The Ministry of Finance recently released a draft decree regulating conditions for investors to open casinos in Vietnam. Mark D. Capasso, executive director and national practice leader of Hospitality & Gaming Group under Cushman & Wakefield Vietnam, a consultant real estate firm, exclusively shared his view on this hot issue with VIR.
According to a recent draft decree on developing casinos in Vietnam by the Ministry of Finance, an enterprise applying for a license must develop a fully integrated complex providing casino operation that falls within the casino operation master plan.
The enterprise must have been established and operating for at least 10 years. The decree will certainly narrow the number of foreign developers, but not to an extent that should make Vietnam worry.
Indeed, most of the developers that are looking to expand into Asian markets are large players with impressive track records. Therefore this step will help insure the integrity of the industry in Vietnam.
The draft decree highlights that an enterprise may only be permitted to organise casino operation upon having injected at least 50 per cent of the committed investment capital. This is a wise move to make sure the developer has “skin in the game” to ensure that the project is ultimately developed. Some may quibble regarding the high threshold, but most of the big development companies would want to retain majority ownership anyway.
The draft decree limits only foreigners and Vietnamese persons resettling abroad to enter casino while limiting participation can limit profits, some forms of social control may need to be implemented to protect the local populace from themselves.
Most developers in situations like this are used to dealing with such social controls. In the United States, you cannot have these types of controls but in other countries there is limited social control on gambling in resorts. It works both ways. The government must be able to assure the developers that there will be enough demand for the resort even if social controls are implemented.
Currently under the draft decree, casino and electronic gaming operation falls into the category under strict state control in order to assure social order, security and safety. A lesson from the US is that gaming control is done on a state level via a Gaming Commission or Gaming Control Board.
Positions on the board are usually appointed to avoid influence peddling in elections. The commission is responsible for enforcement of all rules and regulations and is also responsible for punishment for breaking rules.
The idea is to staff the commission with people who are above reproach to maintain the integrity of the industry.
Different states take regulations to different levels. Many believe that Nevada is the gold standard in terms of regulation and many other jurisdictions have patterned their regulation and enforcement on Nevada’s model.
Additionally, almost all gaming jurisdictions will have a rule that states that if a gaming licence is revoked in any other jurisdiction, then the licence will be revoked in all jurisdictions.
One only needs to look at MGM to see the impact this can have on a company. The State of New Jersey was not pleased with MGM’s partner in Macau as they believed the partner was not reputable and put MGM’s licence under review. Ultimately, New Jersey forced MGM to divest their interest in New Jersey.
The likelihood of finding a developer will depend on the size and depth of the market and the current and planned competition that will result from the government’s shift into gaming.
If there are a limited number of licences granted, or a monopoly is granted the likelihood is higher than if there are no limit to the licences. The two primary models that Vietnam can take into consideration would be Macau and Singapore, which both offer integrated resorts.
However the integrated resort was not necessarily a requirement of the government, but was driven by market forces.
There is not much chance for anyone to invest the required capital that Vietnam is asking for without doing an integrated resort.
It should be noted that Macau chose a few developers to build casinos and has been successful.
However in Singapore, a monopoly was granted to Las Vegas Sands. Both systems seem to be working well.
Generally speaking, there are a lot of things the government can do to attract foreign investment in this particular sector, while maintaining strict state control. It will be very important to provide transportation linkage to and from the property and points of interest including the airport.
Development incentives may be important (tax rebates, land concessions, etc.) however they must be very careful in doling out these incentives as they can often times hurt more than help.
Only with the right controls and regulations, gaming and resort development can benefit Vietnam.
Casino development is a long term investment and generally for substantial amounts as the infrastructure is extensive.
The government that is encouraging FDI should provide clear guidelines and legal framework for investment. Reducing bureaucratic red tape is a clear advantage to any government and in an emerging market it reduces the risk and improves an investors’ confidence.
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