52 minute read
FOCUS
Focusing on the future, learning lessons from the past
In what has now become an Asia Gaming Brief tradition, the Focus Section of our December magazine takes a look at the year in review and asks for forecasts on how the year ahead may evolve. In the following pages you will find those predictions from a selection of leading figures in Asia’s gaming industry.
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We also focus on some key themes that have emerged throughout the year and look at how they may impact the industry moving forward.
As the region starts to reopen to international tourism, the industry is likely to be facing a giant Chinashaped hole in its visitation numbers and spending.
China is doggedly sticking with its zero-Covid policies, which also encompass Hong Kong and Macau, and no change is expected in the first half of 2022 at the very least. Some predictions are for Chinese borders to remain closed for the better part of next year.
The travel restrictions are also likely to be masking what may be a much longer-term issue and that’s China’s ongoing and increasingly determined crackdown on its nationals travelling overseas to gamble.
We ask what strategies regional operators could adopt to make up for the loss of the China market, especially given that many of the region’s mega resorts were built with the Mainland VIP in mind. It seems there is no easy fix to this problem.
We also take a timely look at regional AML issues. Fred Gushin and Paul Bromberg from Spectrum Gaming are urging regional governments to take a more proactive approach, especially when it comes to junket operations. The Philippines and Cambodia are on the FATF grey list and risk serious reputational damage if they don’t tackle the issues.
The “great resignation” was another theme to emerge this year and in some jurisdictions it’s causing a serious crisis in the hospitality industry.
Sudhir Kale, founder of GamePlan Consultants and Brett Jones, CEO of Bullseye CX, throw the spotlight on the problem in Australia’s bars and clubs. They survey managers across the industry and find that companies that don’t pay greater attention to the employee experience are likely to be in serious trouble.
Hopeful for recovery, but caution abounds
Looking back at last year’s predictions, few were super bullish about a quick snap back in Asia, although no one anticipated the devastating impacts of the new variants either.
After a few brief months of opening at the beginning of the year, most countries around the region have been back in varying degrees of lockdowns, with their casinos shuttered for months on end.
Even when they have been able to open, there has been a complete lack of tourism traffic for a second year, once again highlighting the problems of operating in jurisdictions where there is no support from the local market. In some countries, such as South Korea, the industry is pushing hard for relief and to at least allow locals into the casinos on Jeju island. Industry commentators say this would be a watershed moment for the industry.
Towards the end of 2021, many Asian nations had begun to flirt with the idea of some kind of border reopening. Cambodia, which has one of the highest vaccination rates in the region, is one of the most open, whilst others began with experiments to a limited number of destinations, such as some islands in Thailand and Malaysia.
However, now we have Omicron. At the time of writing, scientists are still trying to assess just how infectious the variant is and whether it has the capacity to evade the available vaccines on the market.
While we wait for answers, the immediate outlook for a reopening to tourism in Asia looks uncertain to say the least. Not surprisingly, many of our commentators cited vaccine rollout and virus variants as being two of the themes that are once again likely to dominate in 2022.
There is a cautious sense of optimism that things will be better, but uncertainty dominates. China is expected to stick with its zero-Covid policy, and while that may favour Macau, other jurisdictions will be dealing with a major hole in their tourism markets.
In Macau, I can safely say that no one the year-end bombshell in the form of the arrest of Suncity CEO Alvin Chau. The shockwaves from that event will continue to be felt throughout the industry next year, with the junket industry now predicted to collapse.
Although the loss of the VIP segment won't necessarily dent the operators' bottom lines too heavily, it will have a major impact on the government, which derives its tax from gross gambling revenue. This provides a serious incentive to really push for meaningful economic diversification.
Despite the upheavals in Macau over the past few months - first the gaming law amendments, then the junket crackdown - most still predict that the same six concessionaires will still be on the scene following the new bidding process.
Another key trend predicted for 2022 is the continuation of the wave of mergers and aquisitions we have seen in 2021. Globally, the convergence between online and land-based is expected to continue, although analysts are beginning to raise red flags about lofty valuations.
Down in Australia, an expected regulatory avalanche in the wake of the Crown Resorts and other inquiries is set to push up compliance costs, which may be a driving force for consolidation there.
We'll be sure to check in again next year to see how predictions stack up to reality.
No changes for Macau
By Alidad Tash | Managing Director, 2NT8
The much-anticipated revealing of new Macau concessionaires will not bring a change in operators, argues gaming analyst Alidad Tash.
The most significant development of 2021, worldwide, was the vaccine race, the Delta Variant (from June) and Omicron (November). In Macau, it was the year-long implementation of a zero-Covid strategy and the arrest of Alvin Chau, which led to the demise of junkets.
What to look out for in 2022: Worldwide: look for more booster shots, more variants and more economic recovery in more nations. Macau-wide: Look for the revealing of the muchanticipated new concessionaires (no change from before), more strict capital outflows from China (affecting Premium mass and premium direct), and opening to Hong Kong in early 2022 and outside greater China as the year progresses.
More online regulation and more mergers
By Danny Too | General Manager, Cherry Interactive
Dany Too suggests three themes for next year: countries will start “regulating” online, more mergers will follow and convergence will be the key in consolidation.
The most significant development of 2021 was the legalisation of PIGO in the Philippines, which is a significant and yet strange one at the same time.
The Philippines has been hell bent all these years to disallow locals from participating in gambling activities via the Internet. Nevertheless, when push comes to shove, people tend to conveniently forget what they initially fought for.
Three points to look out for next year: There will be more mergers and acquisitions - Evolution Gaming started the ball rolling and Aristocrat followed suit.
There will be a “convergence” of the land-based and online gaming world. The big boys will likely “eat” up the smaller boys and that is not a very good thing for creativity and healthy competition.
Many Asian countries will want to start “regulating” the online gambling industry as they want to tax more effectively and try hard not to allow the illegal online casinos to prosper.
More sophisticated payment solutions are likely to emerge as Big Brother China is cracking the whip really hard on the gambling sector. Operators and entrepreneurs tend to prosper in these sorts of conditions. They somehow thrive under pressure and many “creative” ways for payment solutions will emerge as a result. As the adage clearly says, “There are many ways to skin a cat.”
