproductions and artifacts elaborating on
the theme, some on loan from the Macau Museum. Samples were
shown of the fabrics and treatments WATG and Wimberly will employ.
Guests were given an 18-page color brochure penned by historian
and academic Fok Kai Cheong, dean of the faculty of arts of Macau
Millennium College, where Mr So is an honorary professor and has
served as a chancellor. Professor Fok wrote of the planned “Fantasy
World” as something perceived by SJM—“the only indigenous
corporation representing both local and national interests”—as a
VIP Revenue Contribution to GRR is Trending Down
Macau Names Share Performance Since Jan 2013
design. They value it. That’s rare with clients. They really want to see
it through. We enjoy that.”
The Home Team
Melco
MGM
Galaxy
MPEL
Sands China
Wynn Macau
SJM
HSI
0% 50% 100%150% 200%
Source: DICJ, Morgan Stanley Research
Source: Bloomberg
23
COVER STORY
civic responsibility, “to extend [China’s] global influence through
cross-cultural communication by demonstrating to the world the
excellence of China’s cultural achievements in the past”.
This “historical art movement,” as Mr Brown terms it, is “the
unique overlay” to Lisboa Palace, and it was developed, he says, “at
the urging of the SJM executive group”.
“That,” he emphasizes, “is what the guest will experience.”
Same-Store Blues
How all this translates into revenue is subject to calculations of an
altogether different nature.
“Obviously what drives all these properties at the end of the day
isn’t the look, it is the demand to play baccarat,” says analyst Philip
Tulk of Standard Chartered in Hong Kong.
In line with the government’s desire to promote Macau as an
all-around destination, gaming will occupy only about 10% of the
public space at Lisboa Palace, as SJM reckons it. Plans call for a casino
of 27,000 square meters the company wants to stock with as many
as 700 table games. It’s not going to get them all. The government’s
cap on new tables of 3% a year through the expiration of the current
concessions precludes it. The other five resorts opening on Cotai
between now and 2016 will deal with the same constraint.
Morgan Stanley’s Praveen Choudhary, for one, is “concerned
about SJM getting a proportionate number of tables to help maintain
the return profile,” especially if the company follows through with
plans to expand the resort by another 180,000 square meters with
adjoining land controlled by the youngest and last of Stanley Ho’s
Karl Lagerfeld is lending his cachet
to the other ultra-luxe room
tower. The Karl Lagerfeld Hotel,
containing around the same
number of rooms as Versace’s, is
the famed Chanel designer’s first
foray into hospitality.
(From left) Frank McFadden, president, Joint Ventures & Business Developments of SJM; Veronica Chou, director of KARL LAGERFELD GREATER CHINA;
Karl Lagerfeld; Angela Leong, managing director of SJM;. Louis Ng, director and chief operating officer of SJM; and Pier Paolo Righi, CEO and president of
KARL LAGERFELD Group BV.
COVER STORY
consorts, Angela Leong, who is an executive director of SJM and
a major shareholder. However, only about half her parcel actually
has been gazetted (officially approved, that is) for commercial
purposes, and this may be complicating the negotiations to unite
them, which no doubt have involved the government. The half
that has been gazetted is not zoned for gaming. Mr Tam, moreover,
has said there will be no more approvals for large-scale casino
development. Grant Govertsen of Union Gaming Research Macau
expects the site will add a “significant amount of non-gaming
amenities” that could include “many thousands of hotel rooms,
entertainment, etc.” Mr Choudhary, writing on the day of the
groundbreaking, said it could amount to another HK$30 billion in
capex, which, as he notes, certainly would put pressure on returns
in the absence of a gaming element.
The cap anticipates around 1,900 new tables in the market
through 2023, or about 325 per concessionaire. Mr Tulk is not alone
in believing this will be exceeded well before that date. He projects
an average closer to 400-425, augmented by “bonus allocations” the
government will conjure as a reward for investments in non-gaming.
Mr Choudhary uses 300 tables at Lisboa Palace to value an
additional HK$4.40 per SJM share (HKSE: 0880) into his forward price
target. Mr Tulk values in $5.80. It works out to only 20.9% of his target
price, way less than the impact he assigns the Galaxy Macau Phase
2 and Studio City openings, which are much nearer on the horizon.
He’s skeptical of the 2017 opening date, for one thing. “I think it’s
quite reasonable that it might not open until 2018,” he says. “That’s
quite a long ways off.”
He’s not impressed with the location either, noting that it lies
outside the radius of the city’s Light Rail as currently planned—
although it’s possible that could change—and rather distant, in his
view, both from Wynn Palace, which will be the closest resort, and
the main Cotai action.
“It’s not that easy to get to,” he says.
Investors are more concerned near- to mid-term on the prospects
of SJM’s existing operations, capacity constraints having emerged as
perhaps the biggest issue, particularly as Cotai continues to ramp up
for Melco Crown and Sands.
SJM enjoyed a 25% surge in share price toward the end of
2013—impressive but well below the competition, which doubled
on average. After a year in which it led the market in gaming revenue
its share price entered 2014 trailing the median by triple digits,
the multiples it commanded both in terms of price/earnings and
enterprise value/EBITDA the lowest of its peers.
“A lack of space at core properties and an insufficient number of
hotel rooms make it hard for SJM to compete for new business,” Mr
Tulk wrote in a December note to investors.
It doesn’t get any more aspirational for China’s nouveau
riche millions than Versace, and their participation as a hotel
brand—a 270-room “Palazzo Versace” will be one of two six-star
hotels at the resort—is part of what stands the project apart from
the rest of the lavish competition that will already be up and
running when Lisboa Palace opens in 2017.
25
COVER STORY
VIP Rolling Chip Turnover (MOP millions)
Sands China
1Q13
2Q13
3Q 13
4Q 13Market Share
Jan. ‘14
278,177281,231288,997 329,963 15.6% 80,995
Galaxy Entertainment 340,374361,349378,831 439,492 20.1%126,623
Wynn Macau
203,923219,429220,112 250,519 11.8% 69,840
SJM
487,042489,348520,472 589,094 27.7%158,887
Melco Crown
256,304259,932228,171 247,965 13.7% 63,991
MGM
193,303207,963209,202 244,375 11.2% 62,669
Figures may not total 100% due to rounding | Source: DICJ, company data
It may be good public relations to
expound the fact, as SJM does,
that it is the only operator with
historical roots in Macau and
south China. But there is history to
back it up. The company views
itself as a guardian and promoter
of a heritage, and it continues
to devote a portion of its
considerable resources to ensure
the resorts it directly operates
serve as repositories of it.
As a consequence the company has become overly reliant, in his
view, on cash rebates to lure higher-spending play to its mass-market
tables, the prized segment known as “premium-mass,” a strategy that
he sees knocking margins around by 12-15% compared with nonrebated premium mass.
He expects management will be punching away with changes
this year to Grand Lisboa’s mezzanine area involving the addition of
more premium-mass tables (and less VIP). It’s also possible they could
take back the remaining 80 tables from the company’s troubled Greek
Mythology satellite on Taipa island, although he wonders whether
there is enough space to “usefully” employ them. He notes as another
positive the reopening of the company’s directly operated Casino Jai
Alai (with 170 new hotel rooms) later this year.
A lot could depend on VIP. It’s the heart of SJM’s business, but
it continues to weaken market-wide relative to mass. The fourth
quarter of 2013 was the 10th in a row in which VIP revenue had
fallen as a proportion of the whole. Not surprisingly, the number of
mass tables has grown sequentially throughout this period while
VIP’s have remained roughly unchanged. In January, a month when
SJM once again led all comers in rolling chip volume, VIP revenue
market-wide dipped 1% year on year. SJM’s share fell by 0.8%,
mainly on poor luck. The sector’s 60.6% of the market was its lowest
share ever.
