Casino executive Michael Santangelo (pictured) on Friday warned that not all new gaming properties in the pipeline in emerging Asian casino jurisdictions will be able to meet expectations.
“Many of the properties are going to be successful in driving EBITDA [earnings before interest, taxation, depreciation and amortisation] to the bottom line, but not all of them are going to be widely successful and will probably underperform in terms of the investors’ expectations,” he said.
He added: “There will be some underperforming properties because they just won’t have the right amenities or the marketing arm or the ability to attract customers on a regular basis.”
Mr Santangelo was until very recently president of the Grand Ho Tram Strip casino resort in Vietnam.
He noted that there are new project openings planned for several Asian countries, including Cambodia, Philippines, Vietnam, South Korea, Laos and Sri Lanka, among other jurisdictions.
Mr Santangelo was talking in Macau during a presentation at the 5th Annual Resorts and Entertainment conference, promoted by event organiser Marcus Evans. GGRAsia was a media partner of the event, which ended on Friday.
He purposely left out of his analysis Japan and Taiwan, which are both looking at legalising casino gambling. Mr Santangelo said that could have a significant impact on other emerging Asian casino markets. He expects Japan to eventually approve casinos.
The increasing regional cooperation means existing Macau properties need to keep upgrading their facilities to remain competitive, the executive pointed out.
“I just cannot believe that some of these older properties that continue not putting money back into their facilities will be successful. They will continue to see their margins erode.”
Mr Santangelo hinted that Macau-based operator SJM Holdings Ltd was already suffering from the lack of new offering in recent years. The firm headed by gaming tycoon Stanley Ho Hung Sun saw profit growth slow to 2 percent in the first half of this year.
SJM Holdings’ last major opening took place in 2009, when it launched Casino Oceanus, located at an already existing commercial building.
“Their product is starting to become a little old and they are not expanding the room [inventory],” Mr Santangelo said.
In his presentation, Mr Santangelo mentioned four basic requirements for a casino resort in an emerging Asian jurisdiction to become successful: incentives offered to junket operators; location and ease of access (particularly by Chinese visitors); amenities on offer and government relations.
“Because of the low effective tax rates outside of Macau, you find that many of these properties can offer massive incentives to junket operators to come to the property,” Mr Santangelo explained.
He noted that while Macau gaming operators can only offer incentives of up to 40 percent of gross gaming revenue to junkets due to the city’s effective gaming tax rate of 39 percent, in Vietnam or Cambodia the incentives percentage can go up to 70 percent.
Mr Santangelo said a sound junket network is “critical” for any new gaming property in an emerging Asian market. Not only do they bring in high-net-worth players, but also facilitate fund transfers by VIPs to gamble.
“Going forward, you are going to find some large junket operators becoming partners in some of these operations… as they try to diversity themselves out of Macau,” he forecast.
“That will give them an extra incentive to drive play to that operation because they will have an [equity] investment in the property.”
Imperial Pacific International Holdings Ltd, an investor in the profit stream of Macau junket firm Hengsheng Group, on Wednesday said it would more than doubled its investment to build a casino resort in the western Pacific island of Saipan to US$7.1 billion.
The casino executive pointed out that government relations are also “widely important” in Asia to ensure local regulations align with the gaming operator’s plans and that the required support infrastructure is made available.
He mentioned the case of Vietnam, which is looking at allowing locals gamble in casinos at home, according to a recent draft bill.
“I was able to read the draft decree, and it says that Vietnamese with 21 years and older can gamble. But it adds that the prime minister must sign off on your property for Vietnamese to be able to gamble there,” Mr Santangelo noted.
“Obviously, if you don’t have good government relations, your property may not be selected to be one of those that allows Vietnamese to gamble.”
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"The [Macau] government has a lead in this subject in regards to what should be done after the [gaming] concessions expire. We will be first listening to what the government will say”
Ambrose So Shu Fai
Vice-chairman and chief executive at Macau casino operator SJM Holdings