Extension forecast for Macau casino re-tender
By David Green | Principal, Newpage Consulting
For David Green, principal of Newpage Consulting, 2021 featured some watershed events for the industry, including the probes into Crown Resorts and the arrest of Alvin Chau.
It was a surprise to many that Crown Melbourne retained its casino licence, albeit with a special manager appointed by the government to oversee its journey towards suitability over the next two years. Crown is probably the largest gaming company ever to be found unsuitable.
The fact that it required a Royal Commission, rather than a regulator-initiated inquiry to arrive at that result will provide something of a wake-up call for gaming regulators across the globe.
The arrest of Alvin Chau was another key event. While he is entitled to the presumption of innocence, mainland authorities have periodically telegraphed their concern with the junket operations of the Suncity group, and their proxy betting activities in the Philippines. While Suncity has moved forward to integrate into casino operations in Vietnam, the Philippines and Russia, it has continued to operate the businesses which attracted official attention.
Mr. Chau and Suncity were also tainted by the Bergin Inquiry into Crown Sydney’s suitability to hold a casino licence. Closing down VIP rooms after the event may be a classic case of shutting the stable door after the horse has bolted. The implications of the case against Mr. Chau and his associates in Macau are potentially far reaching, and represent an existential threat to the future conduct of junket businesses. A worst case scenario would see the People’s Republic of China’s criminal law revision treat Macau in the same way as other cross-border destinations for Chinese gamblers, a position which will severely crimp the recovery of the gaming business in Macau post-Covid.
Another key event was the result in the Dore case, which found Wynn jointly liable for losses occasioned to third parties by the theft from Dore. The case highlights the fact that operators should not rely either solely or principally on the fact that a junket is licensed under AR 6/2002 when making a decision as to whether they ought to contract them to run VIP rooms in their casinos. Amendments to AR 6/2002 may be expected, but I doubt they will do much to shield casino concessionaires from such risks. It may not matter too much; the era of the traditional junket operation may well have been flagged with Alvin Chau’s apprehension.
Looking ahead, Macau in 2022 will be a very different place. I think it unlikely that the concession re-tender will be undertaken during the year, more likely a 6-12 month concession extension, with a start to the process early in 2023. The government may need to rethink its expectations for bids for the new concessions; the greenfield/blue sky opportunity offered in 2001 is nothing like the scenario that confronts potential bidders currently, or will likely be when the tender is opened. Competition is unlikely to be the issue. Japan is still some way off getting its IR developments awarded, much less built and opened.
Other China-facing jurisdictions, such as Cambodia and Korea will probably see much of that business atrophy. Rather, it will be the structural change in the industry, away from junkets and more towards the lower volume mass and premium mass market segments. All is predicated on the absolute uncertainty of the future impact of Covid and its various strains and mutations. It is not a cocktail which bodes well for the government if it is seeking shorter concession terms, more concessions, or substantial investment or front-end premiums for the grant of the new concessions.
Looking forward to a better new normal
By David Lawrence | Casino General Manager, Thunderbird Resorts
The ramp up of vaccinations and ease of restrictions contribute to David Lawrence’s confidence that the industry will see recovery in 2022. The casino general manager expects pent up demand to follow.
Like all other gaming jurisdictions, the Philippines has been adversely impacted by the effects of the Covid-19 pandemic starting Q1, 2020 and continuing through to the present. While there is still a degree of uncertainty moving towards 2022, we believe the ramp up of vaccinations, especially in the second half of 2021 has been the most significant development as this has resulted in a reduction in cases and the gradual easing of restrictions.
While this easing has not yet included international travel, we are confident that as long as this decline continues, our industry will finally see some kind of recovery. For 2022 my points to look out for are as follows:
Pent up demand – We think that as restrictions ease further, both locally and internationally, there will be pent up demand from both markets, this will be true regardless of geographic location.
New normal – All businesses have had to implement mandated protocols, with the gaming industry requirements being among the strictest. Even as we move towards the new normal, we have to continue to adapt operations to cater for not just these requirements, but our guests’ changing expectations.
Thinking outside the box – We have learned during the pandemic that by necessity we have to change the way we operate our business. Moving forward, we should be mindful that the dynamics of our industry have changed and we should strive to adapt quickly to new expectations and requirements. This I think applies to operators, suppliers and regulators in equal measure.
Most of all for 2022, we are hoping that all of us can see the situation improving and things returning to a better ‘new normal’ for us all.
Robots, NFTs and culture clashes
By Earle Hall | CEO , AXESnetwork
Futurist Earle Hall predicts the robotization of the large scale chains and a corporate culture clash when dealing with the revamped WFO policies. On the flipside, blockchain finds its purpose.
2021 was marked by sustained change due to the global pandemic. 2022 will be the start of the longterm recovery. However, the world has changed. Here are my predictions for 2022:
1. Where did all the people go ? (prediction: Robotization)
A general theme around the globe over the past year is that many segments and industries are missing too many people. It seems the great resignation is a generalized trend and this is affecting the base of our society. There are not enough hospitality and restaurant, trucking, logistics, IT professionals and the endless list goes on. Large chains such as McDonald’s are suffering. Thousands of sea containers sit in ports and ships are anchored offshore because transportation is not available and the global supply chain is compromised. What is the solution? Simple and accelerating robotization. 2022 will see a massive acceleration in robotization to compensate for the great resignation.
2. Blockchain Revolution (prediction: NFT)
A technology only finds traction when it finds purpose. Blockchain has found its purpose: NFT. 2022 will see blockchains accelerating as NFT digital assets are migrated from unsecure, easily copied mediums to the blockchain. From fashion to real estate and from digital music to virtual cemeteries, the migration to NFT will be fast and furious, sparking an intellectual property revolution.
3. Remote Work gets lonely (prediction: Corporate Culture War)
2022 will see the genesis of the corporate cultural divide. As employees divide into three categories, (1) mostly at the office; (2) rarely at the office; and (3) never at the office, new cliques will emerge to forever change the corporate culture.