“In 2014, we see risk rising with limited new supply, tightening
liquidity, and competition from premium mass,” Mr Choudhary
wrote on 24th February, two days before SJM released its results
for the fourth quarter, in which the company would report a
significant increase in EBITDA of 23% for the three months ended
31st December on a 13% increase in gaming revenue to HK$23.7
billion, which was below the market’s +19%. “We believe the outlook
for SJM remains positive,” Mr Govertsen responded in a client note,
“and especially so at its flagship Grand Lisboa property, which we are
currently modeling to grow GGR during 2014 at slightly under our
market-wide growth rate.”
Mr Tulk is bullish on Macau, forecasting growth of 16.7% versus
current consensus of 15%, but he has SJM trailing the market by about
two percentage points. He expects the company will underperform
both in VIP (+11.2% versus +11.5% for the market) and mass tables
(+22.5% versus a market-wide +30%).
As he states it, “They have much lower EBITDA margins. They have
much less control over their operations because half their revenue
goes through third-party operations. Their multiple today reflects
COVER STORY
“A lack of space at core properties and an insufficient number of
hotel rooms make it hard for SJM to compete for new business,” says
Standard Chartered analyst Phlip Tulk, with the result that the company
has become overly reliant, in his view, on cash rebates to lure higherspending play to its mass-market tables, the prized segment known as
“premium-mass,” a strategy that he sees knocking margins around by
12-15% compared with non-rebated premium mass.
what’s going to happen tomorrow, and that includes Cotai. But
Cotai is like four, five years away for these guys instead of one year
for Galaxy, one and a half years away for Melco, and so on. It reflects
all these things. It also reflects growth, that slower growth profile.
They’re growing, but they’re not growing as fast as the market.”
Writing last month, Mr Choudhary took the converse view that
investors should “overweight” on the shares: “We believe SJM is a
value play on the Macau sector, which is growing at a very healthy
rate driven by strong demand from mainland and benefits from
oligopoly. … With the Cotai project expected to start construction in
1Q14, stronger 4Q13 QoQ, moving 30 tables to Grand Lisboa (1H14),
opening of Jai Alai hotel (by November 2014) and valuation discount
versus peers, the stock price should move higher this year.”
Analyst Kenneth Fong, writing for J.P. Morgan on the day of the
groundbreaking, wondered if the ceremony later that day “may
redirect market attention back to this underperforming name”.
It didn’t.
The stock has been trading, at any rate, at the upper range of
its 52-week high of HK$28. The release of Q4’s results saw volume
almost double at one point (on 27th February, the price jumped 2.4%
before closing roughly at where it opened). Heading into March it
was up all of 2.8% since Lisboa Palace was unveiled.
27
FEATURE
Born of Consolidation
Tom Nugent, Crane Payment Innovations’ president of Gaming and Retail,
extols the virtues of being bigger and broader in the automated payment systems field
Crane Payment Innovations held a launch event at last month’s ICE Totally Gaming expo.
L
ast month’s ICE Totally Gaming expo
in London witnessed the launch of a
new brand promising the industry’s
most comprehensive portfolio of cash
management solutions for gaming, financial,
retail, transport and vending markets.
Crane Payment Innovations, or CPI, was
born of the recent acquisition of MEI by
Crane Co., consolidating the note and coin
products offered by MEI and Conlux, as
well as Crane Payment Solutions’ Cashcode,
Money Controls, NRI and Telequip brands.
“The MEI side is predominantly cash,
currency, physical bills and notes, while
CPS is primarily coin products,” explains
Tom Nugent, CPI’s new president of Gaming
and Retail—the position he formerly held
at MEI. “By bringing those together, we’re
able to offer our customers a portfolio of
technologies and service all of their needs.”
“The combined knowledge of CPI
allows us to offer customers the personnel,
experience and products to find solutions
that impact the bottom line,” adds Mr.
Nugent. “And, ultimately, that is how we
should be measured. We aspire to set a new
standard—driving transaction, asset and
maintenance efficiencies into customers’
operations.”
While mergers inevitably lead to
speculation about removal of duplicate
product lines across the two companies
involved, Mr Nugent stresses that CPI’s
inclination is to maintain a diversity of
offerings. “We know there are some minor
overlaps and we will take a hard look at
that, but our mantra is ‘customers first; no
customer left behind.’ So if somebody is
enjoying a certain technology the last thing
we want to do is take away something
that works for their business. We put in a
lot of effort to make sure our customers
are satisfied with the technologies we’re
bringing.”
The new entity will enjoy expanded
capabilities, according to Mr Nugent.
“My engineering team grows by 40%.
Now we have the ability to develop new
technologies together whereas perhaps we
were previously both developing competing
similar technologies. We’ll also have more
capability on the sales side and the tech
support side—the way we interface with our
customers. We’re just broader and stronger.”
Whereas MEI was previously owned by
private equity firms, “Now being owned by a
public company and one that’s aggressively
investing in this space is very exciting for
us,” adds Mr Nugent. “If you look at what
Crane has done and how many acquisitions
FEATURE
“My engineering team grows by 40%. Now we
have the ability to develop new technologies
together whereas perhaps we were
previously both developing competing similar
technologies. We’ll also have more capability
on the sales side and the tech support side—
the way we interface with our customers.
We’re just broader and stronger.”
Tom Nugent, Crane Payment Innovations’ president of Gaming and Retail
they’ve made since 2006—this is the fourth
one in this space—to have an owner that’s
so committed to that space and willing
to invest in it is incredibly exciting for the
future.”
The merger will obviously add up to
certain cost savings as well. “There are some
redundancies,” acknowledges Mr Nugent.
“There’s also the supply chain where we’re
both buying technologies or materials, so
now we have as a bigger company the ability
to leverage our supply chain and leverage
our capabilities in different locations.
“Another thing is Crane and MEI both
have physical offices in some places. In Las
Vegas we have two different physical offices
three miles apart. [In January] we brought
those together. We’re doing the same thing
in other locations. Australia is next. That
gives you one location, you reduce some
costs associated with that and bring the
families together.”
Long Time Coming
The completion of the acquisition has
been 24 months in the making from when
MEI began to look for options for future
development, which led to it forging a
relationship with Crane Co. Although Crane
had originally announced its intent to
acquire MEI on 12th December 2012, the
process was held back by the European
Commission’s request that two CPS
products first be divested in order to avoid
the formation of monopolies following the
merger. Neither of the divested products
were in gaming.
Although Mr Nugent is excited about
what CPI will be able to offer customers, he
The new SCR note recycler joins the SC Advance
note acceptor and EASITRAX Soft Count in MEI’s
portfolio of cash management solutions.
points out, “Our challenge, in the immediate
future, is to temper the enthusiasm of what
can be with the realism of what needs
to happen to provide the level of service
customers have associated with these
brands.”
It’s a work in progress, and the new entity
will begin to take shape as corporate and
customer-facing functions are consolidated.
CPI emphasizes that until core functions can
be assimilated in a manner that is seamless
to customers, it intends to have CPS and MEI
act as separate companies in a “business as
usual” state.
In Asia, the MEI and CPS brands have
distinct followings. “MEI does very well
in Macau on the traditional casino side,
whereas in Australia, where there’s still a
lot of coins usage, you have a lot of Crane
influence there,” says Mr Nugent, adding,
“And in the Philippines, Crane has a presence
in the bingo markets while MEI has the
casino presence. So we’re able now to
service customers however they grow.”
Meanwhile, MEI has been growing share
in several key Asian jurisdictions, notably
Macau, “where it used to be a one-competitor
market; now it’s a two-competitor market.
And that’s good for our customers because
they have a choice, versus in the old days
when it was just the other guy.”
