A quartet of high-ranking casino executives expressed mixed views on the Asian market during the second day of Global Gaming Expo Asia, held at Marina Bay Sands in Singapore.
Panel moderator Frederic Gushin of Spectrum Gaming Group could not avoid leading with Macau and its prospects. Only modest optimism could be found.
“It seems like the junket industry in Macau has been wiped, but the demand is still there,” said Walt Power, who helped open Sands Macau, the first Western-run casino in the enclave. “The VIP business, whether or not it comes back, depends on Beijing’s standpoint.”
“It all depends on that [political] system,” added Chen Si, new chief operating officer of Inspire Entertainment Resort in South Korea, which opens in early 2024.
“For the city, it’s a very different story,” said Si, painting a bleak picture for Macau’s high-end food-and-beverage and retail industries, which “could be changed forever.”
“It’s pretty scary to see this thing,” appended Daesik Hann, CEO of Hann Philippines. For him, there’s a silver lining. “Because of what’s happened in Macau, the Philippines has been one of the jurisdictions that benefits,” Hann said, adding that his own casino will have to compete with the growing gaming industry in the archipelago.
Discussion quickly turned to Japan, where MGM Resorts International is one of only two applicants for a five-year casino-based-resort concession left standing.
“We’re approaching, if you like, the end of the first phase,” said MGM Resorts Japan CEO Ed Bowers of the multi-year process to date. He hopes to be awarded the concession by year’s end and open a $9.5 billion integrated resort in Osaka by 2029. Whether future competition would be legalized by then, he said, is “very unclear. It’s a long game in Japan and I hope I’m still around when we open,” Bowers said to considerable laughter.
Putting Japan in the larger context of the panel, Bowers pointed out that integrated resorts require a strong local base and cash flow – and the latter hasn’t kept pace. To underline his contention, he said that a casino in Las Vegas that MGM might have once built for $500 million and seen annual cash flow of $120 million (a 24 percent return on investment) now costs billions, but still nets that same $120 million. Still, he believes local and tourist play in Japan will generate sufficient return on investment.
He warned, “As governments think about this in the future, there are fewer and fewer places where this can built, because of the gap between EBITDA, investment, and demand. If the tax rates are too high or other conditions are too onerous, the other operators are just going to say no. Very few operators in the world build attractions like this. There are probably a half-dozen.”
Another megabuck megaresort arising in the Pacific Rim is Inspire, which hopes to recreate and exceed co-owner Mohegan Sun’s winning formula in the Boston and Hartford markets, where it programs 200-plus events a year. Si thinks Inspire can outdo that, capturing locals (forbidden from gambling) and tourists alike with K-Pop and similar entertainment.
Although the casino floor represents only five percent of Inspire, Si expects a 50/50 balance of gambling and non-gambling revenue. “The elephant in the room is ‘foreigners only,'” he added, noting that one million Chinese expatriates live within a 30-minute drive of the Incheon Free Economic Zone, while another million other expats do as well. (Korean citizens are permitted to play at only one casino in the entire country, Kangwon Land.)
Si said his his Paradise City competitor is “actually doing very well” without locals play. “I was there last week and they were packed. Their Japanese market is coming back and very rapidly. The regulators we work with know this is a foreigners-only market and we need to make it work.” Still, he thinks that by catering to Koreans’ demand for shopping, dining, and water parks, Inspire can make Inspire’s budget pencil out, contending that there is such a strong demand for the non-gaming amenities that Mohegan Gaming Entertainment could justify building a non-casino resort.
Daesik Hann has a bit more casino space at his Clark Airport casino (7.5 percent), but it must make 85 percent of the overall nut. Asked about the forcible seizure of Okada Manila casino by a rival ownership junta, Hann allowed, “Okada is scary. It’s true.” Fortunately for him, he continued, he has to deal with only a couple of government agencies. “I don’t need to mingle with different politicians.”
As for his choice of previously downmarket Clark Airport, he said the cost of entry was best there and sees the new Philippine administration looking to “decongest Manila,” in part by extending high-speed rail to Clark. Also, Manila has been assessed as highly vulnerable to natural disasters, so more and more governmental infrastructure is moving to the Clark area. Plus, “You get all the Korean business,” Si interjected, drawing laughs.
None of the companies represented has an oar in the water in Thailand yet and all expressed a wait-and-see attitude.
Mused Power, CEO of Grand Ho Tram Strip in Vietnam, “It would be big if it happened, if they can get the tax structure and regulatory right … a home run.”
Bowers suspects that only one (Bangkok) of the five mooted markets will be big enough to interest companies like MGM. He added, “It’s really important for governments to understand the perspectives of operators and the size of the market.” He cited an official Thai document that projected an $11 billion tax haul at a 30 percent rate, implying annual revenue of $35 billion. (All several hundred U.S. tribal casinos combined for $39 million in their last fiscal year.)
Bowers set off a clash among the panelists when he brought up the correlation between megaresort spending and EBITDA, saying, “Marina Bay Sands would not be here, were it not for the gaming.”
Among those pushing back was Power, who said, “I can’t deposit profit margins, ADR, win percentage, hold percentage into the bank. The only thing I can deposit is cash.” In other words, all EBITDA is good EBITDA.