Remote workers will begin to complain that they are isolated from “the mostly” at the office and that the decisions, power and influence are happening inside “the mostly” at the office group. This is a natural occurrence according to the principles of herd theory, as the members of the herd instinctively band together for safety and security and organize themselves from the most dominant.
As this natural occurrence emerges, the “never at the office” will feel isolated, ignored and out of the know. The “rarely at the office” will either disengage and continue to fuel the great resignation, or shift to the “mostly at the office” to ensure their ranking in the herd.
Starting on the backfoot
By Gary Bowerman | Tourism analyst, Asia Travel Re:Set
Tourism analyst Gary Bowerman expects much of the first half of 2022 to be about rebuilding the newly lost confidence, as the much hoped-for rebound at CNY seems further away.
The outlook for 2022 depends not only on Omicron, but also on the scale of new waves of the Delta variant taking hold in some countries.
Several governments in South East Asia have introduced harsh, short-term border closures, lengthier quarantines and selected flight bans - these are designed to deter travel, rather than ban it, as more scientific assessment is made regarding Omicron.
Unfortunately, this has curtailed momentum that was gradually building, and has dealt another heavy blow to travel confidence.
Two weeks ago, the 2022 Lunar New Year period appeared as if it might kickstart a fledgling recovery in parts of the region. That looks impossible now, and that means another year starts on the back foot.
Talk for much of the first half of 2022 will be about rebuilding the newly lost confidence from Omicron and Delta.
Governments also have a monumental challenge ahead to persuade sufficient proportions of populations to get a third jab, as hesitancy at the moment appears pretty high in some countries of South East Asia.
Regulatory shakeup to trigger consolidation
By Jamie Nettleton | Partner, Addisons
Much about the gambling sector in Australia in 2022 can be predicted from events in 2021. The turbulence facing Australia’s largest gambling company, Crown Resorts, will continue. With an almost complete change in senior management and board as a result of the inquiries in Sydney and Melbourne, it is likely that there will be further changes in 2022.
Even with the outcome of the Western Australian Royal Commission, there will still be a Crown Casino – it is very likely that it will continue to be in business in all three states. Having said that, there are likely to be material changes at the regulatory level, with new casino regulators in each of New South Wales and Victoria and, we predict, fundamental changes to the casino regulator in Western Australia.
But then, there may well be a new owner of Crown Resorts.
Money laundering inquiries will continue to result in fundamental changes to the conduct of gambling, and its regulation, in Australia. Expect an announcement concerning the results of AUSTRAC’s inquiry into the practices that took place at Crown, which were highlighted in the various inquiries and which will be further discussed in AUSTRAC’s report. No doubt a considerable number of recommendations will be made about the processes that should be put in place in a gaming venue to minimise the risk of money laundering. Some of these, such as the introduction of a “source of funds” declaration as well as increased calls for the introduction of cashless gaming, are likely to result in change. These are likely to be implemented in all areas of the gaming sector, ranging from casinos to other gaming venues to online.
However, similar measures are also likely to be introduced as part of the implementation of the final stage of the National Consumer Protection Framework (NCPF) which applies to the conduct of betting by licensed Australian operators. Expect much tighter KYC processes, and the potential for verification to be required to be conducted in advance of any betting taking place. We would not be surprised if this requirement is implemented by the end of next year, if not in law, then at least in practice. Part of this is likely to arise as a result of the introduction of the National Self-Exclusion Register (NSER) which will mandate that matching take place of those persons whose details are recorded on the NSER in advance of any betting taking place to ensure they are executed.
The remaining measures of the NCPF will also be implemented in 2022 – at last, there will be common messaging requirements to be met as well as the introduction of a standard form activity statement for betting customers. Despite the implementation of these measures, which are intended to be consistent across the country, expect teething pains and differences. It can already be seen through the manner in which the advertising measures forming part of the NCPF have been implemented, that various jurisdictions will take different approaches. This is also likely to continue to be the case for these measures.
The introduction of these further layers of regulation in 2022 will cause compliance to be of even greater relevance for all gambling operators. A failure to put in place appropriate compliance measures is likely to attract the attention of authorities with ever stricter enforcement measures being taken, resulting in disciplinary action under licences and the imposition of fines.
These steps are likely to result in a number of gambling operators ceasing to conduct business or merging operations. In any event, we anticipate the number of corporate transactions involving gambling operators to continue with mergers, demergers and acquisitions continuing to take place. Despite many of the difficulties and regulatory changes highlighted above, we anticipate that Australia will still be an attractive gambling market and many overseas businesses will look to Australia as a natural extension of their global operations.
As I have mentioned, trends which have occurred in 2021 will continue through 2022.
Tax and legal clarity to emerge
By Jay Sayta | Gaming Lawyer, Independent
Independent gaming Lawyer Jay Syata expects the rate of GST on online gaming and casinos to be clarified. Chances are the rate will likely be increased in 2022 causing industry headwinds.
2021 has been the year of post-Covid recovery as far as the brick and mortar casinos are concerned, with state governments in Goa and Sikkim (the two states where casinos are licensed and permitted) giving approval to restart operations after the deadly second wave of the virus subsided.
The year has also been marked with clampdowns, restrictions and lawsuits on online ‘skill-based’ games with the state of Karnataka in Southern India (the state amounts to upwards of 10 percent of total users and revenues of online gaming companies) being the latest state to pass legislation to ban all kinds of wagering or betting on online games, including skill-based games.
Petitions against this ban have been filed in the Karnataka High Court and petitions are also pending in High Courts of Telangana and Andhra Pradesh, where state governments have imposed similar bans.
An appeal has also been filed by the Tamil Nadu government in the Supreme Court against an order of the Madras High Court that ruled bans on online skill-based games are unconstitutional. The Supreme Court is likely to hear the matter in 2022 and provide an authoritative verdict on online skillbased games played for stakes and its legality in the coming months or years.
Next year, we are also likely to have clarity on the taxation for online gaming, casinos and horse racing as the Goods and Services Tax (GST) Council, the apex constitutional body comprising of centre and states deciding the country’s indirect tax policy, is likely to decide the manner and rate of GST for gambling and betting, including online gaming. The rate of tax on online gaming and casinos is likely to be increased, which may cause headwinds to the industry.