“Asia remains a very important market
for us,” continues Mr Nugent. “I spend quite
a bit of time there and we have local teams
in each of the countries. We know that
Asian gaming continues to grow. We will
continue to put additional resources there
and look forward to all the new exciting
developments.”
29
COVER STORY
31
Insights
Sporting Chance
Sports betting is becoming a mainstream investment opportunity,
and one Australian company is at the forefront
B
rendan Poots is the founder and CEO of Priomha Capital, the
world’s first fund manager centered on sports and events. The
Australian, a keen sportsman himself, has overseen booming
returns far in excess of more traditional funds. He spoke with Inside
Asian Gaming about the genesis of Priomha, his methods and the
future of the market.
IAG: It seems the media has been paying more attention recently
to sports betting, both in a positive and negative manner. Is the
extra attention affecting Priomha?
Mr Poots: There are two sides to it. Unfortunately, sports betting still
struggles with a stigma—it’s dirty, underground, old men with crusty
beards smoking cigarettes trying to win $5, but it’s very different
to that now. We’re always trying to defend the new side. With
advancements in technology and global broadcast rights of sport it
is a very different landscape than even 10 years ago. The fact that
there’s more happening is raising it in people’s consciousness, which
is a positive. Even so, if in the financial markets someone like Madoff
has a Ponzi scheme, people brush it off as a one-off and the world
still turns, but in sports betting people think that all the time and the
industry is disproportionately tainted.
Have you found that investors take a gambling fund seriously?
Yes, investors do. We started informally about six years ago with me
funding it while I was working. The original investors were interested
because of their interest in sports. As part of our transparency,
investors can see the bets made on a team or player beforehand,
except for any opportunistic in-match betting, for which they get
updates—for example, we were giving people updates every day in
the first cricket Test between Australia and South Africa. The original
investors liked the idea of having their money invested professionally
while still being able to “cheer” on a result.
Over the last two years, sentiment has gone from looking for
a good bet to looking for a solid return that is uncorrelated to all
other global markets. We’re now being seen as a viable alternative to
flagging stock portfolios, property, etc. We’re increasingly being seen
as a more mainstream alternative investment class, taking bigger
investments and being looked at more seriously. I thought originally
it’d be just people in our network, now people we’ve never met are
investing hundreds of thousands.
What led you to launch Priomha?
I studied chemical engineering, so I had a maths and quantitative
“We’re now being seen as a
viable alternative to flagging stock
portfolios, property, etc. We’re
increasingly being seen as a more
mainstream alternative investment
class, taking bigger investments and
being looked at more seriously.”
background, then after uni I played cricket in England for four years.
And I always liked a bet. In county cricket the overseas pro player is
always funded by a wealthy person connected to the club. The guy
who funded me was a bookie. I worked sometimes in the bookie
shop and started seeing the amounts of money laid out on sport.
Fast forward to 2007 and I studied at Columbia University in New
York—we were taught about trading securities, oil, gas, etc. I got
bored of that, mainly because of the underlying asset, but thought
that I could use the same principles trading in sport, so toward the
end of 2007 I started by trading $20,000 of my own money in sport.
In 2009 I was made redundant post-GFC and decided that rather than
dusting off my CV and looking for a job in a bad economic climate I’d
trade sport full time.
Insights
Towards the end of 2009 a conversation with my father changed
things irrevocably and convinced me of the merits of a Sports Hedge
Fund. I took out a 15-leg sporting multi—I had about $3,000 to
win about $40,000. It was the last leg, I’d got the first 14, and the
Wallabies (Australian rugby team) were playing Scotland. I was on
the Wallabies, and they lost 9-8 after they missed many kicks for goal
and played very poorly. It was the first time that Scotland had beaten
Australia in almost 30 years! I said to my dad that I’d lost my $3,000,
and he said no, you’ve lost $40,000—all you had to do was lay off and
you would’ve had it.
The hedge fund was born, and in 2010 I started looking for
outside investors who believed in the concept. I applied my skills and
knowledge from business school like risk management and portfolio
management to sporting markets.
The most important thing needed now in terms of attracting
investors is education. The biggest change in the last ten years
is in-play betting. Sports betting used to have a binary outcome,
now you can take a position every minute in football, every ball in
cricket. You can invest during a horse race. Odds fluctuate during a
match, so you can trade the curve of a team like trading the curve
of gold or a stock. Multis allow you to hedge a lot more. What
happened on that cold night in Scotland in November 2009 will
never happen again.
How long did it take to develop the initial database?
The first one we built was for horse racing. We started with 20
variables and kept monitoring and adding. You can write programs
to scrape data from the Internet, which we outsource to computer
science people—the difficulty is deciding which variables matter.
For example, in a Test match in cricket, there are factors to be
considered like batting first versus second, winning the toss and
putting the other side in to bat, etc. All of that needs to be weighted.
Data is just a commodity; it’s how you use it that’s important. Every
innings, every ball goes into our database and is updated live—
player stats as well, like a batsman faced X amount of balls from a
right-handed bowler and X from a left-handed bowler. All that is
automated, it’s just data extraction. One good thing about sport
is there’s so much data. The most time-consuming thing is getting
it into a format you can understand and then determining which
pieces are worthwhile.
The initial database for any sport takes a couple of months.
Thereafter it’s a “living thing”, being forever updated. Developing a
predictive algorithm takes longer. Firstly it gets back-tested against
previous results, testing hypotheses and variables. Once that’s
completed it’s then tested “live” with actual stakes—albeit small. At
some point thereafter—12 months or so—it’s then considered ready
for primary trading. The algorithms are forever monitored for efficacy
and changed when needed. It’s an ongoing process but the insights
are what help to identify trading opportunities.
A good example was in the recent first cricket Test between
Australia and South Africa at Centurion. (Australian captain) Michael
Clarke declared the second innings closed and left South Africa 480+
runs to win (instead of batting on and leaving a bigger target). South
Africa went immediately from $44 to $7. We knew Clarke would
declare—he’s an attacking captain. We could back South Africa at
$44 and lay off at $7. This clearly showed some of the inefficiencies
in the sports markets.
The market rated South Africa at $7—a one in seven chance of
winning, or alternately a 14% chance. Our model rated South Africa’s
probability of winning at less than 0.5%, or in terms of odds $200+.
No team had ever scored that many to win, the wicket was very
difficult for batting and Mitchell Johnson was bowling well. The latter
two points were judgment or intuitive assessments that the model
doesn’t assess.
With such a significant edge on the market, we opened a
maximum position (3% FUM total exposure) by betting against a
South African victory. South Africa were very quickly in trouble, never
“The biggest change in
the last ten years is in-play
betting. Sports betting used
to have a binary outcome,
now you can take a
position every minute
in football, every ball in
cricket. You can invest
during a horse race. Odds
fluctuate during a match,
so you can trade the curve
of a team like trading the
curve of gold or a stock.”
33
Insights
Do those high returns necessitate a very high capital churn rate?
We try and turn over the fund once to twice a month—we’re
still improving and optimizing that, but of course it’ll depend on
opportunities that arise.
Pari-mutuel & exchange betting, of course, is about winning
money from other bettors. There are differences of opinion over
how well educated casual bettors are. What’s your position?
“We strongly hold a belief in ensuring
there’s a human component to
trading, because there’s a lot of
emotional money—if you can be
unemotional there’s money around
that is there for the taking.”
recovered, lost the match and the trade paid out in full without the
need to hedge our position.
We strongly hold a belief in ensuring there’s a human component
to trading, because there’s a lot of emotional money—if you can
be unemotional there’s money around that is there for the taking.
Additionally, as per the recent Test match it’s difficult to model
factors such as momentum, or specifically a player’s dominance over
others psychologically. In the stock market, if you’re looking to trade
momentum you can see momentum in buy or sell orders, but in a
sports match you can feel it but not model that element, so it needs
a human component. We use 85% statistics and 15% judgment—
that’s the target for all sports. It used to be more like 50-50 when we
had a less developed database.
