Tuesday, April 17, 2012

IPM Presents Asian Casino Report, Part 3: Gambling Laws and the Megacasino


Dragons Treasure at City of Dreams, Macau
This is the final part of a 3-part series by InPark News Editor Joe Kleiman
Click to see: Preview  Part 1: The Vegas Pack  Part 2: Genting

Gambling Laws

While gambling has always been a cultural institution in the Asia/Pacific region, Western style gambling has never been at the forefront of the region’s economy until recently. Each nation has a different approach to casino regulation, based upon colonial law (Singapore’s laws are based on those in British, while Macau’s are based on the Portuguese), the desire to prevent gambling debt and addiciton among local populations, and a governmental directive to weed out criminal and terrorist elements.

Australia

Casinos have been in operation in Australia and New Zealand since 1973. In 2008, the Allen Consulting Group issued a report, Casinos and the Australian Economy, on behalf of the Australasian Casino Association, to the government’s Productivity Commission Inquiry into Gambling. The report found that:

· Over 1 million international tourists made 2.4 million visits to Australian casinos in 2007/08. These tourists spent a total of $4.9 billion during their time in Australia – an average of $4940 per visitor, compared to $2630 by international visitors not visiting casinos.
· A group of international visitors, known as international VIP program players, spent $739 million during their visits to Australia in 2007/08. Expenditure associated with these players increased gross domestic product by $84 million in 2007/08. Maintaining this export will raise Australian private consumption by $1.8 billion over a 10-year period.
The largest of the casinos in Australia is the Crown Entertainment Complex in Melbourne, one of two casino resorts (the other in Perth) operated by Crown, a spinoff of Publishing and Broadcasting Limited. The Crown Entertainment Complex in Melbourne is one of the largest integrated resorts in the southern hemisphere with its casino, hotels, function rooms, restaurants, shopping and entertainment facilities.
The casino currently features 2,500 electronic gaming machines and has approval to operate 500 table games. The Crown Melbourne casino licence extends to 2033. Crown Melbourne operates one of the largest single-site VIP operations in the world. Its three hotels offer approximately 1,600 rooms, including 31 luxury villas. 
 
Crown, like Malaysia’s Genting, has become a major international casino operator. It’s investments include a betting exchange in Australia and New Zealand; Cannery Casino Resorts, a casino and racetrack operator in Las Vegas, NV and Pittsburgh, PA, USA; Aspers Holdings, which runs regional casinos in the UK; minority stakes in the Las Vegas-based Harrahs and Stations casino chains; and a 33% stake in one of the biggest players in Asia –Melco Crown.

Macau

Melco Crown is a direct descendant of Macau’s gambling heritage. From 1962 through 2002, the Sociedade de Turismo e Diversões de Macau, under the control of Stanley Ho, held a monopoly on gambling operations in Macau. Once Portugal handed the tiny colony back to China, the Chinese government began handing other licenses. Ho still controls 14 of the casinos, with an additional three under the control of Melco Crown, headed by his son Lawrence.

Of the three, the largest is the City of Dreams, which the company describes as “a unique integrated resort combining electrifying entertainment, an amazing array of accommodation, regional and international dining, designer-brand shopping as well as a spacious and contemporary gaming experience. With Dragons Treasure, a spectacular multimedia attraction and recipient of the prestigious “2009 Thea Award for Outstanding Achievement” from the Themed Entertainment Association, and the Boulevard, a chic lifestyle precinct encompassing entertainment, restaurants and boutiques, City of Dreams has established itself as a premier leisure and entertainment destination in Macau.”

The resort features a 420,000 square-foot casino, three hotels with 1,400 guest rooms, and over 20 dining locations. Earlier this year, the resort’s show "House of Dancing Water" was honored by Thea Award.

Melco/Crown’s other Macau properties include the Altira Macau, a 38 story, 216 room luxury hotel, and the Mocha Clubs, with 2,100 machines at 10 locations around Macau. The company had bid to develop the second casino resort in Singapore, on Sentosa Island, but lost the license to Genting. That, however, is not keeping them from expansion on Macau, with a 465,000 square meter project codenamed Studio City at the border of Macau and Hengqin Island, in mainland China. Melco Crown is also planning additional resort properties on the Cotai Strip, near the airport.