Year of the gaming metaverse
By Joe Pisano | CEO, Jade Entertainment and Gaming Technologies
The convergence between land-base and online gaming will continue apace next year, Joe Pisano, CEO of Jade Entertainment and Gaming Technologies predicts. This will likely lead to more consolidation.
2021 was a year of great change for Jade, adding two new verticals to our business strategy, Jadesportsbet.com and Jadesabong.com. Both products are available via retail outlets and online and we see the bridge between land and online as an essential business strategy to any gaming company as we move forward with the new normal.
2022 will be the year of blockchain, Crypto will be embraced by the industry, NFTs will be embedded into games and we will see the start of the gaming metaverse. Remote gaming, which is the extension of land-based gaming into the online space, is a must for any gaming operation as it provides the business continuity solution during disasters.
In 2022, payment solutions, digital wallets, mobile gaming, geo-compliance and marketing solutions will be the drivers to ensure the success of any gaming operation whether land-based or online. For land-based properties, remote gaming will become an essential marketing tool.
2022 will be the year of M&A, we will see mega mergers between online and brick and mortar operators. We will see manufacturers acquiring online and sportsbook platforms and payment solutions. I predict Apple will emerge as the major player in the metaverse.
For Jade in 2022, our strategy will be to continue to source products and solutions that will drive our business in the year ahead and set a strong foundation for the decade ahead with blockchain, digital payments and mobile being at the core of our business strategy.
During 2022, Asian casinos will reevaluate their business strategies to combine remote gaming into their product offerings, Macau will reinvent itself as a family destination and I expect, as borders open, that we will see the events industry grow in Macau.
For the Philippines, PAGCOR has shown great initiative to lead the way in Asia with regulation that supports the new technologies and integration of remote gaming. We will see the foundation that has been laid out over the past year drive the Philippines into becoming the major tourism and entertainment destination in Asia.
Overall 2022 will be a very good year for the gaming industry. We will see the integration of new technology and we can look forward to a boom year in 2023.
Climate a bigger problem than Covid
By Prof. Dr. Wolfgang Georg Arlt | CEO, COTRI
Prof. Wolfgang argues that climate change, not the virus will be the challenge for the coming decades. The head of COTRI expects the end of the pandemic in 2022 or else...
The Year of 2021 obviously belied expectations, a year of never-ending disappointment in the hope for an imminent end to the nightmare. All the yearning for business and for hugs remained unfulfilled around the world, and in the Asia-Pacific region the Zero-case policies of the governments of China, Australia and New Zealand added insult to injury.
The Year of 2022 will see the end of the pandemic. It simply cannot develop in any other way or else mankind will go mad. Some colleagues already lost their nerves and declared the end of tourism, the end of mobility even.
But to keep things in perspective: More than five million human beings have died from Covid-19, which is awful and heart-breaking. However, more than 30 million died in the Great Famine at the end of the 1950s in China alone; the Second World War ended the lives of at least 70 million people prematurely, most of them young.
There is no reason to believe that the pandemic will in the long run stop people from travelling, from mobility, or from gaming. The Year of 2022 will, however, see again unprecedented floods and droughts, record-breaking heat waves and snow storms, reminding us that the main challenge for the coming decades is not the virus, but the unstoppable climate change.
Looking realistically at the non-linear climate change processes which have already been triggered as of today, it seems inevitable that the vast majority of all human beings born after the year 2000 will die not from natural causes, but prematurely from a lack of clean water and clean air, from extreme weather events, from diseases connected to climate change or from violent conflicts between and inside countries over scarce resources and forced migration.
It can be expected that it will become clearer in the Year 2022 to the “Greta” generation that their demand of the politicians to “do something” is right, but comes at least ten years too late. One of the big questions of the year will therefore be how, especially younger people, will react when they finally realize that the Titanic has already hit the iceberg, with denial, suicide cults, extreme hedonism, cocooning and ncreased competitiveness trying to belong to the minority of survivors.
The motto of the Year 2022 will be the same as is written in invisible paint over the entrance to any casino in the world: Carpe Diem!
Bright future seen for India skill games
By Roland Landers | CEO, All India Gaming Federation
India will continue to be an attractive online gaming market for investors. Roland Landers expects to see more M&As in the sector as the regulatory landscape evolves.
2021 was a good year in terms of performance, with the number of gamers hitting 400 million and total turnover of $1.5 billion.
Despite the recent ban in Karnataka, almost 85 percent of the Indian market is open for online skill gaming customers.
There were also positive judgments from the Madras and Kerala High Courts. Playing online skill games for stakes is a legitimate business activity.
Looking ahead, India will continue to be an attractive online gaming market for investors due to consumer traction and successful business models.
India is one of the highest game download markets with about 7.3 billion downloads.
There is huge growth in internet and mobile penetration, with 700 million plus in both categories. The regulatory landscape is also evolving, with positive outcomes and judgments expected from states.
Online gaming companies are likely to shift to multi-game formats, while augmented reality and virtual reality will boost casual gaming platforms in improving customer experience.
We’re likely to see more joint ventures and mergers & acquisitions in this sector. There is also huge scope for esports to grow and contribute.
Strong growth projected as pandemic eases
By Scott Feeney | Executive director, GCG Gaming Advisory Services
The Philippines is expected to be one of the best-performing jurisdictions in Asia, with GCG Gaming Advisory Services’ Executive Director Scott Feeney projecting a $10 billion market within five years.
For 2021 we are estimating that gross gambling revenue (GGR) will close out at US$2.4 billion. For 2022 we are estimating the GGR to be in the US$3.6 to US$4.4 billion range, with strong growth in eSabong and in particular in Clark with the opening of HANN casino in December and ROYCE in June. The opening of NuStar in Cebu in 2Q22 will add vital GGR to the overall Philippines figures. We project the Philippines to grow steadily to a $10 billion market by 2026-2027.
