When Singapore’s integrated resort experiment began five years ago, casino gaming didn’t just come to one of the world’s most reputable destinations, it came to one of the world’s richest. An estimated 15% of Singaporeans are US dollar millionaires. But Singapore’s integrated resort experiment includes stringent restrictions on marketing domestically to protect Singapore’s vulnerable and a virtual ban on junkets internationally to protect Singapore’s reputation.
Singapore’s hard line casino oversight follows unprecedented grassroots opposition to the government’s IR initiative. The government was able to push through the IRs, but needs to show it is scrutinizing them carefully and keeping them under control.
Singapore took the radical step of imposing a S$100 (US$76) casino entry fee on its citizens and permanent residents for each casino visit or S$2,000 per year. The government also prohibited marketing of gaming to residents, broadening the definition over time to include casino shuttle buses, and restricted access to casinos for groups from public assistance recipients to overseas contract laborers and even civil servants, who must report visiting casinos more than four times a month or buying a yearly entry pass. In January, a cabinet minister announced the government was studying blanket casino exclusions for certain labor or religious groups. Since 2010, the Casino Regulatory Authority has levied $2.6 million in fines against IR operators for mainly marketing offenses.
Restrictions on the domestic market and overseas junkets mean Singapore casinos can't fulfill their... [+]
“The public message is the government is very rigorous in implementing what was agreed to. On top of that, there's the enlarging of the pool of people who would be restricted from entering,” Singapore Institute of Policy Studies senior research fellow Gillian Koh explains. “The government is trying to say we're mindful of the social impact, you're reminding us of the social impact. We're enforcing it and we are prepared to put in other measures to minimize the negative effect of extreme problem gambling as well as the vulnerable playing.”
Restrictions on junkets promoters are less easy to understand. If Singapore doesn’t want its citizens to gamble, the best alternative is foreign high rollers. The tax structure, with a 15% levy on mass play and 5% on VIP revenue, encourages VIP play. Bringing high net worth individuals to the casinos would also help Singapore realize its ambitions as the Switzerland of Asia. While Singapore enjoys a sterling reputation in the West, in its own neighborhood, the city-state is seen as the depository for wealth of all origins. But Singapore set strict rules for junkets and their employees to qualify for licensing. Only three junkets have been licensed, two from Malaysian and one based in Singapore, all for Genting Singapore’s Resorts World Sentosa. Las Vegas Sands’ Marina Bay Sands has no licensed junkets. At its opening in 2010, LVS founder, chairman and CEO Sheldon Adelson declared Marina Bay Sands was ready to do business without junkets.
Junket promoters are crucial to providing funds to players who are restricted from taking large amounts of cash out of their home countries, including mainland China. (That’s why China’s corruption crackdown and credit squeeze have hurt Macau junkets and, in turn, the global gaming leader’s VIP revenue.) In Singapore, the idea was that non-gaming revenue would help make up for the lack of junket players. On the Las Vegas Strip, where the integrated resort concept was born, non-gaming revenue accounts for more 60% of total revenue. But in Singapore, non-gaming revenue accounts for just 25% of the total. That's double the non-gaming revenue in Macau, but not enough to make up for the missing junket player revenue.
Both IRs need VIP revenue to make their investments pay. Without junkets, the IRs need to find their own VIPs and, in many cases, provide credit to them. That means VIP play is a lot smaller than it would be with junkets, and both casinos are saddled with player debt on their balance sheets.
Marina Bays Sands had $1 billion in receivables on the books at the end of last year, with $401 million in its reserve against bad debts. Resorts World Sentosa, which has a biggest VIP business than its crosstown rival, increased its debt provisions by 41% in the recently reported fourth quarter of 2014. “Management is more cautious in terms of the credit quality of customers and is not accepting as many players,” Morgan Stanley Asia wrote in its analysis of Genting Singapore’s earnings last month. “GENS also foresees more challenges in collecting outstanding payables from customers who had been granted credit as long as 9-12 months ago.”
Aside from holding debt, Singapore IRs experience extreme volatility in their VIP results from quarter to quarter, due to a relatively small pool of big players. A lot of high rollers that want to come to Singapore are driven to other jurisdictions where junkets can accommodate them.
In the Singapore authorities’ view, junkets are, in most cases, involved in questionable activities by helping customers evade currency restrictions, and many are believed to have ties to organized crime. But jurisdictions that allow junkets to operate, including Australia and Korea, haven’t descended into lawlessness and disrepute. It’s likely Singapore could similarly tolerate a greater level of junket involvement without damaging rule of law. there “But the government has to learn to look the other way,” a gaming executive who knows Singapore well says. There’s no sign of that happening.