How has your performance compared to other quants or hedge
funds?
It has blitzed them. Over the last four years we’ve returned +180%. The
global hedge fund index since 2010 is up less than 6%, about the same
as the Australian stock market. During that time we’ve also had fewer
negative months than hedge funds and the ASX. We’ve been steadily
going up, despite most people’s preconceived ideas and expectations
of the sports betting market. Importantly our volatility is lower than
those of our comparative indices. This is a function of in-play trading:
you no longer lose 100% of your stake because it’s not a binary
outcome anymore—you can get out and lose “only” 30%, not 100%.
It depends. Bettors are more educated now because there’s more
info available. If you look at big events like the Melbourne Cup, with
once a year punters, it’s easy as there’s a lot of uneducated money
contributing to the markets. However, most punters bet regularly
and are better informed. So they’re more educated, but they’re not
necessarily more disciplined or sophisticated. Money management
and identifying value are two keys to long-term success. For example,
as a casual punter, if you think something can win you’ll back it even
at short odds, but a sophisticated or disciplined punter will wait till
it gets to its “correct” price. Casuals might bet every race; smarter
punters might only have two to three a week.
Stick to your model, be disciplined or you’ll lose money is the idea.
More money is predicted to flow into sports betting in the
coming years. Are you noticing more formalized competition
because of this?
No, not really. There are lots of syndicates betting. In May 2013, there
was a policy push for Vegas to open up to private equity funds as
well as individuals. It was knocked back as it was put in too late, but
it comes back up for review next year. There’s a growing momentum
for sports betting in the US, and I think it’ll open up. Currently a lot
of sports betting is under the table as it’s illegal—it’s only legal in
“Over the last four years we’ve
returned +180%. The global
hedge fund index since 2010 is up
less than 6%.”
Insights
The value of
online betting
Mr Poots in his Melbourne CBD office
“One reason we’re looking to leave Australia is that in some ways
it’s not a good place to be,” says Brendan Poots, founder and CEO
of Priomha Capital. “When a game’s on, in-play trades have to be by
phone—they can’t be done online. For example, in the 2013 FA Cup
quarter final, Wigan played Everton at Everton. We bet against Wigan.
Our strategy in general is that if a game is 0-0 after 30 minutes we’ll
exit the trade if we’re not in the money, as it was that day. So we were
watching and got on the phone to exit, then while we were repeating
the spelling of our account name, Wigan scored. Markets tend to go
crazy after a goal, so we said we’d call back in a few minutes—then
Wigan scored three goals in two minutes, which is of course very
unusual, but in this instance very costly.
“If we could’ve pressed a button we would’ve exited with a small
profit. As it was, we lost the whole stake. Even in New Zealand that
wouldn’t have been a problem, Macau, the UK, they’re all good,
but not in Australia. We don’t want those risks, especially as we get
bigger.”
a few states. So the government can’t tax it, and they’re looking to
legalize it and get a cut. If that happens, US sports—and bettors who
love betting on them and overseas sports—will come in, and that’s a
US$300 billion a year market.
You have mentioned taking Priomha overseas from its Australian
base as one change. How do you expect the company to look in
five years?
Yes, and there are a couple of reasons for that. One, Australia was
always viewed as the place to trial the business; proof of concept,
if you like. It’s also easier financially—it’s home. We’ve proved
it works; we’re getting momentum and a track record and now
looking to Asia, Europe and North America. It’ll be exactly what
we’ve got now but replicated in other regions. We’ll have traders,
analysts—who might specialize in one sport—and computer
guys doing data. The computer guys may be in one area, but
ideally we’ll have four offices and about 15-20 staff including
subcontracted specialists.
So it’s quite lean.
Yes. Even hedge funds that have a billion dollars under management
may only have five or six key trading or analysis people involved.
Again, once the data’s gathered and the algorithms are written, the
hardest part is over. A hundred-dollar trade takes the same effort as
a million-dollar trade.
“If sports betting is legalized in the
US, US sports—and bettors who
love betting on them and overseas
sports—will come in, and that’s a
US$300 billion a year market.”
35
FEATURE
Off to a Flailing Start
Growing pains are evident in New Jersey’s Internet gaming launch,
but the case for a sizable market still holds
By Charles Anderer
Y
ou knew this wasn’t going to be easy.
New Jersey’s Internet gaming launch—on which ride the
hopes of Atlantic City in particular and the growth of US brickand-mortar interactive gaming businesses generally—was marred
by technical glitches, so-so marketing and weak revenue results. With
all of that, the apparent strength of poker as a complimentary online
business and the large numbers of sign-ups was enough to support
the case for significant, statewide annual revenue projections that
most place in the US$400 million to $500 million range.
All told, online gaming accounted for $9.46 million in January,
a 28% increase from December, the first full month residents and
visitors could play online in the state. Borgata garnered the largest
share, capturing 41% of the market with $3.9 milllion in revenue,
followed by Caesars Entertainment with $3 million. The leading
operator captured slightly more revenue from poker than from
online casino games, which was one of many surprises, more bad
than good.
“It’s definitely disappointing,” Christopher Jones, managing
director-senior gaming and lodging analyst at Telsey Advisory
Group, said of the results. He talked to bwin, the partner for Boyd
and Borgata, which characterized the challenges of the first month
as threefold: continued issues with geolocation software; an inability
to transfer funds; and the lack of a mobile wagering application that
is actually viable.
FEATURE
On the plus side of the ledger, there were 200,000 sign-ups
registered from opening day in late November through the end of
January (though it is unknown how many are duplicates); online
poker revenue almost equaled live poker revenue; and payments
processing was relatively smooth. “There haven’t been reports of
major problems,” said Fred Gushin, managing director, Spectrum
Gaming Group, in a webinar called, “Lessons Learned in Online
Gaming,” conducted in January. Several transactions were not
accepted by the issuing banks, but according to Mr Gushin, “Over
time, as more states legalize Internet gaming, they’ll be able to
synchronize these types of payments with the banking system in the
US and it will become a lesser problem.”
“Everybody needs to take into consideration that this industry is
in its infancy,”Tropicana President Tony Rodio told The Associated Press
early this year when announcing his property’s online partnership
with Virgin Group and Gamesys. “There will be mobile applications,
and a lot of the slot content isn’t operational yet.”
Technical Difficulties, Emerging Upsides
Clearly, it will help to be patient. Chat rooms abounded with
tales of players being cut off from sessions in mid-hand. “For bwin,
their mobile application today only works when you’re connected
to the Internet, which kind of defeats the whole purpose of mobile,”
said Mr Jones. “The conversations we’ve had about Caesars’ mobile
application is that it’s borderline unusable. When I think about the
younger generation, there are people out there who just have an
iPad or an iPhone. You need a mobile application for it to work an
HTML 5 option as well. These are just growing pains but they have to
be fixed in order for it to work.”
Mr Jones noted that there’s a requirement in the software that
needs to check your location every couple of minutes, so it recycles
whatever functionality the app is engaged in and instability can
result. “It might be an issue with the software but, then again, it
might be that there’s no consistency in the device that is being used,“
said Mr Jones, who added that compliance issues might be playing
into the problem as well. “The operators have been physically going
through some of the border areas of New Jersey. When you sign
up, they will tell you if you are within a mile or two of the border
that’s a gray area and they can’t guarantee that you’ll be able to get
consistent service or if you’ll be able to log in at all. I think that comes
from state regulators taking a very hard line about accidentally
allowing someone from a neighboring state to log into your online
gaming site. New York is obviously easy because you have a giant
river as a border, but for the Pennsylvania state line it’s a little more
challenging.”