The Philippines’ primary advantage is that locals can enter the casinos. This advantage has clearly benefited the Philippines over other countries, including South Korea, Vietnam and Cambodia that have relied on foreign visitation during this last 20 months. The Philippines has a robust and growing middle class and with few alternatives, the integrated resorts are seen as the best high-end option for dining, entertainment, events, shows and gambling. Gaming was established well before the integrated resorts in Manila opened up from 2009 (RWM) and as such the local customer base is very well established and there are ample mature mid to high-end customers. Foreigners based in Manila and Clark are a major contributing factor to the casinos doing relatively well during this pandemic.
The government has done a reasonable job controlling the virus within the gaming industry, whilst allowing the casinos some level of operations for the most part. We have been recommending the Philippines as the best location to invest for at least the last decade and we have also been advising clients for several years, well before the pandemic, to work their business cases on no junket activity. Fortunately the casinos have a strong business case without the junket revenue.
3Q21 results for Entertainment City surprised on the upside with a 32 percent increase in GGR compared to 2Q21. With a large part of the quarter seeing casinos closed, either fully or partially, it shows strong evidence that the high-level ‘invited’ premium guests are very much cashed up and willing to gamble when the opportunity arises. Clark was fairly flat 3Q21 over 2Q21, with a GGR of US$46 million, but this was still higher than 2Q19 2019, revealing tremendous underlying growth, and we are forecasting that Clark will exceed its 2019 GGR in 2022, even with international borders to remain mostly heavily restricted in the first half.
Another major advantage of the Philippines is that the three major casino locations have a completely different offering. Clark, with its brand new airport, offers golf courses, mountains and scenery and is also within 45 minutes of Subic Bay. Cebu, also with its new airport, offers its beaches and smaller idyllic islands, and of course Entertainment City is in the city area and now connected to the international airport, with an offering mostly on par with Macau.
Next year we will see the drive from Manila to Clark reduced to an acceptable one hour on the new tollway, giving international visitors a far greater opportunity to visit Manila and Clark over one trip. There are many key drivers to each of these three locations that will entice visitation both domestically and internationally.
The new NUSTAR and Emerald resorts will be world-class destinations, but will take some time to establish themselves. We estimate US$100 million GGR in the first full year of operations of both casinos, which should be 2024.
The casinos in the Philippines derive approximately 35 percent of their GGR from EGM’s, which is another positive and levels out the risk of relying on table games and inherent risk with the premium business when factoring in the likelihood that the casinos are offering direct credit. There is little reliance on the low-return junket markets.
The growth of GGR is more directed at premium play foreigner markets such as the Koreans and Chinese living in the Philippines, with foreign visitation from abroad not being a huge priority and effectively just another revenue stream over and above what is derived from its internal markets.
For online betting (PIGO), the larger operators (COD, Solaire, RWM, Okada) will initially take some time to fully embrace this. Similar to sports betting, it is something that takes some time to conduct correctly and within the regulations. History would remind us that the regulations do get changed often and that will see a very cautious approach.
Case in point are the various rules and taxes applied to the POGO online studios, which have been causing concern to those operators for the last 4-5 years. Of course the large operators will take it slowly and see what transpires this coming year. The PIGOs, as they are named, are strictly for casinos and their local customers.
I am not sure that this can be truly controlled by the regulator and may be a case of self-regulation, which would be expected of those operators in any case. Online puts the operators in a difficult situation if players from, for example China, work their way into that system. The casino’s licensees would depend upon this not occurring and it is a further reason to proceed with the greatest caution.
Online to gain more traction
By Sudhir Kale | Founder and CEO, GamePlan Consultants
While the land-based industry’s online presence will take some time to bear fruit, gaming consultant Sudhir Kale predicts online will achieve unparalleled significance in 2022 and beyond.
2021 was a unique year, not just for the gaming industry, but for all businesses large and small. Pretty much every casino was shut down some part of the year, with many facing multiple closures. Macau was expected to recover faster than most markets in Europe and North America, but we witnessed the exact opposite. With Macau, most observers are, in hushed tones, echoing Merle Haggard, “Are the good times really over for good?”
Ironically, at a time when the world was grappling with Covid in its multiple avatars, casinos on the Las Vegas strip and some clubs with gaming machines in Australia registered record revenues in certain months. “The Great Resignation” hit the gaming industry like it did many other businesses, with the hospitality industry being the most impacted.
Large casino companies showed unprecedented interest in online gaming, including Las Vegas Sands, whose founder was dead set against online gaming and spent millions rallying and lobbying against legalizing online gaming. While these efforts to establish a solid online presence will take some time to bear fruit, the writing is on the wall: Online gaming will achieve unparalleled significance in 2022 and beyond.
So, what does the future hold? I feel Macau will lose some of its lustre as the world’s gambling Mecca. Mainland China will continue its tight monitoring of overseas gambling among its citizens. Access to gambling funds among Chinese citizens will become even harder, and with the arrest of Alvin Chau, the death knell has been sounded for the hitherto permissive and secretive junket business. Just a few years ago, I had written that Macau’s casino companies need to look at markets beyond China. Not many people took this suggestion seriously. I am sure that many now wish they had.
I believe the Philippine casino business will grow at a decent pace, given its diverse customer base, and proximity to many markets. Japan will continue to disappoint many with the likely developments for 2022. Regulators will get serious about enforcing regulations in Australia, though I do not think the industry will be able to change its culture and its approach to risk management without intervention from outside experts. Companies operating in Vegas should do well, buoyed mostly by non-gaming revenues and the pent-up demand for travel among Americans.
My hopes for 2022? I believe they are best expressed in Emergen-C’s, “A Love Letter to Normal Life.” “I look forward to the day where a hug is just a hug, where a crowded bus or a crowded street or crowded park is welcome relief. A world where we can’t wait to wait in line again…”
Keeping it local
By Tim Shepherd | Director, Fortuna Investments
2022 will be the year of the local casino club market in Asia Pacific, Tim Shepherd reckons, as larger operations will struggle to recoup their investments into VIP.