Melco’s profits in 2011 were $3.8 billion.

Melco Crown is headquartered in Hong Kong, which is where you’ll find Lee Myung-Hee. Listed #721 on the 2010 Forbes billionaires list, he heads Galaxy Entertainment Group, which has operated casinos in Macau since 2004, when the company launched the City Clubs group of casinos. In 2006, they opened StarWorld, a luxury hotel and casino complex with over 500 hotel rooms in an iconic tower. In late 2011, their third brand, the Gary Godard-designed Galaxy Macau opened to rave reviews and construction costs exceeding $16 billion. Overall, Galaxy Entertainment Group’s 2011 gross revenues were $5.3 billion, $2.1 billion of that being provided by Galaxy Macau in its first seven months of operation. It should be noted that Galaxy’s operations include construction, so the overall figure is not just for casino or hospitality operations.

Locals or Foreigners

One of the major issues confronting local governments is how to restrict local gamblers. It’s one thing to promote foreign gambling tourism, but its another to provide an outlet for gambling addiction and the social and welfare issues that result from that. Many countries outlaw casinos altogether, some, like Vietnam and South Korea restrict locals from entering casinos, while Singapore charges a hefty “permit” for locals to gamble over a 24 hour period and an even heftier fee to the casino operators when someone is found gambling with either an expired permit or without one.

Governments are starting to look closely at changing laws in lieu of the fact that restrictions on locals are sending their citizens and their dollars to other countries. South Korea, which is about to build a $2 billion casino resort new Incheon International Airport, is looking at removing the foreign-only casino rule. Out of 19 casinos currently in operation in the country, only one allows locals. The Japanese parliament is yet again tabling a rule to allow legal casinos. And in Singapore, the rules are being considered for revision in a country whose two mega-casino resorts offer an array of experiences for locals – just not gambling unless the permit fee is paid.

Junk in the Trunk

One of those casinos, Resorts World Sentosa, was recently awarded a license for VIP junkets. In these VIP junkets, wealthy travelers, often Chinese, borrow money from junket operators, play in private rooms, and then must repay the operator upon return home. By arranging the trip, the junket operator also receives a cut of the profit from the casino. These arrangements are common around Asia, especially in Macau. A 2009 report by the Asia Pacific Group on Money Laundering, describes the following issues with VIP junkets:

· Over-reliance on junket operators, especially in markets with resident populations that are too small to normally support casinos can pose a heightened money laundering risk. In these instances, casinos can become overly dependent on junket operators for business, a potential misuse of these services.
· In some jurisdictions, a casino may enter into a contractual agreement with a junket operator to rent a private room within a casino and in some situations, it is the junket operator, not the casino, which monitors player activity and issues and collects credit.
· Junket operators that provide premium players may exert commercial pressures on casinos, which may result in reducing scrutiny of individual spending patterns, or unduly influence or exercise control over licensed casino operations.
· Junket operators may engage in lending or the facilitation of lending to players outside casinos‟ knowledge.
· In some jurisdictions, junket operators are allowed to „pool‟ and therefore obscure the spending of individual customers, thus preventing casinos from making any assessment of customers‟spending patterns.
· In certain jurisdictions, licensed junket operators act as fronts for junket operators in another country. The front operators supply players to a casino through a casino‟s licensed junket companies which may not qualify for licensure in the country where the players will be gambling. Such unlicensed sub-junket operators can act as unlicensed collectors of credit and may have ties to organized crime networks.

Some Asian casino operators face an even more potential threat from VIP junkets –loss of license and even potential arrest. There are concerns based on how the VIP junkets operate that they may be tied in to Chinese and other money laundering programs, supporting both criminal activity and potential terrorist groups. The State of Nevada and the United States government are both considering investigations into the matter. Wynn, Sands, and MGM all operate in Macau and Singapore, but they are also headquartered in Las Vegas and licensed in Nevada and numerous other states, where financial dealings with criminal elements is against the law.

What the future holds is uncertain, but it’s just another price to bear in the brave new world of the Asian Megacasino.