That said, “mobile is going to be the upside surprise here,” said
Mr Jones, simply because there’s a massive transient community that
goes through New Jersey, such as the people who take the Northeast
Corridor Amtrak trains between New York City and Philadelphia each
day. Newark Airport is one of the busiest airports in the world. There’s
also a lot of commuter traffic in New Jersey, and the Jersey Shore is
a very popular summer destination. “People rent a house for a week
and then another group comes in,” noted Mr Jones. “There are a lot of
positives that will drive New Jersey’s online gaming; they just have to
get through the growing pains.”
Mr Jones also found it remarkable how poker outperformed
online gaming, running counter to conventional wisdom coming
“What is fairly clear in the early
days is that there’s much more
interest initially in poker than in
some of the online games. That
gives some support for the thought
that poker is likely to be the driver
and it doesn’t cannibalize existing
business.”
Dennis Ehling, attorney, Blank Rome
from the European online gaming experience. “One possibility is
that there are already a number of players who understand how
to play online poker, whether they used to do it before Black Friday
and/or kept playing, now there’s a legal and easy way to do it and you
had a huge adoption rate,” he said. “You got up to good numbers of
players very fast at bwin; Party Poker is one of the most recognizable
games in online poker. On the casino games front, there may be a bit
of technology mistrust from a generational perspective. At the same
time, bwin and Borgata were the only ones running it the whole time
using IGT content. Caesars isn’t using branded content; I believe
they’re trying to use some of their own content and I personally think
that’s a very significant mistake.”
Another area of disappointment for many observers was the initial
marketing, which didn’t make it clear that transients in New Jersey are
even eligible to gamble online. “We haven’t seen the marketing blitz
that was expected yet,” said Mr Jones. “Sports team sponsorships, ads
in airports, trains stations, you will see ads there. The ads have been
generally weak about being explicit about what’s going on.”
37
FEATURE
Chat rooms abounded
with tales of players
being cut off from
sessions in mid-hand.
“For bwin, their mobile
application today only
works when you’re
connected to the
Internet, which kind
of defeats the whole
purpose of mobile,”
said Christopher Jones,
managing directorsenior gaming and
lodging analyst at Telsey
Advisory Group.
The Early Implications
It’s wise not to overstate the importance of one state’s opening
month Internet gaming numbers; but neither should they be
minimized because, in point of fact, a lot of people are looking at
New Jersey right now.
“I don’t think you can ignore it,” said Mr Jones. “A lot of things need
to be done; a lot of heavy lifting. If development costs all of a sudden
start to spiral well into the seven figures, it’s a surprise for people
who thought this was going to be a minimal capital investment and,
when they wake up, they were just going to have this nice little cash
flow generator. I don’t think that’s the case. It’s going to take a little
more capital investment. Seasoned operators have been saying from
day one it would be a long haul.”
The New Jersey effect could be felt as far away as California,
for instance, where industry actors are keeping a close eye on
developments, said Dennis Ehling, an attorney with the Los Angeles
office of Blank Rome.
“There are a lot of people out here paying attention,” said Mr
Ehling. “The headaches that go with a launch like that and the
revenue report… while it’s still early we haven’t quite seen the
explosion yet, so that gives some people pause. On the other
hand, what is fairly clear in the early days is that there’s much
more interest initially in poker than in some of the online games.
That gives some support for the thought that poker is likely to be
the driver and it doesn’t cannibalize existing business. So that can
help to assuage fears that make some of the tribal governments
that spent a lot of money building out their brick-and-mortar
facilities hesitant.”
Mr Ehling believes that Internet gaming legislation in California
is a 2015 proposition as this year is an election year and two bills that
were introduced in the current legislative session have yet to make
it out of committee. Sen. Lou Correa’s bill, which had the support of
several high-profile tribes, including Pechanga, is a poker-only bill.
“I don’t see anything going anywhere without tribal support and
I don’t see the tribes comfortable with anything but poker,” said Mr
Ehling. The early returns from New Jersey will only strengthen that
view.
Beyond the election-year issue, the absence of an immediate
fiscal crisis could retard legislation in California as well. “The fiscal
FEATURE
Another area of disappointment
for many observers was the initial
marketing, which didn’t make it clear
that transients in New Jersey are even
eligible to gamble online.
problem that was driving a lot of the arguments in favor of Internet
gaming licensing have subsided, at least a little,” said Mr Ehling. “It’s
not nearly as pressing, so this issue is not going to move to the top
of the agenda. Even within the tribal nations, there has not yet been
unanimity that Internet gaming is a good idea.”
Mr Gushin, who cited Pennsylvania and Colorado as states where
legislation could happen in 2014, sees state lotteries and tribes
getting in the game this year, regardless how New Jersey unfolds.
“We can’t forget state lotteries because many are contemplating
going into the Internet gaming field,” he said. “This is going to be
extremely interesting as casino licensees on the one hand and state
It’s wise not to overstate
the importance of one
state’s opening month
Internet gaming numbers;
but neither should they
be minimized because,
in point of fact, a lot of
people are looking at New
Jersey right now.
lotteries on the other hand get involved in Internet gaming. Lotteries
are the marketing arm for gaming for state governments. They have
played a very active role in marketing over the years and they are
prepared to move into Internet gaming. They enjoy high awareness
levels in the states and generate a lot of revenue for them and they
are very well-positioned to enter the online market along with casino
licensees. It’s going to be interesting, where there are casinos and
lotteries in the same state, whether Internet gaming will fall under
lotteries or the gaming commissions.”
Tribes, for their part, are not going to sit back and allow other
jurisdictions to have Internet gaming exclusively; they want to
participate, said Mr Gushin. “There are arguments to be made that
under Class II gaming, which is essentially the province of the tribes,
there may be opportunities to go forward on Internet gaming,”
he said. “There are likely to be a lot of creative approaches to this,
and court challenges as well. My point on the tribes is they cannot
and should not be excluded. They’re an important component of
the American gaming industry and they will be players in Internet
gaming.”
On the revenue front, most observers seem to be holding the line
around the $400 million mark, though there are exceptions on the
low- and high-ends. Spectrum Gaming Capital has estimated that
New Jersey revenue for 2014 will be $400 million. “We feel confident
that that’s actually a conservative projection,” said Mr Gushin.
“We’ve always been around $400-$500 million and we haven’t
changed on that,” said Mr Jones. “You can see New Jersey fixing the
issues and righting the ship. I’ve seen estimates well north of that
and I struggle with how people get there.”
39
feature
Shifting Balance
State-owned PAGCOR is further scaling back its operations in the Philippines,
while the private sector continues expanding
Casino Filipino Parañaque, located near the
capital’s Ninoy Aquino International Airport and
one of the largest venues in the portfolio of the
Philippine Amusement and Gaming Corp., will
shut down in July amid mounting losses.
T
he Philippines government continues to downsize its role as a
casino operator with plans to close another Manila venue, the
second in the last year.
With the future of the market shifting toward large-scale
commercial resorts, Casino Filipino Parañaque, located near the
capital’s Ninoy Aquino International Airport and one of the largest
venues in the portfolio of the Philippine Amusement and Gaming
Corp., will shut down in July amid mounting losses.
PAGCOR’s casino at Heritage Hotel Manila was closed last July.
“As much as possible we don’t want to close down any casino,
but the decision depends on the viability of a casino,” Chief Executive
Cristino Naguiat said.
Casino Filipino Parañaque generates an average of PHP180
million in gross revenues a month (US$4 million), half of which
is remitted to the national treasury, leaving a balance that is not
enough to cover expenses, Mr Naguiat said. The rent alone amounts
to PHP23 million a month, he said—“plus salary for more or less 800
employees, we also pay for the food for our players and, of course,
electricity and other fees”.