China’s Belt and Road initiative, now well underway, will continue to provide massive loans to poorer governments around Asia. Those loans are accompanied by plane loads of businessmen and labour who will take over land and factories and build strong, vibrant mainland Chinese communities, supported by Chinese banks locally licensed and operating, wherever they go.
This is already well underway in Laos and Cambodia. These are facts.
The West-driven propaganda move for multinationals to move investment into manufacturing ABC (Anywhere But China) can only benefit Southeast Asia and South Asia. Every Samsung factory comes with hundreds of parts manufacturers, suppliers and consultants as well as entrepreneurs opening restaurants, KTV and more.
The casino industry loves regulars and everything is set up in SE Asia for the local clubs and smaller casinos to make big returns from that sector, while the bigger ones will struggle to realign their expensive investments into the VIP sector into any decent return overall.
Lastly, the days of mainland Chinese traveling long distances to gamble is over, (remember CLSA predicting 200m a year outbound?). Casinos and clubs close to the Chinese border will succeed, providing post Olympics China accepts the need to allow its citizens to cross land-based borders to trade and that those casinos and clubs have other attractions and do not chase players inside the country.
Those players and tourists will experience travel as before, but be close enough to home to bolt back if the situation deteriorates quickly, as the last two years has proven it can.
Conclusion? In terms of returns on investment in 2022, smaller and local will win the day across the region.
Can Asia’s operators fill the China tourism hole?
China’s outbound tourism market is unlikely to return to pre-pandemic levels until at least 2024, the Economist Intelligence Unit predicts, leaving a giant hole for Asia’s gambling jurisdictions and a headache for executives as to how to fill it.
According to the United Nations World Tourism Organisation, Chinese tourists spent $254.6 billion overseas in 2019, which was a fifth of total tourism spending. It had also been the fastest growing segment of the market, expanding by about 12.8 percent a year on average from 2009 to 2019, compared with the global average of 5.1 percent growth.
In addition to the dent to travel from Beijing’s zeroCovid policies, Asia’s gambling jurisdictions are also yet to assess the impact from its concerted crackdown on money flowing overseas for gambling purposes. As a result, there’s a major question mark over where they may travel once the borders do reopen.
“The recovery would most likely be slow,” said Michael Zhu, a partner with the Innovation Group, referring to prospects for 2022. “Frankly, given what is going on and can be expected in the near future, I would consider it fortunate to see gross gaming revenue in the APAC region reach more than half of the pre-pandemic level.”
Countries where locals are allowed to gamble, or where governments are less focused on a zero-Covid approach, are likely to be the most resilient. Some have already begun opening borders and establishing travel bubbles for vaccinated travellers, although the emergence of the Omicron variant may further delay this process.
“While no market can fully recover without Chinese tourists, several should be able to perform well,” says Andrew Klebanow, co-founder of consultancy group, C3 Gaming. “Singapore remains the most popular vacation destination in the region. The mass market will flock there as soon as vaccine travel lanes are established and testing protocols are relaxed. The Philippines is another market that is not wholly reliant on Chinese players. Their primary market is South Korea and rest assured, as soon as they can, Koreans will head to the Philippines to avail themselves of all that the country has to offer including golf and gambling.”
However, much of the rest of Asia will struggle to replace the Chinese tourist dollar, with South Korea and Vietnam named as the two most likely to struggle. Macau is open to Chinese travellers, but it also has its own set of challenges due to the increased scrutiny of Beijing on gaming, which has added to the stop/start nature of its recovery.
“Not only were Chinese travellers the number one source market for most countries in the region, Chinese airlines supported airport growth, ensured slot fees etc, while Trip. com and the other Chinese booking engines delivered large, year-round hotel bookings,” said Gary Bowerman, founder of Asia Travel: Re-set and a regional tourism consultant. “Without China, Asia Pacific’s entire travel economy will shrink significantly.”
“Another point often overlooked about China is the investment deals and volumes that track Chinese travellers - this is hugely in doubt, not only because Chinese aren’t travelling, but because Chinese companies are retrenching, the government is checking outbound capital flows and the real estate sector is facing immense challenges.”
Lorien Pilling, director of Global Betting & Gaming Consultants, said he has been warning for several years against over-reliance on China due to volatile geo politics.
“Without Chinese tourists, there is no easy answer as to where to find customers to replace them. They were the main source of visitors for many casinos in the region. Those jurisdictions which currently restrict casino access to foreigners could even consider opening their casino resorts to domestic customers,” he said.
“Some non-gaming resorts in Thailand are reportedly looking to Europe and the Middle East for new customers. But the Covid-19 situation across much of Europe in December 2021 could mean that travel restrictions are imposed again in 2022.”
In the absence of China, the key source market most destinations are likely to pivot to is South Korea. Although nowhere near the size and scale of China, South Korea’s outbound tourism market is growing fast. In 2019, 28.7 million Koreans, or about half of its population travelled overseas and they have a high propensity to gamble.
The growing middle-class travellers in India, Thailand and Indonesia are also likely to be in the cross hairs of casino marketing departments, although again will not be able to make up for the sheer volumes left by China.
“Gaming operators in the region need to rethink their marketing plans and aim at a wider and more diversified base of perspective guests, and they probably need to create more add-on services and values to make their properties more appealing and more competitive,” Innovation Group’s Zhu said, adding that operational excellence and cost controls will also be key.
Industry insiders say that regional governments may need to take more proactive measures towards helping to support their local industry. Zhu suggests that some may consider reducing high tax rates, while others say opening gaming to local residents is the way forward.
“East Asian countries that consider casino resorts an important component of their tourism industry and currently prohibit their residents from gambling in those casinos need to re-evaluate those policies,” said Klebanow. “Regulators in South Korea recently indicated that they would consider allowing citizens from other parts of the country to gamble in Jeju. That would be a watershed event that could quickly turn around the fortunes of that gaming jurisdiction.”
Vietnam has also begun a pilot program allowing locals to gamble in two resorts - one of which has yet to open. However, Klebanow said he doesn’t expect the central government to alter its policy or timetable in 2022.
Weaning dependence from China may drag on growth in the short-to-medium term, but may lead to a more diversified and sustainable industry in Asia for the future.
