By Fredric E. Gushin, Managing Director, Spectrum Gaming Group, LLC and Paul Bromberg, Chief Operating Officer, Spectrum OSO Asia Ltd.

Gaming Industry Observer, June 2007 

The global gaming industry over the last two years has shifted its focus to Asia. Macau, Singapore and the Philippines have vibrant and growing gaming industries, and other jurisdictions in Asia are considering the legalization or expansion of gaming.

The Asian gambler has been a “high value target” for the international gaming industry for many years. Las Vegas, Atlantic City, the private London casinos, Monte Carlo have all competed for the high-level Asian gambler for many years, but the development of first-class gaming facilities in Asia is a relatively new phenomenon. While Genting Highlands in MalaysiaMacau blossomed over the last three years. Macau changed the entire landscape of gaming in Asia and perhaps the entire world when it reverted to China in 1999 and the Government decided to issue an RFP to issue new casino concessions. Three companies were awarded casino concessions and the rest is history. has been catering to Asian high roller effectively for many years, the rest of Asia has not developed major destination gaming venues until

Today, Macau has surpassed gaming revenue generated by the Las Vegas Strip; in fact, the performance of the Macau casinos has caused a frenzy of new-casino development, including the birth of a new “Strip” in Cotai. Macau continues to strengthen its position as the region’s hottest gaming location and there is no indication that this trend will slow down in the near future.

Yet, it was not too long ago that most Asian governments frowned upon legalized gaming. Who could have foreseen five years ago that Singapore would have launched two destination resort projects, scheduled to open in 2009, with investment worth in excess of US$6 billion? Or that Mongolia would be the next frontier for legalized gaming at three approved casinos? Elsewhere in the region, governments in Vietnam, Japan and Taiwan are giving more thought to legalized casino gaming, but significant social, regulatory and infrastructure hurdles still need to be overcome.

Certainly, there has been a seismic change in attitude towards gaming. Casinos are no longer considered stereotypical dens of iniquity operated by organized crime groups and their associates. Macau has been at the forefront of this transformation, as an example of the type of planned tourist – not gaming – destination that can prosper with an influx of legitimate investors.

Ultimately, however, this is a compelling China story – a corollary to the amazing growth of the Chinese economy over the last 20 years, and the impact this single event has had on the rest of the world. The majority of the patrons funding the rapid growth in gaming in Asia – from Macau to Malaysia, from Mongolia to Vietnam – presently hail from, and will continue to come from, mainland China.

This has been possible for several reasons. First, Chinese citizens have been able to accumulate wealth, often at a spectacular pace. Second, the government has opened China’s borders and allowed its citizens to travel overseas. As most forms of gambling remain illegal at home (in fact, gambling remains as one of the so-called “sins” in Chinese Culture), waves of newly wealthy tourists seek excitement and entertainment, often in the form of gaming.

Given their propensity to gamble, why is the Chinese government willing to allow a large percentage of its wealthiest citizens to export so much money out of the country for this purpose? We have yet found anyone who can provide a satisfactory answer. Another important issue to consider is what it will mean for all the new casinos in Macau if there is a major slowdown in the Chinese economy, or if the government decides to restrict its citizens from overseas travel, including Macau. Although either event seems unlikely in the near future, these are risks that one rarely hears being discussed amid all the good news.

There is no question that the Asian region holds the most explosive potential for new players and markets. Singapore will be the next major gaming jurisdiction to come online in 2009. What about some other established economies such as Japan, Taiwan and Korea? Are there any other destinations that might surface? Perhaps Mongolia, India or Indonesia? Here is our overview f what we expect, country by country:

