Sep 9, 2012

Singapore - Singapore Bets on Casino Revenues

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SINGAPORE — Two years ago, Singapore launched its first casinos in a bold bet that it could bolster its economy without attracting social ills, such as organized crime and gambling addiction, that have plagued other casino capitals.

Today, its two new casinos—Las Vegas Sands Corp.'s Marina Bay Sands and Genting Singapore PLC's Resorts World Sentosa—are financial winners, generating about US$6 billion in gross gambling revenue in 2011. But the social experiment has yielded mixed results, pressuring authorities to do more to contain gambling ills even as the global slowdown and rising competition threaten growth in the country's fledgling casino industry.

To be sure, the feared rise in organized crime never materialized, and gambling overall in the city-state has actually declined. But government leaders are concerned about surveys that indicate more low-income residents are betting larger sums and frequent gamblers are playing more often, while more people are seeking counseling for gambling troubles. Anecdotal reports of problem gamblers in the local media—some of whom have turned to crime to fund their gambling addictions—have also alarmed people.

In response, the government is upping the ante. Authorities recently expanded a program that prohibits locals who are bankrupt or reliant on government aid from going into the casinos, with about 43,000 people now barred. In July, the government proposed significantly increasing disciplinary penalties for casino operators that don't follow Singapore's casino-control laws, which include taxing locals S$100 (US$80) a day or S$2,000 annually to enter the casinos and tough limits on gamblers' ability to get credit in them. More steps are in the works, such as limiting the frequency of casino visits by some local gamblers.

Singapore already had some of the strictest casino rules in Asia, with restrictions that prohibit casino advertising targeting locals and limits on the presence of junket operators—the middlemen who bring high-spending gamblers to the tables, issue credit and collect on debts in exchange for commissions. They are the linchpin of the world's largest gambling hub by revenue, Macau, but they also have been linked to organized crime and have largely been blocked from operating in Singapore so far.

The results of Singapore's experiment are being watched closely across the world. Lawmakers in Japan, backed by gambling interests like U.S. billionaire Sheldon Adelson's Las Vegas Sands, have stepped up calls for casino legalization to help revitalize the country's economy. Taiwan and Mongolia have flirted with the idea, as have U.S. markets like Miami. Wealthy private backers, including Japanese pachinko magnate Kazuo Okada, are pushing ahead with projects in the Philippines and Vietnam, with more potentially to come.

It still isn't clear how well policies like the ones enforced in Singapore work—or whether they can be sustained in the long run, especially as casino revenue growth there slows and other countries launch competitors.

"Singapore's regulatory approach is a good approach in principle [but] the evidence would indicate that these policies have actually had a relatively minor impact in Singapore," said Robert Williams, a professor at Canada's University of Lethbridge and researcher at the Alberta Gambling Research Institute. Others disagree, saying the rules have helped to prevent trouble.

The data are somewhat inconclusive. The casinos say visits by citizens and permanent residents—estimated to account for about 20% to 30% of all visitors—declined in 2011 from the previous year. The overall gambling rate among locals age 18 and above—which includes any participants in horse-racing, sports betting and lotteries— fell to 47% in 2011 from 54% in 2008, according to a survey published by the National Council on Problem Gambling in February.

The crime rate in Singapore fell 5.3% last year from 2010 to a 20-year low, while casino-related crime—mainly cases of theft, cheating and counterfeiting—has remained stable at less than 2% of total crime in 2010 and 2011, according to police data.

But more low-income players are betting large sums while frequent gamblers are playing more often, the latest NCPG survey found.

"We note from [the NCPG survey] that problem gambling issues in Singapore are largely contained," Singapore's Ministry of Community Development, Youth and Sports said. "However, we prefer to be proactive" in tackling gambling-related social problems. "The experience from other jurisdictions tells us that it usually takes three to five years for the situation to stabilize."

Official data collated from counseling centers point to rising numbers of people seeking help for gambling problems. One such center, the National Addictions Management Service, logged 398 cases in the financial year ended March 2011, up from 88 in the year ended March 2008. Cases at another center, the Tanjong Pagar Family Services Center, rose to 132 last year, up from 105 in 2010 and 86 in 2009.

Anecdotal examples of problem gambling have also spread. In December, a local court sentenced an audio-equipment salesman to six years in jail for defrauding employers and acquaintances of more than S$1 million to pay off debts and fund his gambling addiction, which included trips to Marina Bay Sands and lottery outlets, according to the man's defense counsel, Mervyn Tan.

As part of its recent tightening, the government proposes to increase maximum disciplinary fines on casinos to as much as 10% of their gross gambling revenue, which could push fines into the hundreds of millions of dollars, up from the current cap of S$1 million. Among those who will be locked out of the casinos are some citizens and permanent residents who are in arrears on rental payments.

Another issue, albeit more difficult to measure, is the wider social impact of the casinos, which critics say have encouraged more conspicuous displays of wealth while failing to help lift wages for low-income workers.

"The casinos pander to particular lifestyles of conspicuous consumption, and some of the measures banning the poor fuels the perception that we're stratifying society on the basis of wealth—it's worrying, and not something we should be proud of as a community," said Vincent Wijeysingha, treasurer of the opposition Singapore Democratic Party.

The government argues that the casinos—which hire about 22,000 people—have helped citizens' economic well-being, even though some positions have gone to foreigners.

Singapore's move to tighten casino regulations hasn't met much resistance from casino operators so far. Las Vegas Sands' Mr. Adelson said in July that his company isn't concerned by Singapore's moves and doesn't expect the tighter rules to significantly hurt its business. "We don't have a problem if [Singapore] wants to put a limitation on either visitation or the exclusion of very poor people," he told analysts in an earnings call. "We don't see the future coming out of poor, unfortunate, very vulnerable people."

But underscoring the pressures casinos may feel to open their doors to more gamblers, both Marina Bay Sands and Genting Singapore reported weaker second-quarter earnings, citing declines in business volumes.

For Singapore, the longer-term question is whether future governments will be tempted to ease controls if growth in casino revenue plateaus. Analysts expect Singapore's casino market to expand at a slower pace in the next few years, with revenue growth likely slipping into the high single digits amid greater competition from other Asian markets.

A battleground could be junket operators—the most potent potential growth booster for now, as Singapore is legally bound to not add new casinos until March 2017. While experts say Singapore doesn't intend to let junkets dominate its gambling scene as they do in Macau, some analysts say authorities may be compelled to license more of them if revenues wilt. Regulators here have licensed just two small outfits so far, and are planning tougher rules that could crimp operators' profitability.

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