SE Asia needs to step up AML actions, focus on junkets
By Fred Gushin* and Paul Bromberg**
Jurisdictions in South East Asia need to become more proactive in their anti-money laundering efforts to avoid reputational damage from being placed on “grey” or “black” lists.
This article focuses on the interrelationship between countries being placed by the Financial Action Task Force (FATF) on their “grey” or “black” lists of money laundering countries and certain practices which appear to be all too common in certain Southeast Asia gaming jurisdictions.
The FATF is the global money laundering and terrorist financing watchdog created by the G-7 countries in 1989. Casinos were deemed financial institutions in 1985 and therefore came under increased scrutiny.
The vulnerability of casinos and other gaming entities to exploitation from criminals has long been recognized by law enforcement and financial regulators across the world.
Numerous countries and international organizations, including the United States (“US”), the European Union (“EU”), the FATF, the Asia/Pacific Group on Money Laundering (“APG”) and others, have issued regulations, recommendations and guidance documents regarding these vulnerabilities and how to mitigate associated risks.
International standards and best practices have been developed over time for creating structures and systems to regulate and enforce Anti-Money Laundering and Counter-Terrorism Financing (“AML/CTF”) activities at casinos while minimizing the potential negative impact on their ability to function legally and operate profitably.
The purpose of enacting the worldwide AML program was to establish a risk-based system with international benchmarks. Countries in Asia are periodically reviewed by the APG, and reports are issued outlining the results of these reviews. The rationale for this approach is that it is unfair for some countries to comply with these rules and guidelines while other countries fail to do so: the failure to implement and enforce effective AML procedures constitutes unfair competition.
As it relates to gaming, the issues that constantly get countries into trouble with the FATF are junkets, money laundering and corporate governance in terms of how casinos and other forms of gaming tackle these issues. Online gaming is now a concern in some jurisdictions as well.
In June 2021, the Philippines and Cambodia were both placed on the “grey list” by the FATF. Scrutiny of the Philippines’ gaming industry by the APG increased after the theft of US$81 million from the account of the Central Bank of Bangladesh at the Federal Reserve Bank of New York in 2016. The funds ended up in junket accounts at one of the Entertainment City casinos.
As a result of this incident, the Philippines modified its AML rules, for the first time including casinos in their AML regime and a requirement for casinos to record and verify the identity of patrons. However, junkets were not included in the list of “covered persons” under the legislation. The FATF noted that the Philippines “needs to do more to prove effective risk-based supervision” associated with junkets.
Cambodia also made a commitment in 2019 to work with the FATF and APG to strengthen the effectiveness of its AML/CFT regime, especially as it relates to its gaming industry. Although the country closed down all online gaming operations at the end of 2019 and promulgated new gaming legislation a year ago that established a new gaming regulator, the Gambling Management Committee (GMC) under the Ministry of Economy and Finance, the GMC has not yet set up a website and it is not even clear if it is presently active.
While there are a number of deficiencies in its full action plan still be addressed, there have been media reports that the online gaming industry is operating again out of Sihanoukville. Given that insufficient progress has been made in either country, they have each been identified by the FATF as a “jurisdiction under increased monitoring” to address strategic deficiencies.
Proper licensing investigations, ongoing regulatory oversight, meaningful risk assessments and proactive measures to stop money laundering are essential elements of effective gaming control over all forms of gaming.
It has been our view for over twenty years that junkets are on the wrong side of history. The junket model used throughout Asia, but primarily based on practices in Macau, is under assault. Why? Because the junket business has been based on circumvention of gaming and other laws, and has consistently involved money laundering, breaches of currency control regulations, beneficial ownership by unknown entities, and the intrusion of Triads and other undesirables in the operation and ownership of junket businesses.
As noted in our previous article for AGB on March 29, the junket industry in China is facing major challenges as a result of a series of measures implemented by the government to curtail and control this form of enterprise. These efforts, over the last five years, have significantly reduced junket play in Macau. As a result of these restrictions, the number of licensed junkets in Macau has decreased significantly and some of the major junkets, including SunCity have attempted to move their operations to Vietnam, Cambodia, the Philippines and even Saipan, or have allegedly expanded into online gaming which is essentially unregulated across Asia.
While the struggles of IPI in Saipan are well known to the readers of AGB, Cambodia and the Philippines are now facing intense scrutiny related to their junket and online gaming activities. SunCity, the largest junket operator in the world, was identified negatively in the recent hearings held in New South Wales and Victoria, Australia, related to the suitability of Crown Resorts to keep their gaming licenses in those states. Those cases found Crown unsuitable to hold a casino license and the findings were based in large part on marketing gaming activities to Chinese citizens, junket practices, money laundering and corporate governance issues.
The recent arrest of Alvin Chau, the founder of SunCity, and the investigations into the SunCity business by Chinese and Macau law enforcement authorities, further demonstrate the ongoing scrutiny junket operators are under.
It is time for countries in Southeast Asia to follow other countries around the world in taking proactive measures to combat money laundering and terrorist financing. We understand that financial issues are involved in the decision-making process to permit or expand casinos. Some countries have become addicted to revenues that, in part, are based on questionable junket play. It takes governmental will to regulate these activities effectively. However, in our view, countries have to think about broader issues, including reputational damage and being placed on international “grey” or “black” lists, which can impact banking relationships with corresponding banks and international financial institutions.
*Fredric Gushin is Managing Director of Spectrum Gaming Group, an international gaming consultancy. Spectrum is US based and provides a wide range of services to a variety of governmental and private sector clients. Gushin has managed Spectrum’s engagements throughout Asia and Australia.
**Paul Bromberg, based in Bangkok, is Senior Vice President of Investigations (Asia) for Spectrum Gaming Group. He has worked in Asia for over 30 years.
Hospitality staffing headaches seen reaching crisis levels in 2022
By Sudhir Kale* and Brett Jones**
After months of shutdown, the global hospitality industry is finally starting to show signs of a rebound, with hundreds of thousands of hotels, restaurants, pubs and clubs reopening for the first time after a very long hibernation.
