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The Business Times, 31 May 04

Singapore can win big with gaming
It has advantages others lack, but must permit local patronage and address social costs
by Vikram Khanna

WITH competition in Asia's US$13 billion casino gaming industry starting to hot up, what are Singapore's chances of capturing a decent slice of the pie - assuming it wanted to?

Pretty good, if the views of the world's gaming giants like MGM-Mirage, Caesars Entertainment and Venetian Sands are any indication.

Moreover, if the Singapore authorities - and the major industry players - play their cards right, the gaming and related industries can transform Singapore's tourism, hospitality, arts and entertainment scene, leading to job creation and tax revenue on a significant scale - far more than many other industries (like biotechnology) on which Singapore has bet big.

Moreover, gaming is an industry that can create high-paying jobs without requiring high-level tertiary skills on a large scale (which fits well with Singapore's current skill profile). And, crucially, what Singapore can potentially do in the gaming business cannot be easily replicated elsewhere.

To see just how strong Singapore is as a contender, one common misconception about the gaming industry needs to be dispelled. This is the idea that it is a 'sleazy' industry. That is certainly true of its history; up until the 1970s, it was associated with mobsters and mafiosos, but that was because they were the only people willing to finance it.

Today, the story is totally different. The world's gaming giants are New York Stock Exchange-listed companies with multi-billion dollar revenues, run by professional boards and they raise their funds on capital markets. They are among the most regulated and closely monitored companies anywhere, answerable not only to their shareholders (which include institutions) but also to gaming control authorities and US state governments. There are strict rules to which they must conform in terms of who runs them, how they are run and how they are regulated. If they step out of line, they get rapped. They can even lose their licences to operate, virtually overnight. Moreover, their licences are interdependent. If they run into a serious problem in an Asian location, where say, regulations are improperly designed or enforced, their business in other locations (including the US) can be put in jeopardy. In short, their circumstances force them to observe the highest standards of corporate governance and to be highly risk averse.

To the giants of the gaming industry, risk aversion means, first and foremost, investing only in locations where they can be confident of the gaming regulatory systems, including enforcement, as well as legal systems (for purposes of debt collection, including cross-border debt). The quality of infrastructure, airline connectivity and availability of support industries also matter.

Singapore has advantages over other Asian locations (including Macau) in all these areas, but its biggest advantage lies in the perceived integrity of its regulatory systems. This is a matter of confidence and trust, built up over time, and is not something other locations can easily replicate. This is why, while many countries can invite companies to set up casinos (or allow local companies to do so), most are unlikely to attract large investments by big players, who need to have a high level of comfort with the regulatory and legal (apart from physical) infrastructure before they commit large resources. And if they make smaller investments, these are likely to be concentrated on gaming, rather than on integrated resorts that encompass entertainment, the arts, retail, food and beverage, spas and convention facilities.

Thus, it is notable that despite all the hoopla, the US$240 million invested in Macau by Venetian Sands is, in fact, a modest investment by the standards of the gaming giants, whose major properties involve investments of US$1 billion each, at a minimum.

Singapore has an additional advantage over most other locations in Asia that are vying for the gaming business: it needs the tax revenues less. This means it can afford to peg gaming tax rates at relatively low levels (like under 10 per cent). From the gaming industry's perspective, the lower the taxes they have to pay, the higher their expected post-tax returns, the higher the capital investments they are prepared to make.

Better bet: In short, while many other locations can attract casinos of some form or another, Singapore has a better shot than most at getting major investments by big players in integrated resorts that would span not only gaming, but also other areas.

However, there are two key issues that Singapore must face squarely if it wants to get the full benefits that the gaming industry can offer.

One is that it must be prepared to allow local residents to patronise resorts, rather than confining them to foreigners or high rollers. The 'passports only' or 'super-rich only' models will not induce major investments and will therefore not produce benefits on a significant scale. So-called exclusive casinos which cater to a select few are not worth the trouble of legalising gaming.

There will also be social costs Singapore must face. Opponents of legalised gaming have drawn attention to the possible consequences of 'problem gambling'. It is a valid concern, which needs to be addressed. But it should be addressed whether Singapore legalises gaming or not, because there will be plenty of places in Asia for Singapore-resident gamblers to go - in fact, there is choice enough already. Legalising gaming might, in fact, enable appropriate regulations and mechanisms to be devised to deal with 'problem gambling' that would not happen if gaming remains illegal.

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