THE BACK PAGE: What happens in Dubai ...
That would be Dubai, where last month the world’s tallest skyscraper opened just weeks after news that Dubai World, the state-owned investment company that accounts for about half of the government’s total debt and a key backer of CityCenter, petitioned for a standstill on interest payments, sending shock waves through global capital markets. The scale of the problem in Dubai, at US$80 billion, isn’t such that the world needed to feel nervous for more than a week or so, and Dubai World’s $4.65 billion share of CityCenter has already been fully funded. What’s interesting about Dubai for the long term is how a government whose GDP is $37 billion took on debts worth more than twice that amount and, irresponsible as that sounds, how many governments around the world are headed toward the same sort of crisis.
The problem is especially pronounced in Europe, where governments in Greece, Ireland, Spain and the Baltics have been hit with sovereign debt crises. This “Dubai Contagion,” which some have called it, is expected to spread elsewhere, perhaps affecting the UK and even the United States, both of which are running up debt levels approaching 100 percent of GDP. With economic growth still on the rebound and few responsible economists recommending a retreat from ambitious government stimulus packages, these nations couldn’t be confronting the mounting bills of government-service-dependent aging populations at a worse time.
It would all be such fun for gaming companies if we didn’t have those other things to worry about: debt-ridden consumers and sluggish economic growth. Think of it: governments hungry for cash around the world, people less and less willing and/or able to pay taxes, the moral opposition to gaming significantly downsized after nearly a generation of responsible operator conduct and effective public relations. Opportunity knocks. Or maybe not as much as it could.
The implications for gaming companies? Two immediately come to mind. There will be more pro-gaming legislative remedies in new and developed markets, particularly in the United States. And there will be loopy pieces of legislative Hail Mary plays, such as attempting to legalize online poker in New Jersey (which is discussed in this month’s Editor’s Letter).
Leaving the clutter of the United States and the torpor of Europe, the other main implication of the Dubai Contagion for gaming operators will be the continued rise in the importance of Latin American and Asian markets. After catching a cold from the West in the earlier part of last year, China was again on track to post 10 percent growth in the fourth quarter of 2009, and that rate is expected by many forecasters to continue through 2010. Good news not only for Macau but for Singapore and gaming elsewhere in the region, all of which hinges on a strong China. In Latin America, where the industry has seen substantial growth in markets such as Mexico, Bolivia, Peru, Colombia and Argentina in recent years, Brazil is expected to grow 5 percent this year and is on track to be the fifth-largest economy in the world by 2016. That’s why, even though its gambling laws remain a mind-numbing source of unpredictability, it’s well worth the wait.