Wednesday, March 17, 2010

The house doesn't always win

Mar 17, 2010

S'pore's earliest casino advocate now cautions about their odds for survival

By Susan Long

FOR the longest time, he agitated for a casino.

Now that the Republic's first casino is upon us, Singapore's earliest and staunchest casino advocate has apprehensions over how it is taking shape.

For almost three decades, Mr Ronald Tan lobbied the Government to set up a casino here. In 1981, he wrote his first letter to the then Singapore Tourist Promotion Board, proposing a restricted- access casino at Sentosa.

Now 65, the gaming and hospitality consultant, who recently addressed an Institute of Policy Studies roundtable on casinos, recounts ruefully: 'I received a phone call from an officer saying that Singapore was not ready for it.'

But he continued to press his suit with many senior officials, and wrote over a dozen advocacy letters to the press. 'Since then, every single tourism board chairman knows me as the man who comes in pleading for a casino,' he says.

In the 1970s and 1980s, travelling around the world as a military tentage businessman, he saw how casinos were sprouting up across Europe, the Mediterranean, the United States, Africa and even in Lebanon, reviving cities and furnishing jobs.

He became convinced that Singapore should have its own casino to pull in quality tourists: 'About 5,000 Singapor- eans leave our shores daily to gamble on cruise ships, in Genting, Macau, Australia and Las Vegas. There are also no less than 100 underground gambling dens here.
'With all that appetite to gamble, why not satisfy it at home, with proper jurisdiction and safety, in a legalised casino, instead of our people going elsewhere and getting exposed to loan sharks and crime?'

Over the years, he got to know casino operators such as Shun Tak Group's Stanley Ho, Genting Group's Lim Goh Tong, Kerzner International's Butch Kerzner and Aspers Group's John Aspinall, and what made their businesses tick.

'They were doing everything right, just that safeguards were not in place. My idea was that Singapore could do a much better job and be a beacon to the world in casino management,' he says.

So when the Government announced it was awarding not just one but two casino licences in 2005, no one was more enthused than Mr Tan.

'With two integrated resorts, we can spawn a lot of technological advantages and innovate in casino surveillance, regulatory controls, policing, research and development,' he says. For example, chips can be embedded with radio-frequency identification (RFID), and through their movement detect problem gambling, he suggests.

In the 'perfect casino' - and he believes there exists such a thing - patrons will be issued biometric cards at the entrance: 'When they zap the card at any table, all the money that changes hands gets recorded.

'This is something I foresee that casinos around the world will soon adopt because many people are wagering beyond their means. If a person earns, say, $50,000 a year, they can ill afford to lose over $20,000. When their losses reach a certain level, a counsellor can come up to make the person sign an exclusion order.'

Today's gambling stakes, he worries, are dangerously high. A typical starting bet used to be $10 to $50, but can now inch into the thousands.

At the VIP tables, a big bet used to be $20,000, but now no one bats an eyelid at $200,000. At Resorts World Sentosa, he says, bets have tipped $500,000 - a new world benchmark.
He notes about 70 per cent of Asian casino patrons now favour the double-quick game of Baccarat, also known as Punto Banco. Accordingly, most casinos across the Asia-Pacific now devote 70 per cent of tables to Baccarat.

'Baccarat depends entirely on luck rather than skill. With eight decks of cards, about 60 games can be played, and easily $1 million to $2 million changes hands. Many people innocently start, then lose control of themselves, their lives, relationships and jobs,' he warns.

With two casinos soon to be on the doorstep of Singaporeans - especially stressed Shenton Way workers - he worries the temptation of easy access may be too great for many to bear: 'In the case of Macau and Genting, at least there's a physical distance to overcome to get to a casino. If you're addicted and have already paid the $2,000 yearly entrance fee, it only works out to $5.50 a day.'

Worse, he fears casino operators will encourage ever-greater bets because the operators bid so excessively - at least twice of what they can possibly make back - and are now under pressure to recoup their investments. The Government, which accepted the dizzying bids, now has the 'moral hazard' of ensuring they do not fail too spectacularly, he adds.

