Singapore opened the first of its two planned casinos on 14 February, with the second scheduled to follow this month, on the 27th. It’s very much early days, and there is no clear evidence to add much clarity to the speculation surrounding the most hotly anticipated numbers: total market revenue, and how much of it will be cannibalized from the city-state’s neighbors.

The first casino, Genting’s Resorts World at Sentosa, will have been operating for close to two and a half months before Las Vegas Sand’s Marina Bay Sands is now scheduled to open, though contractors express credible concerns that one more delay could still be on the cards.

Singapore’s onerous casino entry fee for locals - a policy tool to limit the social ills of gambling - could confer a significant first-mover advantage on RWS. The fee is either S$100 (US$71) per day or S$2,000 (US$1,434) for the year. Regulars will likely opt for the yearly fee and retain their patronage for the year with the casino that gets them through the door first. If that casino is able to build player loyalty within that year, the advantage derived from opening first could continue through to subsequent years. The casinos will have considerable flexibility in building player loyalty because they face significantly lower gaming tax rates than casinos in neighboring jurisdictions, allowing them to effectively reimburse the entry fee with comps and commissions. There is another advantage, too, in the fact that the Singapore government has vowed not to issue any further casino licenses until at least 2015.

The phased opening of Resorts World at Sentosa, operated by Genting Singapore PLC (a 54 percent subsidiary of Malaysia’s Genting Bhd), actually began on 20 January, with the unveiling of four of the resort’s six hotels, offering a combined 1,350 rooms and 10 restaurants. The other two hotels will add another 500 rooms when launched after 2010, according to Genting Singapore.

Unfortunately - largely owing to the late filing of the application - the casino at RWS had still not been licensed at the time the first phase opened. Many industry watchers speculated that RWS could be left standing with its finger on the casino trigger until March or April, losing much of the first-mover advantage it hoped to gain over Marina Bay Sands.

In January, the Casino Regulatory Authority was swamped by a sea of license applications, extending beyond the casinos themselves to the licenses for the games and equipment inside them. Squeaky-clean Singapore will vigilantly maintain a wall of red tape around its casinos in order to deter money laundering and safeguard its position as a world-class financial center. Given the need to adhere to regulatory standards more stringent than those of any major gaming jurisdiction, the CRA must have worked around the clock to process all the necessary license applications to enable the Sentosa casino to open to the public in early February, just in time for Chinese New Year, the Chinese-speaking world’s biggest holiday.

Although the CRA has disproved cynics who claimed bureaucracy would reign and rob the RWS casino of its first-mover advantage, it appears the casino regulator has robbed the two casinos under its purview of any substantial junket business by effectively regulating away the junkets.

The authority released its much-anticipated details on the licensing and regulation of junket operators on 31 December. According to the regulations, the onus is largely on the casinos, which will have to file arrival reports with the CRA that include the particulars of all VIP players and accompanying junket operators at least one hour before they enter the casinos. All junket operators and their representatives will have to be licensed and undergo investigations similar to the probity checks made on casino licensees. The cost of the checks will be borne by the junket operators. The junkets will also need to maintain records of all clients, commissions, rebates and financial statements and allow the CRA access to these records. Furthermore, all junket agreements between the casino operators and the junket promoters detailing the terms of their business relationship, including commissions, must be lodged with the CRA for review. Failure to comply with any of these regulations could result in penalties, including a fine of up to S$400,000.

While Macau’s junket operators could be lured to jump through the regulatory hurdles to get licensed in Singapore, the nail in the coffin of Singapore’s junket-courting ambitions is the requirement that junket players identify themselves in advance of entering the casinos, which runs counter to the players’ strong preference for anonymity when going on gambling jaunts. This puts to rest the bulk of the concern that Singapore’s low 12 percent preferential tax on gaming revenue derived from junket and “premium” play - as opposed to the 15 percent levy on mass-market gaming revenue - would enable its casinos to offer higher commissions to lure junkets from Macau, where all gaming revenue is taxed at 39 percent (35 percent direct tax on gaming revenue and a 3-4 percent mandatory social welfare contribution).

Resorts World at Sentosa


In 2005, when the Singapore government announced the legalization of casinos within two large-scale “integrated resort” concepts (IRs, as they’re called), it stated that one of the policy’s primary objectives was to boost tourism. The IRs are arriving just in time. Last year, tourist arrivals were down 4.3 percent year on year to 9.7 million. The government hopes the IRs will help raise arrivals to 17 million a year by 2015. An ambitious target, but it appears the government would rather risk its tourism growth objectives - which rely on the casinos proving a sustainable attraction - than jeopardize its position as a financial center.