He said the outlook for gaming in the country is positive but that
growth will be driven mostly by the private sector, which PAGCOR
regulates and licenses. This includes Resorts World Manila—also
located near the airport, the Philippines’ largest and most lucrative
casino, operated by Travellers International Hotel group, a joint venture
between Genting Hong Kong and Philippines property developer
Alliance Global—and the four megaresorts under development at the
PAGCOR-licensed Entertainment City complex on Manila Bay. The first
of these, the US$750 million Solaire Resort & Casino, which is locally
feature
PAGCOR Chief
Executive
Cristino Naguiat
said the outlook
for gaming in
the country is
positive but
that growth
will be driven
mostly by the
private sector.
owned, opened last March. The second, City of Dreams Manila, partowned by Macau’s Melco Crown Entertainment and priced at $1.2
billion, opens later this year. The other Entertainment City projects are
Manila Bay Resorts, under development by Japanese machine gaming
giant Universal Entertainment, and Resorts World Bayshore, Travellers’
planned second property in the country.
The national market is estimated at around US$2 billion currently,
but PAGCOR’s share of it has been declining. The agency fell PHP2.4
billion shy of its 2013 revenue goal of 42 billion (US$683 million)
and acknowledges that it will be hard-pressed to make its target of
PHP45.4 billion this year.
“We know that it will not be easy because competition is
getting stiffer,” Mr Naguiat said. “But just like what I keep telling our
employees, we always have to do our best so we can reap the fruits
of our labor.”
He assured that the airport casino’s workers will not be jobless
but will be transferred to other PAGCOR casinos at the Hyatt Hotel
Manila and the Pavilion Hotel.
Rendering of City of Dreams Manila,
which opens later this year.
“Every month, we process about 50 applications for retirement
or early retirement, so there are plenty of job opportunities for about
800 affected employees of Casino Filipino Parañaque.”
The closure will leave PAGCOR with 11 Casino Filipino-branded
properties. Nationwide, the agency also operates around two dozen
standalone machine gaming venues.
Funds Raised for Solaire Expansion
Last month, shortly before PAGCOR stated its intention to further
scale back its operations, Bloomberry Resorts, the operator of Solaire,
announced it had raised about US$254 million in a private debt sale
to fund the property’s expansion.
In a disclosure to the Philippine Stock Exchange, Bloomberry said
its subsidiary Sureste Properties and the latter’s Bloomberry Resorts
and Hotels subsidiary raised PHP11.42 billion from institutional
investors through what is known as a corporate notes facility with
BRHI acting as the issuer and Sureste as guarantor.
Participating banks included BDO Unibank, BDO Leasing and
Finance, BDO Private Bank, China Banking Corp., Robinsons Bank
Corp. and United Coconut Planters Bank.
The proceeds of the fund raising are earmarked for construction
of a second hotel tower with 300 suites, a 20,000-square-meter retail
mall, a theater with up to 1,800 seats, a nightclub and parking for
about 3,500 cars. The casino will be enlarged to include 200 more slot
machines and 65 more table games.
Solaire has struggled in the early going despite the high quality
of the offering, which includes a five-star hotel totaling some 400
rooms, an array of fine dining and mid-market food and beverage
offerings and the second-largest casino in the country after Resorts
World Manila. The result was that Bloomberry, which is controlled
by ports tycoon Enrique Razon, reportedly the third-wealthiest
individual in the country, fired its operating partner and 8%
shareholder, William Weidner’s Global Gaming Asset Management,
in the latter part of last year, and litigation between the two is
ongoing.
Third-quarter results, the most recent available, show Bloomberry
posting a profit of PHP165 million ($3.6 million) on PHP4.87 billion of
gaming revenue.
Bloomberry Resorts has raised about US$254 million
in a private debt sale to fund Solaire’s expansion.
41
REGIONAL BRIEFS
Macau’s $4.8B February a New Record
Macau gaming revenue soared 40% to a new monthly record in
February on the strength of a flood of mainland Chinese visitors to
the world’s largest gambling hub during Chinese New Year.
Revenue hit MOP38 billion (US$4.8 billion), beating the MOP36
billion median forecast by seven analysts polled by Bloomberg
News.
The previous record was MOP36.5 billion set last October.
It’s estimated that more than 1 million people visited the city,
the only legal casino market in China, over the New Year holiday,
which ran from 31st January to 6th February. More than 770,000
came from mainland China, an increase of 23% over a year earlier,
according to the Macau Government Tourist Office.
“Clearly, it’s evidence that there’s still pent-up demand to play
from mainland customers,” said Standard Chartered investment
analyst Philip Tulk, based in Hong Kong. “Macau’s becoming a more
accessible and realistic spot for visitation.”
Revenue is up 24% through the first two months of the year to
MOP66.7 billion ($8.33 billion), but the pace could begin to slow on
tougher year-on-year comps. “Growth in March will slow due to the higher base,” said Aaron
Fischer, a Hong Kong-based analyst at CLSA. “The full-year outlook
remains very positive, especially for the higher-margin mass-market
segment.”
The city’s six casino operators took in US$45.2 billion last year,
about seven times that of the Las Vegas Strip.
Peter Kup-Ferroth Joins Weike as VP, Product Marketing
Singapore-based
electronic
gaming machine manufacturer
Weike
Gaming
Technology
announced last month that it has
appointed Peter Kup-Ferroth as
Vice President, Product Marketing.
In his new role, Mr KupFerroth will oversee Weike’s
product marketing department
from Singapore. “With my
appointment, I hope I can bring
forth my experience to strengthen
our great product pipeline for our
Peter Kup-Ferroth
customers and generate future
business opportunities for Weike
Gaming,” commented Mr Kup-Ferroth.
Mr Kup-Ferroth has worked in the gaming industry for 16
years holding product management roles worldwide. His previous
appointments include serving as a global product manager for
Aristocrat Technologies, and as a product marketing manager for
Australia/Asia Pacific at IGT Australia.
“We are very excited to welcome Peter Kup-Ferroth as a pivotal
member of Weike Gaming Technology. His familiarity with design
trends and providing key information to customers will strengthen
business opportunities into the future. As Weike moves to new
levels, Peter’s valuable knowledge of global gaming markets and
product management will create more success stories for us,” said
Andrew Masen, Vice President, Design Development at Weike.
42 INSIDE ASIAN GAMING | December 2013
Thunderbird’s Fiesta
Casino in the Philippines’
Rizal province
PAGCOR Franchisees No Longer Tax-Exempt
In a move that draws the ongoing issue of Philippine gaming
taxation further toward a close, the country’s Court of Tax Appeals
has ruled that Thunderbird Pilipinas Hotels and Resorts Inc. must
pay tax deficiencies of Php17.92 million (US$400,000) dating back
to 2006.
According to reports, Thunderbird first argued that the 30%
income tax exemption given to the Philippine Amusement and
Gaming Corp. covered corporations that acted as its licensees.
When this was rejected by the court, the company argued that even
if it were liable for taxes, these should only apply after the 2011
decision by the country’s Supreme Court overturning Pagcor’s tax
exemption, as it had signed up to a Pagcor charter which had now
been reinterpreted. This was a question for which market watchers
had also wanted a resolution, and it was also rejected by the court;
the judgment was based on the Expanded Value Added Tax Law
passed in 2005, which the CTA argued abolished Pagcor’s taxexempt status and had already been ruled on by the Supreme Court.
For its part, Pagcor announced its willingness to help shoulder
additional taxes in 2013, but the extent to which it is willing and
able to do this remains unclear. Philippine casinos currently pay a
15% levy on VIP gaming revenue, 25% on mass-market and a 5%
“franchise fee”.
Melco Crown To Start Paying Dividends
With earnings that beat analysts’ forecasts, a US$2 billion Macau
resort going up on time and on budget, and a plan to pay dividends
for the first time, Melco Crown Entertainment offered shareholders a
lot to like in the announcement of its latest quarterly results.
