PHILIPPINES

Online gaming in the firing line?

There’s growing concern that China may launch a crackdown on the streaming of casino games into the country this year, potentially dealing a major blow to the booming industry in the Philippines and Cambodia.

The issue was highlighted by Spectrum Gaming Group, an independent research and professional services company, as the second most important trend that the global gaming industry needs to monitor in 2019 in the 15th edition of its annual rankings.

Specifically, Spectrum predicts that the “online gaming industry… will begin to face scrutiny from China and international regulators.”

A lack of transparency and regulation makes it “impossible to assess the financial consequences of such a crackdown, according to Spectrum’s managing director, Fredric Gushin.

“The law in China is clear relating to casinos and streaming and proxy betting from casinos in Macau, but what is happening elsewhere would seem to fly in the face of existing law and policies in China,” he said.

China has been increasingly active in tackling unregulated gambling, with some startling results.

In July, police in Guangdong province broke up an alleged illegal gambling ring hosting more than $1.5 billion in cryptocurrency bets. Numerous other raids over recent months have led to hundreds of arrests.

Streaming, proxy betting and other forms of gaming will eventually be the subject of a crackdown, Gushin said.

“As the crackdown on corruption continues, it is likely that efforts to target Chinese citizens who participate in these forms of gaming will also be accelerated,” he added.

That’s worrying news for both the Philippines and Cambodia, where online gaming is booming thanks mainly to an influx of Chinese firms. The property market in Manila for example has been fuelled this year by demand from Chinese nationals.

JADE Entertainment and Gaming Technologies CEO Joe Pisano expects China to impose further enforcements through website-blocking and threatening citizens who are found to be involved with a reduction in their Social Credits System score.

Under the system, Beijing plans to give all citizens a ranking by 2020 to standardize their social reputation, or “credit.”

A lowly score can be used to punish citizens in a number of ways, from restricting travel movements through to blocking their children from joining prestigious educational institutions.

China’s efforts have already extended beyond its borders though.

“China has already conducted several actions over the past two years to rein in the more egregious segments of the online gaming industry in the Philippines and Cambodia through identifying their nationals involved, cancelling their passports and requesting their deportation from those countries,” said Ben Lee, the managing partner of IGamiX Management and Consulting.

I expect that there will be closer coordination between Philippines and Chinese governments and it is highly likely that the operators that are operating illegally will move to other jurisdictions.

“With regards to the video-streaming component of a land-based casino, that is a little bit more complicated and to date, we have not seen any direct action there. However, we would imagine that pressure would be brought to bear on those jurisdictions to rein them in as well.”

In order to make a significant difference in controlling online gambling, China requires the support and cooperation of its neighbours.

Some observers believe that the headwinds facing providers in the Philippines – coupled with a political regime in the country that has, at times, been antagonistic towards gambling – has the potential to create a perfect storm.

President Rodrigo Duterte said in October that online gambling should be “suppressed” in the Philippines. It was the latest in a series of outbursts by the head of state on the issue over the past couple of years.

As has previously been the case, advisers swiftly attempted to tone down the President’s rhetoric by briefing the media that it is only illegal online gambling that sits in his notorious line of fire. However, many believe that Duterte – who usually allows little room for such ambiguities in his statements – has a broader antipathy towards gambling as a whole.

Such opposition could matter “a great deal, and in line with his strategic shift towards Beijing, that risk will increase [for providers] as Beijing increase its presence and influence over Manila,” according to Lee.

“I expect that there will be closer coordination between Philippines and Chinese governments and it is highly likely that the operators that are operating illegally will move to other jurisdictions,” Pisano added.

City of Dreams

The $1.3 billion City of Dreams Manila is owned by Belle Corp and Melco Crown Entertainment’s local unit. The shares were suspended from trading on the local exchange in December after stock outstanding dropped below the minimum levels required following a tender offer. Melco faced a backlash against the offer from minority investors who claimed it was unfair.

City of Dreams Manila has six hotel towers with approximately 950 rooms in aggregate, including VIP and five-star luxury rooms and high-end boutique hotel rooms, a wide selection of restaurants and food & beverage outlets, a 4,612.44 square meters family entertainment center in collaboration with Dreamworks Animation, a live performance stage, two international nightclubs and a multi-level car park.

In Q3, net revenue at City of Dreams Manila was $141.7 million compared to US$148.2 million a year earlier, while adjusted EBITDA fell to $55.2 million from $57.3 million.

Rolling chip volume was flat at $3 billion, with a win rate of 2.7 percent compared with 2.5 percent a year earlier. Mass table drop rose to $204.9 million from $174.1 million in the third quarter of 2017.