The rebound, however, is nowhere near as smooth as the industry had hoped for, with many businesses realising that recovering lockdown losses isn’t something that can be achieved in a matter of months, let alone years.
Even more worrying has been the industry’s struggle to find enough staff to continue operating at all, finding themselves victim to a recent phenomenon known as “The Great Resignation.”
It’s a term coined by Texas A&M University Professor and Psychologist Anthony Klotz in late 2020, explaining the predicted mass exodus of workers across all industries, around the world.
According to recent research by Microsoft, more than 40 percent of the global workforce is considering leaving their employers this year. Some observers blame the Covid-19 pandemic, whilst others argue that this phenomenon was in the making before the first Covid case was even detected.
One thing is clear—the phenomenon has impacted diverse economies ranging from Thailand to Ireland, and from the United States to Germany. It is also clear from extant data that the hospitality industry is the one worst hit by The Great Resignation.
How will Australia be impacted by The Great Resignation? Behavioral scientist Aaron McEwan, from global research and advisory firm Gartner, predicts that we will see The Great Resignation in Australia come March 2022. It appears, however, that for some industries—including gaming—The Great Resignation has already established a strong foothold in the Land Down Under.
The Australian gaming industry
The Australian gaming industry is like no other in the world. Total gaming revenues in Australia prior to the pandemic totaled around $20 billion, the majority (around $12 billion) comes from thousands of clubs and pubs strewn all over the country, all of which offer slot machine play.
The number of slot machines (referred to as “pokies” in Australia) represents 76 percent of the world’s slot machines stationed in nongaming venues. In New South Wales alone, there are 95,000 such machines.
We therefore decided to investigate The Great Resignation in Australia’s gaming industry through the vantage point of the clubs in Australia. We approached CEOs and HR heads of six clubs in New South Wales, based both in metropolitan cities as well as regional areas. The focus of our interviews was to assess the extent of labor shortages in the club industry and to gather senior leadership’s perceptions on the causes and consequences of this conundrum.
A few executives spoke to us under the condition of anonymity, while most others consented to their views being quoted.
Labor situation in Australian clubs
The Australian club industry has been hit hard by labor shortages. And it seems the regional clubs are not immune from its impact. Every CEO and HR manager that we reached out to, regardless of location, said that they have been experiencing labor shortages since the last few months.
We further asked the level at which the worker shortage was most acute—frontline staff, supervisory level or managerial level. Our interviewees were equally split in response to this question. Three managers indicated that the shortage of workers was evidenced mostly at the frontline level while the other three said that the shortage of workers was felt at all levels.
We then asked our respondents what they thought were the causes of employee scarcity.
Several reasons were offered, including government policy, attitude of Gen Z workers, fear arising from the pandemic, and abundance of jobs available outside the industry. Debbie Condon, HR manager of The Ary Toukley had this to say, “Covid has changed many people’s views on their choices, they no longer feel safe and secure working in hospitality… Working nights and weekends [is] also having an impact. Being subservient to entitled customers who are at times extremely rude is another reason many do not see it [club employment] as an attractive career opportunity.”
Another executive of a regional club employing around 250 staff also puts the blame on Covid-19, “The pandemic hit hospitality hard—industry wide closures meant jobs were not as secure as jobs where you could work from home. Lack of skilled international workers has affected the industry as well.” Paul Cousins, CEO of Cessnock Leagues Club also points the finger at opportunities outside of the club industry, “Flood of job opportunities that fit regular working hours, as opposed to hospitality hours is one of the main reasons. Lockdowns disturbed the regular working routines of hospitality staff.”
Chris Dunn, general manager of Strathfield Sports Club feels that the labor shortage is temporary. He attributes the labor scarcity to additional tasks employees are required to perform such as double vaccination checks on customers for entry into the club, or to the sporting fields. He argues that the staffing levels will be manageable once these restrictions have eased.
What They’re Doing About It
We asked club managers what they are doing to combat the current labor shortage. Tony Casu, CEO of the Narooma Group, had this to say, “We are currently employing anyone who asks for work, we are currently running with little or no experienced staff and middle management. At present, we are struggling to provide good [customer] service.”
Dave Hart, the CEO of Deniliquin RSL Club points to a broadened net to recruit employees. “We have gone to schools, used Sureway (an employment and training agency) and used [job] signage at the front counter. We are also looking at shutting sections of the club and multi-skilling staff.”
Paul Cousins echoes Tony Casu’s sentiments. “We are constantly in recruitment mode. We recruit staff even if there is no vacancy, but that rarely happens these days. We now happily take on recruits with zero hospitality experience.” One COO of a regional club indicated that the club had reinforced the “carrot approach” to attract and retain staff, “We obtained rental properties to assist attracting staff, we increased our focus on rewarding key staff including retention bonuses [based on] length of stay and carried extra staff during Covid disruptions to encourage loyalty and hopefully keep staff long-term.”
The Future
The dire situation with staff availability for Australia’s farming industry is set to continue. About one in four Aussies are job hunting, according to a Gartner survey of more than 1,500 Australians. Hays’ 2021 salary guide puts this number even higher, suggesting that nearly 40 percent of Australians are seeking a different job this financial year.
If the gaming industry is to attract and retain the workforce it needs to continue its operations and offer a certain minimum level of customer service, employee experience should become its number one priority. The employee value proposition (EVP) offered to employees should resonate with the needs and aspirations of the labor pool and be based on solid research, not what management thinks workers need. There needs to be an ongoing focus on employee sentiment, and a commitment to the wellbeing of employees needs to be solidly ingrained as a part of the club’s culture.
Clubs that refuse to take employee experience seriously will have a hefty price to pay. Tony Casu expresses this bleak view of the industry’s future, “Heaven help the Australian hospitality industry over the next few years. It appears that no one wants to work moving forward these days. Everyone seems a little too precious after two years of lockdowns and government handouts.”
*Sudhir H. Kalé, Ph.D., is the Founder and CEO of GamePlan Consultants and a Senior Advisor at Bullseye CX.
**Brett Jones is the Founder and CEO of Bullseye CX, a firm that provides specialized marketing and customer retention services to the gaming industry.