Although Macau has precious little economic activity beyond gaming, it has a lot more gaming activity than Singapore will, even discounting the fact that Singapore’s population, approaching 5 million, is more than nine times larger than Macau’s population of about 540,000.

Anil Daswani, global head of gaming research at Citigroup Investment Research, forecasts Singapore’s two IRs will generate US$2.8 billion in casino revenue in their first full year of operation, 2011. Aaron Fischer, an analyst at investment bank CLSA, is more bullish, forecasting US$3.5 billion in revenue in 2011. Yet even this is a far cry from any two-year forecast for Macau casino revenue, which hit US$14.9 billion in 2009 and started 2010 strong, growing a whopping 63 percent year on year in January. It is acknowledged that China’s recent monetary tightening will limit funds available to Macau’s dominant VIP baccarat market (which accounted for two-thirds of total casino revenue in 2009), though given the January showing this may merely temper what would otherwise have been another stratospheric year of revenue growth. Investment bank Merrill Lynch predicts Macau’s 2010 casino revenue will come in at US$16.4 billion.

Merrill projects Singapore’s IRs will generate US$1.9 billion in gaming revenue this year and $2.8 billion in 2011, of which about 25 percent will be cannibalized from other markets this year, down to 15 percent next year. Anecdotally, about one-third of visitors during the first few days of the Sentosa casino opening were from Malaysia; and clearly Genting’s monopoly casino in that country, Genting Highlands, located near Kuala Lumpur, faces the greatest threat from Singapore. Merrill estimates Genting Highlands could be cannibalized to the tune of $202 million, or approximately 20 percent of its total revenue, in 2010. Conversely, the $155 million cannibalization forecast for Macau is equivalent to less than 1 percent of projected 2010 revenue.

Merrill’s belief that the arrival of casinos in Singapore will have a limited impact on Macau is predicated on the continued dominance of junkets in the latter market. VIP baccarat accounted for two-thirds of Macau’s casino revenue in 2009, and of that an estimated 90 percent was generated by players brought in by junket operators. Junkets are indispensible to Macau’s VIP trade because China’s currency controls prevent high rollers on the mainland from taking large sums of money out of the country. Casinos are also reluctant to extend credit to mainland Chinese because gambling debts are not legally enforceable in China. The casinos are happy to leave the junkets - which boast wide and influential networks across the mainland - to handle the extension and collection of credit to mainland Chinese.

Though Macau casino operators are boasting of increasing their proportion of direct VIP players relative to those brought in by junkets, direct players are still estimated to account for only 10 percent of all premium players in the city. The junket players also account for disproportionately more turnover, according to Macau junket sources, presumably because the direct players who do not have credit relationships with the casinos are limited by the funds they have physically brought with them, while junkets stand at the ready to extend more credit to the players they bring.


There is also the matter of geography, which defines Macau and Singapore as distinct and separate markets.  Macau boasted 21.8 million visitors in 2009, though the average length of stay was only about 1.4 days, compared to around 3.5 days in Singapore. Just over half of Macau’s visitors last year were from mainland China, another 30 percent came from Hong Kong and about 6 percent from Taiwan. Thus, more than 86 percent of visitors to Macau hail from Greater China, and of the mainland Chinese visitors, an estimated 80 percent come from just across the border in neighboring Guangdong Province.

Meanwhile, Malaysia is by far the largest source of visitor arrivals to Singapore. It should be noted, however, that because Singapore’s visitor statistics only count arrivals by sea or air, they do not properly reflect the dominance of Malaysia as a source market. Approximately 9 million people cross the land border between Singapore and Malaysia each year, though a large proportion of them are likely to be day-laborers crossing over for work.

The top five source markets for tourist visitors at Singapore’s air and sea borders in 2009 were: Indonesia (1,745,000 visitors), China (937,000), Australia (830,000), Malaysia (764,000) and India (726,000). Together, these five markets made up more than 50 percent of arrivals.