Bloomberry Resorts

Bloomberry Resorts’ Solaire was the first IR to open in Entertainment City and is now planning a second IR to the north of Manila to cater for the local mass market in Quezon City. The company has reported strong results and in the nine months to end-Sept, GGR gained 10 percent to PHP38 billion. For Q3 alone, the company said its revenue hit record levels for both the mass sector and electronic gaming machines, although its VIP GGR was hit by a lower hold rate.

Solaire is a 16-hectare integrated resort. The Bay Tower of Solaire consists of a casino with an aggregate gaming floor area of approximately 18,500 square meters (including 6,000 square meters of exclusive VIP gaming areas), with about 1,400 slot machines, 295 gaming tables and 88 electronic table games. Bay Tower has 488 hotel rooms and 15 specialty restaurants. Contiguous to the existing Solaire Resort and Casino, the Sky tower consists of a 312 allsuite hotel, additional ten VIP gaming salons with 66 gaming tables and 223 slot machines.

Resorts World Manila

Travellers International Hotel Group, a joint venture between Genting Hong Kong and Alliance Global, is the owner and operator of Resorts World Manila. The group swung to a profit in the nine months to end Sept. of P1.8 billion (US$33.8 million). Gross revenue increased 8.2 percent to P17.0 billion, up from P15.7 billion in the prior year period, while gaming revenues were up 7.5 percent to P13.8 billion. Travellers said the increase was due primarily to the improvement in volume in both the VIP and non-VIP segments. The company also recorded an increase in revenue from hotel, food, and beverage-related business, increasing 14.9 percent year-on-year to P2.3 billion.

The hotel room count for the group’s three hotels (Maxims Hotel, Remington Hotel, and Marriott Hotel Manila) remains at 1,226. The property is currently in the third phase of its expansion. The new Grand Wing will have three international luxury hotels – Hilton Manila, Sheraton Manila Hotel, and Hotel Okura Manila, adding approximately 940 rooms. It will also include new gaming and retail spaces, as well as six basement parking decks. Further down the road, it will open the fourth and final IR planned for Entertainment City, which is scheduled for 2020.

Tiger Resort, Leisure and Entertainment

Okada Manila, owned by Japan’s Universal Entertainment, is the largest resort in Entertainment City and the last to enter the market, with a soft opening in 2016. The property spans 44 hectares and at the completion of Phase One, Okada will have 994 hotel rooms and operate 500 tables and about 3,000 slots. Its centrepiece is the world’s largest coloured fountain, as well as a giant inner city beach complex, known as “Cove Manila.” Fitch Ratings says Okada Manila “has good potential to establish itself as a leading IR in Entertainment City thanks to its scale and high-end focus.”

However, its former management have become embroiled in legal challenges. In January, the Philippines, issued an arrest warrant for the company’s founder, Kazuo Okada, in connection with embezzlement charges. A warrant was also issued for the former COO of Okada Manila, Takahiro Usui. Universal has said it doesn’t expect the legal action to affect its Philippine operations. Both men were dismissed from their posts in 2017.

GGR jumps 23 percent in Q3

Philippine gross gambling revenue gained 23 percent in Q3, with figures for the year to September already surpassing 2017’s total, according to figures released by the Philippine Gambling and Amusement Corp (PAGCOR).

For the quarter, the total was PHP52.9 billion pesos, compared with PHP43 billion the same period the prior year. For the nine months to September, total GGR came in at PHP158.3 billion ($3 billion), which means the Philippines may be fast approaching the same levels of GGR as Singapore, Asia’s second-biggest market.

In 2017, the Philippines generated GGR of PHP152.5 billion. The IRs operating in Entertainment City generated GGR of PHP34 billion in the quarter, up 27 percent from the prior year.

Court orders PAGCOR to issue Entertainment City license

The Philippine Court of Appeals has upheld a lower court ruling ordering the Philippine Amusement and Gaming Corp. to issue a license for Waterfront Philippines to operate an IR in Manila’s Entertainment City.

Waterfront filed a petition for mandamus in 2015 after Pagcor refused to act on its application, despite it having entered all relevant documentation.

According to the 19-page ruling the trial court was correct in granting the petition as Waterfront completed all requirements for the project application, including paying a $100 million deposit. The CA also sustained the award of P100,000 as moral damages, as well as P100,000 as exemplary damages to Waterfront, which plans to build the Grand Waterfront Hotel and Casino.

It stressed that the trial court’s decision should be implemented without delay, especially the issuance of a provisional license to operate in favor of Waterfront.