• Japan: Although it has been a long process, Japan remains a favorite among gaming industry investors and developers to implement legalized casinos due to its large, wealthy population. Proposed legislation to set up two casinos, initially, is scheduled to be heard by the Japanese Diet in December 2007. The country does have existing pachinko and pachisuro “gaming” industries.
• South Korea: Although the country now has 17 casinos, only one is open to Korean nationals. More casinos focused on visitors and tourists may open, but the market is unlikely to develop further. Long-term political and economic stability issues due to North Korea are also of concern.
• Taiwan: This is another location with huge potential as a gaming destination due to its small but wealthy population. It is likely that the first casino would be positioned on Penghu Island or another outlying island. There remains strong political opposition to casino gaming. So much depends on what happens politically in the next few months. If the government does decide to legalize gaming, it could happen very fast.
• Mongolia: Draft gaming legislation is presently before the Mongolian parliament to allow three casinos catering to foreign (read “Chinese”) nationals only. Under the draft law, a casino could only be located in a special trade zone or in close proximity to an international airport. It is expected that the law will be approved and that first casino will open within the next 12-18 months.
• The Peoples Republic of China: Within China, gaming presently exists legally in Macau only. Further gaming expansion is unlikely although slot parlors and more lotteries are likely to be permitted in due course.
• Macau: The government has to date taken the attitude of “Build it, and they will come.” However, an oversupply of casinos is likely to result in some of the smaller casinos being unable to compete, and closing down. Genuine concerns also exist that Macau’s infrastructure cannot keep pace with its break-neck development. Access at border checkpoints is very congested, and road traffic is coming to a halt. Other issues of concern are the role of the junkets, and possible organized crime infiltration.
• India: Casinos in Goa have opened to foreign visitors. There is considerable potential due to the emerging middle class in India. However, cultural and religious issues will have to be overcome. Legalized gaming is likely to expand over the next 5-10 years.
• Philippines: Legalized gaming exists under the supervision of The Philippine Amusement and Gaming Corporation (PAGCOR), which also runs its own casinos. Although beneficial to the country in terms of employment numbers and generating tax revenue, international operators consider this a clear conflict of interest. Political interference and corruption remain key barriers to legitimate foreign investors entering the market. No change is anticipated in the short term.
• Malaysia: Only one casino operates legally in Genting Highlands, close to Kuala Lumpur. It is open to non-Malays only. No change in the status quo is anticipated.
• Indonesia: Casino gaming is illegal. Cultural and religious barriers mean that change is unlikely, especially on Java. However, a large-scale destination gaming resort is being discussed for Bintan Island (near Singapore), reportedly with the blessing of the Indonesian central government.
• Thailand: This country has huge potential due to its existing developed tourism industry. Casino gaming is illegal, and no change is anticipated while the King is alive. There is too much political instability at present, and too many vested interests in illegal gaming and casinos in neighboring countries to effect change in the foreseeable future.
• Vietnam: This country has huge potential due to its rapidly growing tourism industry. There are presently one casino and three smaller gaming clubs operating legally in the north of the country. Slot parlors open only to non-Vietnamese are legal in five-star hotels. Legal casinos are expected to open soon in the south, notably in Danang and Vung Tau. Casinos are expected to cater to non-Vietnamese for the foreseeable future.
• Cambodia: Many casinos exist, but they remain unregulated. Rampant political and corruption issues remain the key barriers to legitimate foreign investors. No change is anticipated, and we expect to see more of the same.

The bottom line is that gaming in Asia is going to continue growing over the next 10 years, albeit not always at the breathtaking speed now seen in Macau. Opportunities will continue to present themselves, so do not be surprised one day to find international standard casinos operating legally in heretofore unexpected locations.

Governments and operators will still have to confront the usual sort of social and economic problems. These include, but are not limited to, possible economic slowdown, oversupply, infrastructure issues, the role of junkets, organized crime infiltration, problem gambling, etc. That said, the investment returns to be made in Asia likely far outweigh any potential risk, at least in the minds of most international investors. Without doubt, these are very exciting times for everyone involved in the Asian gaming industry.

(Fredric Gushin is Managing Director of Spectrum Gaming Group, an independent research and professional services firm serving private clients and governments worldwide. Paul Bromberg is Chief Operating Officer of Spectrum OSO Asia Ltd., a Spectrum Gaming Group affiliate based in Bangkok that provides business intelligence and due diligence in Asia and worldwide.)