It was largely a mass-market story for Melco Crown (Nasdaq:
MPEL) over the final 12 weeks of 2013, with adjusted EBITDA up year
on year by 46% to $394.4 million—six analysts polled by Bloomberg
had expected $373 million—on a 27% increase in net revenue to
$1.39 billion.
VIP volumes at Altira and City of Dreams combined were up only
2% (+9% at CoD and -11% at Altira), but mass table drop companywide grew by 29% and beat the market’s revenue growth rate of 40%
with a 55% increase. Slot revenue, which includes the company’s
REGIONAL BRIEFS
Mocha slot parlors, was
up 19% during the period
against market-wide growth
of 7%—despite the company
having to shut down three
Mocha venues to comply
with government restrictions
on slots in residential areas.
Net income more than
doubled to $223.2 million.
Citing “significant earnings
and cash flow” the company
said it plans to start paying
quarterly dividends equal
to 30% of net income,
commencing with a special
dividend of 34.4 cents per
American Depositary Receipt,
or 11.5 cents a share.
The company also said
Altira Macau
Studio City is on track for a
mid-2015 opening as the
second of the new wave of mega-casinos coming to the territory’s
booming Cotai resort district.
This year’s opening of the $1.2 billion City of Dreams Manila,
which is fully funded after a recent notes offering, has been pushed
from the summer to the second half. The project is a joint venture
with a subsidiary of Philippines retail giant SM Investments.
Tony Fung Bids for Two Australian Casinos
Hong Kong billionaire Tony Fung, who made headlines last year with
plans for a massive casino complex on Australia’s Great Barrier Reef,
has added the country’s Casino Canberra to a bid announced last
year for the Reef Casino in the northern Queensland city of Cairns,
not far from Mr Fung’s proposed Barrier Reef site.
Mr Fung’s Aquis Casino Acquisitions will spend A$270 million
for Reef Casino Trust, the latter’s ownership entity, whose partners
include Casinos Austria International and hotel giant Accor, and the
Tony Fung
Canberra property in the Australian Capital Territory southwest of
Sydney at the other end of the continent. Casino Canberra is also
controlled by CAI.
The Reef Casino board has already recommended shareholders
approve the offer. Ninety percent must approve for the takeover
to go through. Regulatory approvals and other conditions will also
have to be met.
Mr Fung’s plans for his 750-acre, $4.2 billion Aquis Resort at
The Great Barrier Reef include five hotels, a casino with 1,500 slot
machines and 750 table games, more than 1,300 apartments and
luxury villas, a golf course, a 25,000-seat sports stadium, high-end
retail, a man-made lake and reef lagoon and one of the world’s
largest aquariums.
Wealthy Asians, particularly high rollers from China, are the
target market.
He’d like to open by 2018 and says the complex will create
more than 26,000 jobs when it’s fully operational, which has
the government of Queensland reviewing the proposal with
considerable interest, according to reports.
WMS Announces Expanded Australian Presence
WMS Gaming Inc. announced last month that it is expanding its
commercial activities in Australia. Building on the efforts of its
former distributor, eBET Group, a Sydney-based gaming solutions
company, and continuing to leverage the eBET service team, WMS
plans to increase its Australian presence in New South Wales and
other states and territories by expanding its Sydney office through a
new customer-facing sales team and by dedicating a local product
development studio to the Australian market.
WMS plans to offer an innovative product portfolio that is
tailored to Australian players, which is expected to enhance the
player experience and help drive long-term growth for customers.
With this increased investment and focus, WMS says it is prepared to
support existing and future customers and capitalize on additional
growth opportunities in the market.
Sebastian Salat, President, WMS International, said, “WMS is
excited about our expanded role in Australia. Growth in Australia
is an important component of our long-term strategy. We are
building our sales, marketing and game development capabilities
with a sharp focus on local customer needs. We expect that our
relationship with eBET will be a key link in our customer experience,
as we seek to provide our customers with the highest level of service
possible and bring to market our latest innovations.”
Tony Toohey, eBET CEO and Managing Director, said, “This
agreement reflects the strength of the relationship between eBET
and WMS and both companies’ commitment to serve our customers
in Australia, and provides a better framework for both companies to
pursue the opportunities for WMS in Australia.”
December 2013 | INSIDE ASIAN GAMING
43
INTERNATIONAL BRIEFS
Steve Jacobs Loses Bid for Sands Files
The Nevada Supreme Court has ruled that Las Vegas Sands does not
have to give confidential company information to Steven Jacobs,
the fired ex-president of the company’s Macau subsidiary who is
suing LVS for wrongful termination.
In a 5-0 decision, the justices granted Sands’ petition to overturn
a lower court order that it produce documents on Mr Jacobs’ 2010
dismissal, saying the matter had been decided in the lower court.
“Jacobs’ request for production of the documents was not
timely because the District Court had already issued its ruling on
the underlying sanctions’ issues,” wrote Chief Justice Mark Gibbons.
Then-Clark County District Court Judge Elizabeth Gonzalez
in 2012 found that LVS and its Hong Kong-listed affiliate, Sands
China, had shown an “intention to deceive the court”. She fined
the companies $25,000 and ordered Sands to cover the legal bills
of Mr Jacobs for nine hearings that involved Macau’s Personal Data
Protection Act.
Mr Jacobs is suing the company for wrongful termination and
had asked Sands to turn over about 100,000 e-mails and other
documents to help him make his case. But for more than a year, the
company argued in court that Macau law forbids this even though
copies were in Las Vegas and beyond the reach of Macau authorities.
Ms Gonzalez suggested to Mr Jacobs that he file a motion for
those documents. She said she would conduct a hearing and rule on
his arguments for that information at a later date, according to the
court decision. But two days later, without having that hearing, she
filed her order sanctioning Sands.
Nevada, Delaware Agree To Pool Online Players
The governors of the US states of Nevada and Delaware have signed the
country’s first agreement for sharing online gamblers across state lines.
The revenue potential from the two sparsely populated markets,
with less than 3 million residents between them, isn’t huge (and play
is restricted to poker, the only online game legal in Nevada), but the
compact is significant as a template for interstate cooperation in a
sector whose ultimate player pool—“liquidity,” as it’s known in the
online poker world, the most important factor in the business—
could be worth billions as more states go legal.
44 INSIDE ASIAN GAMING | December 2013
“I consider this a landmark intersection in the road of gaming
history,” Nevada Gov. Brian Sandoval said.
“We know that more games and more states means more
revenue,” said Delaware Gov. Jack Markell.
Months in the making, it is the first such partnership between states
since the US Department of Justice opened up the possibility in 2011.
Before that the Unlawful Internet Gambling Enforcement Act enacted in
2006 successfully prohibited US banks from processing any online bets
originating in the country. In the spring of 2011, the Justice Department
effectively killed the sector with indictments that shut down the USfacing operations of the three largest offshore poker operators. But the
department’s re-reading later that year of a 50-year-old law banning
gambling over interstate phone lines determined that only sports
betting was illegal and that Internet transactions between states where
gaming is legal should be viewed as legal.
Under the agreement between Nevada and Delaware, players
are allowed to compete against one another, subject to the
gambling regulations of each state. Each state currently has three
licensees through which players can access online poker, and each
state would get a share of the money wagered. The agreement
includes a set of minimum regulatory standards that states would
have to meet in order to participate.
The agreement will be overseen by an association formed as a
Delaware company, with a governing board of one representative
from each state. As initial members, Nevada and Delaware both
would have to consent to any amendments to the agreement or
allowing a third state to join. Thereafter, such changes would require
a two-thirds vote of member states.
New Jersey, the third state to legalize online gambling, and the
most populous, with about 9 million residents, is not included, but
a bill in the state’s legislature that is expected to pass will permit the
Web operations of Atlantic City’s casinos to participate in cross-state
and international player pools.
