Cannibalization of Casino Revenue – The IR Dilemma

Posted: April 24, 2010 in Uncategorized

“The two IR casinos would fit well into the same operating model of Atlantic City (New Jersey Jurisdiction, USA) in which, sustaining on a slow grow (or stagnated) Grind market supported by heavy casino-run Busing Program running between Malaysia and Singapore. Such catergory of visitors are mostly low-budget day trippers and or visiting friends & relatives in Singapore.”

Special Investors Report by:  Professional Ground Panel     24th April, 2010

IR remains a Tight market environment

 

 

The drop in Genting Singapore stock price and analysts calling a much lower target price in the next 12 months are clear hints of the writing on the wall – there will be cannibalization of casino main stream revenue  for the Integrated Resorts in Singapore.  This is one of the greatest fear for both investors, syndicated loans creditors and the two IR operators.

Once such cannibalization happens, all the hypes and hope about potential great returns from the two integrated resorts will fly out of the window.  Viable returns from investment means that the IR casinos must achieve high numbers in casino revenue of which, forms at least 75% of the total operating revenue/income for the IRs in view of the extremely high capital investment costs.  The projected revenue budget of close to USD2b each for the casinos are now acknowledged by many analysts to be irrationally high expectations.  The opening of Resorts World Sentosa casino has performed badly to prove the point.

Marina Bay Sands (MBS) opening is being watched closely by investors.  Initially, many of them still hopeful of with the opening of MBS casino, the gambling scene can be heated up and the “gaming pie” will really grow from the currently lukewarm state.  But after more and more professional analysts shared their views of Singapore IRs market perspective and the region’s gaming trends, most of the investors start to realise that “hope is not a method” for their bet on Marina Bay Sands to build a bigger casino market in Singapore IR.  What in reality is:  Marina Bay Sands  casino will surely cannibalize Resorts World Casino players pool and revenue.

Professional Ground Panel for Casino Evaluation therefore, places our final edition of what will be the most likely state of affairs linked to the two IR casinos, as follows for investors as a guide,

*  Will the cannibalization of casino revenue happen?  – The answer is a definitely YES.  Southeast Asian gaming markets remain a low mass pool of players, with limited real premium players to be tapped.  Genting Highlands casino mainly relying on mass locals and 20% of Singaporeans visitors on cheap tour packages.  The two IR casinos would fit well into the same operating model of Atlantic City (New Jersey Jurisdiction, USA) in which, sustaining on a slow grow (or stagnated) Grind market supported by heavy casino-run Busing Program running between Malaysia and Singapore. Such catergory of visitors are mostly low-budget day trippers and or visiting friends & relatives in Singapore.

*  Can the IR casinos survive on a 50-50 split of casino market shares?  –  The answer is definitely a NO.  Estimated total casino revenues over the first five years of IR operations will not grow by leap and bound as the region’s economies (Southeast Asia) will not be overwhelmingly moving into high gear.  In addition, the estimated total casino revenue for this market size would be approximately USD2.5b – 3b yearly averaged, on an optimistic scenario.  Therefore, the “60-60 rule” will prevail.  Only a casino that can achieve at least a majority 60% or more of total casino market share and of which, at least 60% revenue from mass gaming, will survive such a tight market scenario with viable EBITDA margins to be profitable.

*  Will the VIP Gaming business grow in the IR environment?  –  The Answer is definitely a NO, if the currently imposed casino (junket) control regulation remains in force.  It is a fact that Asian VIP gaming business is heavily (90%) reliance on the well-rooted Junket channel. So far, without junket channel of customer acquisition, no casino in Asia can claim to be successful in VIP gaming.  Therefore, the IR casinos operated in a very “Tight” market in which, MBS and RWS are left with no choice but to work harder on mass gaming market share and to a large extent, hampered by the fact the local market is further tightened by the Entrance Levy.  The casinos have to therefore look to nearby markets such as Malaysia and Indonesia.  Looking around, almost all casinos must first gain on the large critical mass volume and depth of LOCAL market to be profitable.  (It must be clarified that Macau is surviving on own local countrymen from China and Hong Kong, as in the case of Las Vegas on own high volume US visitors).

*  Will the mainland Chinese affluent VIP players come to IR casinos in volume as many people hope for?  –  The answer is NO.  Mainland VIP players are mainly Junket induced and rely on heavy turnover of credits for casino bankroll.  They are highly sensitive of being identified of their real identity and movements.  The IR casino regulatory control has already “killed” this segment completely.

*  Then what about Taiwan, Korea and Japan high-rollers?   –  The answer is Maybe.  However, as the junkets are shy away from the regulatory control, the IR casinos must be prepared to bear much greater credit risk exposure for this category of high-rollers.  Provided that the turnover of chips is of very high volume and pegged with good player benefits program, chances are that casino is into highly volatile “betting game” themselves.  It may turn out to be a money-loser.  The casinos cannot win over market share neither profitability based on such so called “direct premium”.  It sounds sweet but those in the industry really knew what it is all about.

*  Then what about India, Middle-east and USA or Australia or European players?  –  The answer is “hope”.  Of all the abovementioned, Australia being the most hopeful source of players but, they are mainly the mass market Slot players.  It is unlikely that those asian players residing in Australia are keen to travel to Singapore IR frequently.  Some of the syndicated groups may pay few visits a year or so.  Indian casino goers have enough gambling places (including casino) within their country where they are more comfortable with.  US and European players?  That we really has no answer.  Middle-east casino goers are rich but they prefer UK.  Can the Singapore IR casino attract them?  But based on what?  On what luxury means, comfort, cuisine, Michelin Stars, premium jets and diversity etc. that Singapore could provide and UK can’t?  By the way, Middle-east well-to-do populations are sending their kids to UK for studies and maintaining close-ties between the two places.  Same, the Middle-east riches will not want to come under watchful eye in casino.

*  Then what about the convention facility that Marina Bay Sands can rely on as strong selling point to bring in premium business travellers and also, help to strengthen their casino revenue?  –  The answer is, the panel thinks that Marina Bay Sands will gain upper hand over Resorts World Sentosa on this front.  Convention generally draw much higher budget travel market segments than the theme park.  Theme park have to rely on travel agents for mass market limited budget segments within package tours arrangement. 

*  At the end of the day, which IR operator will win over casino market share?  –  The answer is most likely the Marina Bay Sands with 70% winning odds as in our final assessment.  The reasons:

–  MBS has greater advantage in convention business with international network.

–  MBS mass gaming loyalty program has been well-tested and proven in Las Vegas and Macau; whereas Genting remains highly inexperienced on this ground. 

–  MBS will achieve a more balanced high-roller (VIP) gaming business and mass gaming, expected to be in ratio of 35% VIP revenue to 65% mass revenue.  In turn, RWS will have to chase after mainly the lower mass (Grind) market yet may not be able to increase its volume operation due to heavy cannibalization from MBS.  In contrast, RWS’ high-roller or premium VIP market direct acquisition capability (i.e. without Junkets) is also doubtful.

_____________________________

Extracts of local news:

The fear of cannibalization of casino revenue is more real than apparent

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Comments
  1. Gambling says:

    It great info thank you and interesting.

    Gambling Online

  2. Admin says:

    Reply from ProGround. We would like to share real professional stufff of gaming (casino) industry and fundamentals with our readers.

    It is our aim to establish the Professional Ground Blog as the best and authentic Asian casino evaluation website.

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