On this basis it is expected that the bulk of Singapore’s casino patrons will consist of Malaysians and local Singaporeans. With a population approaching 5 million, Singapore will generate considerable home-grown gaming demand, in contrast to Macau, whose half-million residents hardly make a tangible contribution to the casinos’ coffers. The third-largest source of players at Singapore’s casinos will be Indonesia. Wealthy Indonesians in particular will be coveted. A report by consulting firm Capgemini shows there were an estimated 23,000 high-net-worth individuals in Indonesia in 2008, with total assets of US$80 billion. The report estimates that one-third of Singapore’s high-net-worth individuals are Indonesians with permanent-resident status, holding another US$80 billion.

The VIPs players arriving directly at Macau’s casinos include Hong Kong residents and Taiwanese and Southeast Asians, who are not restricted by currency controls, as well as wealthy mainland Chinese with offshore companies and/or overseas bank accounts and assets. Collectively, these probably account for at most 6 percent of Macau’s casino revenue. Still, this does suggest there is potential for more than 1 percent of Macau’s revenue to be cannibalized by Singapore, especially since Singapore is a regional business hub, and some of these players may find themselves already traveling regularly to the city.

The Shoppes at Marina Bay Sands


Direct players will also be incentivized to take their business to Singapore. Resorts World at Sentosa is offering direct players a rebate on losses of 1.1 percent, while direct players in Macau only get about 0.8 percent. Despite the higher rebate, RWS is still likely to achieve better margins on its direct players because of Singapore’s lower gaming tax rate.

Whereas junkets rule in Macau, the direct player is king in Malaysia. Merrill Lynch estimates 80 percent of rolling chip turnover in Malaysia comes from direct VIP players. Even if the CRA had not regulated away the junkets, RWS and Marina Bay Sands would likely have followed the Malaysian model of courting VIP players directly. In fact, if it weren’t for the irksome credit issue even Macau’s casinos would junk the junkets, which are, after all, essentially middle men taking a cut. In a June 2009 note to investors, Las Vegas Sands revealed its margin on direct high-roller play in Macau was 1 to 1.2 times higher than the margin on players fed to it by junkets.

With a price tag of US$4.4 billion, Resorts World at Sentosa currently holds the title of world’s most extensive and expensive integrated resort. But it will soon be succeeded by Marina Bay Sands, with a price tag of about $5.5 billion.

Genting says it will soon open 530 gaming tables, 1,300 slot machines and a 12-table poker pit at Sentosa (initial reports after the Chinese New Year opening suggested it was operating with only 270 tables). RWS also contains Southeast Asia’s only Universal Studios theme park, which is seen as the resort’s key family-friendly attraction.

Marina Bay Sands will include a 2,600-room hotel, two 4,000-seat theaters, an exposition and convention center that can support 45,000 delegates and a luxury shopping and dining complex. Its casino will contain 1,000 table games and 1,400 slot machines.

The first Las Vegas Sands property in Macau, the US$265 million Sands Macao, famously recouped its initial investment within 10 months of its May 2004 opening. Now, LVS operates three casinos in Macau: Sands Macao, the $2.4 billion Venetian Macao and the $905 Four Seasons Macao. That’s a total initial outlay of less than US$3.6 billion, with which LVS has garnered a 22 percent share of the Macau market.

The US$3.6 billion in revenue LVS is expected to earn in Macau this year will likely overshadow the entire market that LVS and Genting have to share in Singapore. Hence, Singapore’s IRs will be banking on their non-gaming draws. Merrill Lynch estimates 90 percent of revenue at Macau casino resorts is generated by gaming activities, with the remaining 10 percent from non-gaming. That mix is not much different at Genting’s sprawling Malaysian casino resort, where Merrill estimates 11 percent of revenue derives from non-gaming sources. Merrill believes the Singapore IRs will do much better on the non-gaming front, however, deriving 30 percent of their revenues outside their casinos.

As for which operator will emerge victorious in the battle for the leading share of the market, most bets are on Marina Bay Sands, given its downtown location and more chic surroundings compared to the more leisurely and family-friendly Resorts World at Sentosa site.

Initial reports from Sentosa also support the thesis that LVS may have a superior customer service philosophy. Mass-market patrons used to free coat check at the entrance to all Macau casinos were shocked when asked to pay to deposit belongings in lockers before entering the Sentosa casino. Many complaints have also been heard about the lack of free drinks and helpful staff at the new casino. Presumably, Genting will up its game when LVS - a seasoned veteran from the Macau market share battles - finally opens shop in Singapore.