'My concern is they overspent on the two IRs. No matter how you look at it, their rate of return is limited by the sum total of bets. It's an arithmetic thing,' he says. 'Take the sum total of people who walk in the casino doors and multiply it by the money they bring in. Of that, the industry average is they usually leave about 20 per cent of it behind.'

He says Genting and Marina Bay Sands could have originally worked on a basis of reeling in $10 million a day each. Now, they must work towards $15 million: 'They are under pressure to increase gambling revenues, which means they must push bets higher and turn around tables faster.'

Despite the worst of the global recession being over, there are still signs of slowdown everywhere: 'Singapore is no exception. I'm afraid I do not see either Genting or Sands exceeding their forecasts of US$1 billion (S$1.4 billion) each in revenue from the gaming side within a year.' This may not cover the sky-high building costs of both IRs, which took place amid a construction boom that saw escalating sand and manpower prices. The total bill for both: Over $13 billion.

What contributed to such overexuberance? 'They wanted to win the prestige and legitimacy of being here in Singapore,' he says. 'The fact that Singapore announced it would have a casino opened up the floodgates to legitimacy. If squeaky-clean Singapore did not think it wrong to have casinos, who are other countries to think so?'

As such, many operators felt they 'had' to win the Singapore prize, 'come hell or high water': 'Once they won, it was, 'Just do it, don't worry about cost'.'

But he fears the overbidding has thrown a spanner in the works: 'Instead of allowing both casinos to open in a more relaxed way during the first few years, the IRs are now under tremendous pressure.' As such, Mr Tan augurs that the road ahead is 'no bed of roses'.
'Don't assume for a moment that once you land a casino licence, you will make money. It's a question of averages. Half the casinos around the world are in the red. The house doesn't always win.'

Case in point: Melbourne's Crown Casino suffered substantial losses for two years straight, due to a combination of bad management and poor patronage, after it opened in 1997. The original owners sold it off in the red to the late media mogul Kerry Packer in 1999.

But what about the viability of the IRs' much-vaunted side attractions? Can they bail out the house?

Mr Tan has his doubts: 'Within the next three years, the other attractions - theme park and hotels - will likely not make up for the shortfall.' He holds out little hope for Universal Studios, once the novelty wears off after about a year.

'Many Singapore attractions, from Tang Dynasty Village to Haw Par Villa, flopped because of the heat and humidity. The majority of Universal's attractions are outdoors, which means people have to wait in line under the hot sun. If even Hong Kong, a temperate country, cannot succeed with Disneyland with its huge China hinterland...' he trails off.

But ultimately, he fears what will do the IRs in is Singapore's upward-spiralling cost structure: 'Why was Hong Kong's Ocean Park more successful? Because its initial investment started from a very low base. Our cost of doing business here now is very worrying.'

But he does see a silver lining: 'Because manpower is costly, we can explore mechanisation of tables to replace croupiers. What gives Singapore an edge in running casinos is our IT capability and good governance and controls.'

Thanks to all these odds stacked against their success, Singapore's casinos will be forced to move beyond business as usual and step up their game to reinvent the industry in their favour. This could end up lighting the way forward for others, he projects.

'Just look at how we did a great job making our Turf Club world class and keeping out illegal bookmakers and the underworld. And how we built up expertise in service apartments and created the Fraser and Ascott brands. In time, Singapore can become a casino advisory to other countries,' he says.

'Countries that are opening IRs soon, such as Taiwan on Penghu Island, the Philippines at Manila Bay, and Tokyo at Odaiba, will come here to learn, not just about the attractions but the policing and regulatory aspects.'

Already, he says he has two clients, from Japan and Vietnam, who have commissioned studies on how the Singapore model can fit in their home countries.

'We could become the PSA and HDB in casinos, where other countries will invite us to come in to clean up, regulate or start up casinos,' he declares, his eyes gleaming with the possibilities he has ruminated over for some 30 years.

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