Manila casino attack gives sector pause

Jun 27, 2017 Newsdesk Features, Latest News, Philippines  

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Management at two major casino venues in the Philippine capital Manila have told GGRAsia they saw some short-term negative impact on their hotel bookings following the deadly attack at the neighbouring Resorts World Manila property at Newport City, Metro Manila on June 2.

But several investment analysts think there might be longer term consequences for the Philippine casino industry, which saw a 17-percent year-on-year rise in casino gross gaming revenue (GGR) nationally in 2016, driven significantly by the new generation of private-sector facilities in Manila.

Andrea Domingo, the head of the Philippine gaming regulator, the Philippine Amusement and Gaming Corp (Pagcor), said soon after the Resorts World Manila attack that left 37 people dead – including the perpetrator Jessie Javier Carlos – that across the country as a whole, Pagcor expected to generate gaming revenues of PHP60 billion (US$1.19 billion) this year, compared to the PHP55.1 billion in 2016.

She added she expected neither the security situation in the southern island of Mindanao, nor the assault on Resorts World Manila, to have any negative effect on the country’s casino GGR.

Geoff Andres, president of City of Dreams Manila – one of Manila’s new generation of private-sector properties – told GGRAsia that his venue had faced “some hotel cancellations” from international guests following the attack at Resorts World Manila, but the number of such withdrawals had declined shortly after the incident.

City of Dreams Manila – located in Entertainment City in the Philippine capital – is operated by Melco Resorts and Entertainment (Philippines) Corp, a unit of Lawrence Ho Yau Lung’s Melco Resorts and Entertainment Ltd, which has major casino interests in Macau.

Another of the privately-backed Manila properties – Bloomberry Resorts Corp’s Solaire Resort and Casino – saw “initial cancellations” of 40 hotel room bookings from individual clients and junkets; but afterwards the property saw no further cancellations of bookings, according to the firm.

Hotel cancellations

Bloomberry’s executive director of investor relations Leo Venezuela told GGRAsia in an email: “After the initial cancellation (on the day the tragedy happened), there have been no further cancellations.” But he remarked that it was “too early to tell” what impact the Resorts World Manila incident might have on Philippine gaming industry earnings.

City of Dreams’ Mr Andres stated in his email to us: “The short-term response after the incident [at Resorts World Manila] was some hotel cancellations from some of our international guests. This was primarily before it became clear that this was a lone person with robbery as motive.”

He added: “After the details were communicated by the Philippine National Police, the cancellations declined. Overall business levels are stable and hotel occupancy remains quite high.”

On the day of the attack, police at the scene described the deadly assault as a robbery gone awry by a person with a gambling problem. A multi-committee inquiry by the country’s House of Representatives has said it wants to know more about the background. The inquiry chairman reportedly stated one aim of the probe was to prevent any similar incident happening and further harm being caused to the image of the Philippine tourism industry.

“Given that the police have identified the incident as an isolated case of an attempted robbery, we anticipate it will have minimal business impact. We will continue to grow our gaming revenues across all gaming segments and enjoy the benefits of increased visitation and enhanced infrastructure that services City of Dreams and Entertainment City as a whole,” Mr Andres said in his email.

“Our international visitors are concerned about the recent events, but we are confident that the Philippines will continue to thrive as a world class destination,” he added.

Mass segment risk

In the short run, the mass segment of the Philippines’ gaming business may see “some negative impact” following the Resorts World Manila incident, said Vitaly Umansky, an analyst at brokerage Sanford C. Bernstein Ltd, in comments to GGRAsia.

“Part of the revenue growth [of the Philippines] has been from VIP proxy play,” he said, referring to casino gambling where customers outside the venue are able to link by telephone to a person or ‘proxy’ playing on their behalf.

Mr Umansky added: “However a portion of the growth is on mass and it is from foreign visitors. In the short run, there may be some negative impact on this portion of the business.” The analyst also reckoned that the Resorts World Manila incident might cause a “short-term” decline in casino attendance in Manila.

In a research report focused on the Philippine gaming industry released on June 18, banking group Morgan Stanley estimated proxy betting was contributing more than 30 percent of VIP revenue for Melco Resorts Philippines and for Bloomberry at present.

In the same report, Morgan Stanley had identified security concerns for tourists as among the key risks for investors in the Philippines gaming industry, along with “an uncertain regulatory environment”. The institution said regulatory risk factors included a potential smoking ban; potential casino entry fees and a mooted anti-gambling addiction campaign.

Morgan Stanley additionally said there was also potential for uncertainty regarding casino licence renewal, or the issuance of more new private casino licences that would fuel concerns about market competition.

In late May the Philippine Congress approved amendments to a money laundering law in order to cover the oversight of casinos.

Nevertheless, Morgan Stanley said it expected the Philippines to emerge as the “largest entertainment market in ASEAN,” a reference to a bloc of Southeast Asian nations. The banking group estimated Philippine casino GGR could surpass that of Singapore and reach US$5 billion in 2020, fuelled by supply growth, infrastructure improvement, and a strong local economy.

RWM third phase

GGRAsia contacted Stephen Reilly, the chief operating officer of Resorts World Manila, seeking comment on the impact of the attack on the company’s business and its plan to proceed with the Phase 3 development of the property.

He said in an email: “Our Phase 3 is still in progress and on track for target start of operations by early 2018. Our priority right now is to look after the needs of the families of the deceased and those who were injured during the incident. We are also working hard to ensure that the future of 6,000 employees that we currently have is secured.”

Resorts World Manila’s operator, Travellers International Hotel Group Inc – a venture between Philippine-based conglomerate Alliance Global Group Inc and casino cruise specialist Genting Hong Kong Ltd – confirmed in a filing to the Philippine Stock Exchange that its gaming permit for Resorts World Manila had been suspended “pending investigation and final determination by Pagcor of the company’s alleged liability for the June 2, 2017 robbery/arson incident”.

Brokerage Maybank ATR Kim Eng Securities Inc wrote in a June 9 note that it expected the Resorts World Manila incident to have a drag on Travellers International’s GGR for “the next two to three years”.

“The adverse long-term impact on client sentiment and visitations will linger for the next two to three years which could force the Resorts World Manila management to change their business strategy,” the Maybank note stated.

Mr Reilly of Resorts World Manila said in his email to us: “After presenting our Casino Security Protective Action Plans to Pagcor, we formalised our request for the lifting of the June 9, 2017 suspension order for the company to operate casinos and other gaming facilities.”

He added: “We intend to bring back to normalcy the gaming operations in the ground and third gaming floors soon as possible and do not intend to open the second gaming floor for operations until the renovation works on the same are completed.”

Philippine media had reported that the second floor gaming area was where most of the victims died due to smoke inhalation.

Apart from the phase three expansion at Newport City, near to Manila International Airport, Travellers International also has a commitment to participate in a US$1.3-billion gaming resort project in Entertainment City itself. The company confirmed in June last year that the opening of this new property would be pushed back to 2020.

When asked if the Resorts World Manila incident could have a negative impact on the new project – currently titled Westside City Resorts World – Mr Reilly noted that the scheme was “in progress in accordance with the approved implementation plan”.

Sanford Bernstein analyst Mr Umansky told GGRAsia: “It is always possible that there is a licensure [licence permission] issue with Travellers [regarding Westside City Resorts World]… If it is shown Travellers was grossly negligent [at Resorts World Manila] the risks increase, but a licence loss is not very likely.”

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