When the 10.5 million-square-foot Venetian Macao opened its doors in 2007, it upped the ante on the scale of casino developments and helped inspire Singapore, Korea and others to undertake major IR projects.
More than a decade on, and with Japan poised to follow a similar path, Asia’s emerging casino markets are left wondering if the IR is now the only game in town, or if a multi-license, boutique approach to development is still viable. Opinions are mixed.
“[Emerging markets] are generally understanding that the size of investment which they can attract is not just a function of the market opportunity, but also of the relative uniqueness of a casino license,” David Green, former gaming practice director with PricewaterhouseCoopers in Macau and founder of leading gaming consultancy Newpage Consulting, told AGB.
The IR approach to casino regulation has generally proven to be the most palatable to regulators, too. “Most new Asian markets are conscious of the downside associated with disordered gaming, the potential for the industry to be infiltrated by organized crime and the political will required to regulate an industry comprising many properties and licensees,” said Green.
According to Steve Karoul, president and CEO of boutique casino consulting company Euro-Asia Consulting, LLC, IRs have been the preferred choice for a number of reasons, not least political ones.
“Casino gaming is a very sensitive subject and therefore it is much easier for government legislators who normally depend upon public opinion and votes for re-election to choose to promote a less contentious concept called the Integrated Resort,” he told AGB.
“It has a more neutral and more socially acceptable tone than casino gaming, which comes with all of the negative connotations associated with gambling, such as problem gaming, under-age gaming, increased crime, money laundering, etc. In addition, IR’s will serve a broader segment of the overall market than a facility only focused on casino gaming.”
But while these factors have helped push newly-regulating jurisdictions towards the IR approach, it is not the only option. Richard P Loughlin, director of operations at the Asia Pacific Gaming Management & Consultancy acknowledges that while IRs are a “much easier sell from the legislators’ perspective”, there is still room for smaller, boutique casinos to thrive.
He pointed to the more than 40 casinos in Macau, but also to the Cambodian market which combines a monopoly IR in the capital Phnom Penh with tens of licenses issued elsewhere in the country.
The coastal city of Sihanoukville, for instance, has around 42 casinos in operation, with tourist arrivals increasing rapidly as a result. During 2017, the city recorded 470,000 foreign visits, of which 120,000 were from China – double the 2016 figure.
“I think Cambodia is a fine example of how the country is benefiting from the smaller scale properties,” Loughlin told AGB. “For emerging markets like this it is unlikely to see top tier operators making the investment that comes with an IR, which in turn leaves plenty of opportunity for smaller properties to make headway.”
Karoul agrees that in certain circumstances, a larger number of smaller boutique casinos “may make more sense than a larger IR”, especially in jurisdictions lacking the density of population and ease of access required for an IR to succeed.
But there are problems associated with the multi-license approach as well, particularly in terms of enforcing bans on locals, collecting taxes, and maintaining the value of a casino license.
These factors are likely considerations within those markets that appear to be turning their back on the boutique approach altogether. Vietnam, which operates approximately ten small casinos dotted around the country in which only foreign nationals may gamble, is now placing its chips on a handful of large IRs, including Suncity’s $4 billion Hoiana project.
Perhaps the only factor likely to turn the tide against the development of larger IRs is the risk of cannibalization. If the market were to become saturated, particularly when Japan’s IRs come online in the 2020s, there may no longer be an appetite to build large developments in smaller emerging markets.
Green believes such a reality is still some way off. “I don’t see any indications that saturation of the east Asian market is a risk; certainly pay-back may be a bit slower than was the case with early entrants in Macau post-2002, but there is still enough optimism and demographic support for continuing substantial investment in IRs,” he said.
Indeed, Loughlin noted that fear of cannibalization is nothing new; there were similar worries Cotai would kill off the Macau peninsula some 15 years ago, and more recently concerns Singapore would take a significant chunk of revenues away from Macau, but neither came to pass.
Karoul, however, sounded a note of caution over the loyalty of a limited number of VIP players in the region which is not growing at the same rate as new developments. He said operators, regardless of the size of their casino, will need to market more intelligently and lean on big data to build sustainable growth.
“I personally do not think that bigger is necessarily better,” he said.