The Business Times , 15 May 04

Gaming titans' S'pore wish-list
by Vikram Khanna

They're willing to come in big if regulatory, tax policies are right

(SINGAPORE) The giants of the global gaming industry consider Singapore an ideal location for a casino complex in Asia and are prepared to pour in investments that could top US$1 billion for each resort if regulatory and tax policies are conducive. In addition, they say they will list their local ventures on the Singapore Exchange.

In a series of interviews with BT over five days, major players in the casino industry, regulatory experts, Nevada state government officials, and gaming industry consultants in Las Vegas welcomed the news that Singapore is considering opening up to the casino business.

'When we read about Singapore opening up, we sent letters to the appropriate people in the government there saying that if and when such a potential transaction transpires, we would be most interested in participating,' said J Terrence Lanni, chairman and CEO of MGM-Mirage, one of the world's largest gaming corporations.

MGM-Mirage controls 12 casino-resorts, including the MGM-Grand, The Mirage, and what is arguably the most upscale resort in the world, The Bellagio, in Las Vegas. The NYSE-listed company, which posted revenues of US$3.9 billion last year, also has operations in three other US states, the UK and Australia.

Mike Stirling, senior vice-president for international operations at Caesars Entertainment, which controls Caesar's Palace and 28 other properties spread across four continents, said: 'If Singapore continues to be what it has been - open, crime-free, forward-looking and run with integrity - then I can't think of a better location in Asia for the casino business.'

Both MGM-Mirage and Caesar's already maintain marketing offices in Singapore - and across Asia - to attract local high-rollers to their resorts. Both indicated that if they were to set up resort operations in Singapore, they would want to list them on the SGX in the interests of transparency.

Asked what the Singapore government might do to attract major players, a comprehensive gaming regulatory regime was at the top of the industry's wish list. 'A highly regulated situation is most important to us, because if we didn't have that in any jurisdiction, it could potentially jeopardise our gaming licences in other jurisdictions,' said Mr Lanni.

Regulations covering the gaming industry in Nevada are stringent and cover thorough background checks - including detailed personal financial audits - on directors of gaming companies, plus a range of internal controls. There are fines and other penalties for violations, including the revocation of licences. Moreover, gaming licences are interdependent; if a company violates regulations in, for example, Macau (or if regulations there are improperly designed or enforced) this can jeopardise its licences in Nevada and elsewhere. 'For these companies, losing a gaming licence is the biggest risk,' said Michael Rumbolz, former chairman of the Nevada Gaming Control Board, and now a consultant who has helped in designing and implementing gaming regulations in Australia, Europe and North America.

Major gaming companies - which, decades ago, were funded by the underworld - are now closely monitored listed entities which rely on equity and bond markets for their capital. Mr Rumbolz and other officials advised that if Singapore permits gaming, it would be best to adapt Nevada's legislation. 'Nevada's gaming rules and laws are like the ten commandments. They are a treasure. It would take anyone else decades to come up with them,' said Lorraine Hunt, Nevada's Lieutenant Governor, who is the second highest elected official in the state after the governor. 'We hope we can share our experience with Singapore and build a partnership,' she added.

Second to the regulatory regime on industry players' list of concerns was the tax regime, which they said should be conducive to capital investments. Gaming tax rates are typically inversely related to the number of licences allowed - the fewer the licences, the higher the tax rates. The regime in Nevada allows for an unlimited number of licences (provided regulatory conditions are met) with a tax rate of 7 per cent of gross gaming revenue. This moderate rate has permitted large capital investments to take place.

By contrast, some other jurisdictions like Michigan and Illinois limit the number of licences to a handful and levy high taxes (22 per cent in Michigan). Industry players point out that this has prevented major investments in these areas. 'It would take US$2.5 to US$3 billion to replicate just The Bellagio,' said Mr Lanni. 'This property could not exist in an Illinois or a Michigan.' 'So if there are going to be, say, three licences issued on Sentosa island, that would make for a high rate of tax. If you really want large foreign investments, you would let the number of licences be determined by the market, with companies permitted to decide on what level of investments to make. Then you could also have a lower tax rate, because you'll have multiple licences and multiple facilities.'

Most experts suggested that permitting multiple players, combined with moderate to low tax levels, would produce the greatest economic benefits for Singapore. Mr Rumbolz recommended three key steps on entry policies: 'One, permit only publicly listed gaming companies, because the auditing and due diligence have already been done. Two, insist that companies have licences in other jurisdictions - that'll make them more careful. And three, raise the bar high on regulations. After doing all that, you'd be down to just 10-12 companies in the world anyway.'

Companies said they would need more facts on Singapore's policies before they decide how much they would be prepared to invest. Mr Stirling indicated that US$300 million per resort would be a typical minimum investment. But this could go as high as US$1 billion if conditions were right - about three times the cost of The Esplanade.

Among the other conditions of concern to the industry was rules on entry for patrons. In some jurisdictions (such as London) entry rules are restrictive; establishments are small, with limited games. They are also only open to foreigners and require registration in advance. Industry players did not consider the 'London model' to be conducive to large investments or a vibrant market. Mr Lanni pointed out that the UK is itself in the process of bringing its gaming laws closer to the 'Nevada model' to attract more capital outlays.

Caesars' Mr Stirling indicated flatly that 'a passports-only casino would not warrant a major investment in Singapore for my company'. Industry observers felt that it was crucial for Singapore to get its model right. 'The London/Monte Carlo model of casino gaming is old, tired, stuffy and generally snobbish,' said Jonathan Galaviz, a Las Vegas-based investment adviser and consultant on the gaming industry who is also a Singapore PR. 'Rather than embark on such an obviously flawed model, Singapore would be far better off to not even legalise casinos,' he said.