Officials gave no estimate for how much additional revenue the
two-state agreement might generate or a date for when a platform
allowing Delaware and Nevada players to play against one another
will be in place.
What is known is that in contrast with the high hopes initially
attached to legalization, revenues in all three states have been
underwhelming.
According to the Delaware Lottery, the state brought in $145,200
in revenues from online gaming in January, $140,000 in December
and $111,000 in November. Nevada has not broken out online
revenues in the state’s monthly figures but analysts believe it’s
ranging from $200,000 to $750,000. In New Jersey, which launched
in late November, projections have run from a low of $250 million a
year to Gov. Chris Christie’s initial high of $1 billion, a number now
acknowledged as wildly optimistic. Through January, the 14 sites
affiliated with seven casinos have generated $17.9 million.
SkyCity Sets Sights on Brisbane
New Zealand’s SkyCity Entertainment may throw its hat in the ring
for a new resort casino in downtown Brisbane.
Chief Executive Nigel Morrison said the Auckland-based
operator notified the Queensland government prior to the 28th
February deadline.
INTERNATIONAL BRIEFS
SkyCity Entertainment CEO Nigel Morrison
“I don’t know whether we will ultimately bid but we have
expressed an interest,” he said.
If it does it would see SkyCity taking on Australian rivals Echo
Entertainment Group and Crown Resorts in a competitive tender
to develop the complex, which will be located on the riverfront in
the state capital’s government district. Echo and Crown have said
they’re prepared to spend A$1 billion or more on a casino and hotel
and supporting attractions should they win the license.
SkyCity’s interest comes after a tender for a Gold Coast cruise
ship terminal by a consortium including SkyCity was “set aside” by
the government, Mr Morrison said.
The company is also in the throes of a $350 million refurbishment
of its Adelaide casino and is about to embark on construction of a
NZ$400 million convention center in Auckland as part of a deal with
the government that allows it to expand its flagship casino in New
Zealand’s largest city.
The disruption of the Auckland expansion was blamed in part
for a 5.8% drop in normalized revenue (adjusted for volatility in VIP
win rate) to NZ$467 million in the six months ended 31st December.
Weakness in VIP volumes and unfavorable currency fluctuations
also figured in the decline as measured against the same period in
2012. The bottom line was a 7.9% drop in net profit to $61 million on
EBITDA that was down 6% to $143.6 million.
The company reported a strong January, however, with
normalized revenue up 11.9% on a constant currency basis, and will
pay an interim dividend of NZ10 cents on 4th April.
Aristocrat Searching for Global COO
Aristocrat is restructuring its management worldwide in the wake of
the departure of the head of its Americas business.
The New South Wales-based, ASX-listed slots and systems giant
is searching for a chief operating officer to oversee the group’s sales
and marketing globally. Management in Australia and New Zealand,
the Asia Pacific region and EMEA will
report to the COO, who will be based
in Las Vegas and will also manage
the Americas business, which had
been presided over by Atul Bali as
president.
The goal, the company said, is to
“ensure the Group derives maximum
benefit in the marketplace from its
strong new product portfolios, as a
natural step in the progression of its
product-led strategy.”
The new position is expected to Aristocrat Chief Product Officer
be filled by the middle of the year, Rich Schneider will assume COO
Aristocrat said, “at the conclusion of responsibilities on an interim
basis from next month.
a rigorous global search”.
Mr Bali, who is leaving at the
end of March, will be replaced on an
interim basis by Chief Product Officer Rich Schneider.
“I would like to acknowledge Atul Bali’s leadership and
contribution during his time at Aristocrat, particularly in supporting
our product strategy and helping to guide our growth in digital
gaming,” said CEO and Managing Director Jamie Odell.
Saipan Ready To Try Again
The leader of Saipan’s House of Representatives has introduced a
new bill legalizing casinos on the western Pacific island—the fourth
in four years—and one that is expected, like its predecessors, to face
obstacles in the Senate.
“Things have changed over the past months,” Ralph Demapan
told the Saipan Tribune.
Mostly what’s changed is that the government of the US
territory needs revenue more than ever. It has been mandated to
pay annually into a retirement fund, pensions have been cut by 25%,
and government health insurance premiums have increased, on top
of other public health services.
Which are the only reasons why Senate President Ralph Torres
says he’s prepared to consider the latest measure.
The Senate has nine members, three each from Saipan, Rota and
Tinian, the three main islands constituting the Commonwealth of
the Northern Marianas. Casinos are legal on Rota and Tinian, whose
leaders have been protective of their tiny markets. They claim their
casinos would be harmed if casinos are also allowed on Saipan, the
largest island of the group.
The most recent bill passed the House last June by a vote of 137, but predictably it died in the Senate.
Among Saipan’s population of 48,000, casinos remain a divisive
issue as well. Voters have twice rejected them because of concerns
about social impacts.
Mr Demapan, however, says that with the recent legalization
of machine gaming and video lottery on the island, this time is
different. His new bill provides for only one license instead of the
multiple venues envisioned by the earlier bills. The 25-year license
will require a US$30 million payment up front and $15 million a year
after that, along with a tax on gross gaming revenue and other taxes
and fees.
December 2013 | INSIDE ASIAN GAMING
45
Events Calendar
17 – 19 March
14 – 16 May
Caesars Palace, Las Vegas, USA
Tokyo, Japan (location TBA)
Gaming Technology Conference
The premier event for technology users, influencers and innovators
in the gaming and hospitality space, Gaming Technology Conference
will put a spotlight on critical issues surrounding regulation and
technology during the three-day gathering.
Website: www.gamingtechnologyconf.com.
19 – 20 March
Caribbean Gaming Show & Summit
Puerto Rico Convention Center, San Juan, Puerto Rico
As a crossing point between North America, Europe and Latin
America, the Caribbean has some of the most significant and
dynamic islands in the world and some of the most attractive casinos
and hotels. Huge business perspectives are born every year and great
gaming enterprises are still present and growing. Caribbean Gaming
Show & Summit will attract a multitude of leading companies from
both the local and international gaming sectors, making it an ideal
place to network with top executives and decision-makers.
Website: www.caribbeangamingshow.com
19 – 21 March, 2014
iGaming North America Conference
Planet Hollywood Resort & Casino, Las Vegas, USA
The 2014 iGaming North America conference marks the fourth
year of this unique networking and educational event designed
to introduce the land-based gaming businesses of North America
to the global iGaming industry. The aim of the conference is to
provide a cost-effective networking environment that helps foster
understanding regarding the potential impacts of regulation of
internet gambling in the US and Canada, and provides critical
information regarding the players, resources, legislative framework
and topics that are important to all of the parties that comprise the
important commercial gaming segment.
Website: www.igamingnorthamerica.com
Japan Gaming Congress
Japan looks poised finally to remove regulatory barriers and greenlight construction of integrated casino resorts. With the potential
to generate gross gaming revenue of US$15 billion in its first year,
operators are keeping a very close eye on a market that is likely to
reshape the industry in years to come. The new national and licensing
framework brings with it a raft of complex legal and technical
requirements that need to be addressed before legislation becomes
law. The Japan Gaming Congress is a three-day educational forum
that will offer clear, practical insight and understanding into the
proposed legislation.
Website: japangamingcongress.com 20 – 22 May
Global Gaming Expo Asia
The Venetian Macao, Macau
Global Gaming Expo Asia (G2E Asia) is the premier Asian trade event
and the largest regional sourcing platform for global gaming and
entertainment-related product and service suppliers to showcase
new products, meet qualified buyers and establish new contacts.
In 2013, over 95% of the top Asian casino operators were present
at the show. Held in Macau, the heart of Asian gaming and one of
the fastest-growing gaming markets in the world, it’s the hub where
professionals network and conduct business.
Website: www.g2easia.com

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