Not as advertised

1
Ben D. Kritz

Ben D. Kritz

AROUND this time last year, prospects for the Philippines’ gaming industry were promising. With three major, international-standard casino complexes in Metro Manila (Resorts World, Solaire, and the newest, the City of Dreams) up and running, the country seemed well-positioned to take advantage of a downturn in markets like Singapore and Macau – the world’s biggest, in revenue terms – as well as overall rise in disposable income among would-be leisure tourists here and elsewhere in the region.

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The rosy projections of an industry generating $7 billion a year by 2020, which would put the Philippines nearly on par with Las Vegas, were not without some basis. Singapore has been showing signs of stagnation over the past two years, and Macau was expected to suffer significant losses from China’s crackdown on VIP gamblers as part of its anti-corruption drive. As an alternative market, the Philippines was (and still is) far ahead of potential competitors like Vietnam in terms of development, and the government was doing its part to keep up the momentum by liberally approving new projects and upgraded infrastructure—such as the new airport expressway—to support them.

Things have not gone as planned. Last week, all three big gaming operators reported disappointing second-quarter and first-half results.

Melco Crown, operator of the City of Dreams, reported Q2 losses of P1.82 billion ($39.4 million), contributing to a loss of P4.9 billion ($106 millon) for the first half of the year. Solaire owner Bloomberry posted a P1.3 billion ($28.2 million) loss in H1, a turnaround from the P2.3 billion profit registered in the first half of last year. Travellers International Hotel Group, which runs Resorts World, did make money, but saw its second-quarter profits cut nearly in half; profit for the first six months of the year fell 18 percent to P2.36 billion ($51 million).

The concerned companies all have good explanations for this, of course; Travellers blamed its lagging results—which were less than half of the consensus analysts’ forecast of P1.39 billion—on foreign exchange losses. Bloomberry pointed to higher capital spending on expansion projects here and in Korea as the cause of its deficit, and Melco Crown blamed everything, the implication being that the City of Dreams’ start-up costs are still being worked out.

All of that may be true, and the downturn may be short-lived. But there are a couple of indications it may not be. According to a local analyst interviewed by AFP, the anticipated growth of the mass market has not yet materialized. The local decline also mirrors the downturn in other places. Macau’s overall gaming revenues shrank by 34.5 percent year-on-year in July, and although that was not unexpected (and actually an improvement from the previous month), it is still a bigger contraction than can be accounted for by the loss of the big-spending Chinese VIP crowd. Genting Singapore (operator of Resorts World Sentosa) at the end of last week reported a second-quarter net loss of $16.9 million from a $102.3 million profit a year earlier, blaming the general downturn in the industry as a key factor behind the results. The two biggest Vietnamese casino operators likewise reported losses for 2014, and appear to be headed for more of the same this year.

In the case of Vietnam and the Philippines, both competing for a share of the lucrative Chinese VIP crowd, ongoing diplomatic disputes with China have spoiled both countries as comfortable alternatives for high rollers; a big-spending Chinese gambler whom the authorities are watching because of suspicions of illicit activity is no safer in a casino in Pasay than he would be in downtown Beijing at this point, and that’s not likely to change any time soon.

The mass market—foreign and domestic visitors whose value comes from their numbers, rather than their individual spending—probably will eventually pick up steam, but at its best likely still cannot keep the local industry afloat on its own. The VIP market under prevailing geopolitical circumstances will probably never materialize, at least not to the extent previously anticipated and underlying current plans.

For government planners looking for a magic industry that can give the economy a big boost in a relatively short period of time—which is exactly the way they have always presented casino development to the public—they need to keep looking. The gaming industry certainly is not it.

ben.kritz@manilatimes.net.

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1 Comment

  1. In a way, I’m glad these casinos are not doing as well as they predicted. This govt is too lazy to develop our manufacturing and agricultural sector and is more inclined to make easy money by encouraging gambling.