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Putting Singapore On the Map

The gaming industry in this small Asian country will have an impact that is far-reaching.

Putting Singapore On the Map

One of the most exciting new markets for the casino gaming industry over the past five years has been Singapore. The competition for the Singapore casino licenses in 2005/06 was innovative and strategically dynamic, and indicated to the casino industry that Asia is serious about looking to the casino industry to benefit the national economic agenda of various countries in the region.

Many people in Asia call Singapore a “little red dot” because of its small geographic size, but in the case of the casino gaming industry, Singapore is a really now a “big red dot.” Singapore’s influence on the casino industry is groundbreaking, and it will remain so for many years to come.

It’s now worth looking at the history, present and future of Singapore in the context of what it means to the casino gaming industry. Singapore not only provided an example of how other Asian countries in the future may approach the issue of the legalization of casino gaming, but actually educated the industry itself as to the model that other countries may use to fully explore economic development via the casino industry.

Hence, it is worth looking at the history of Singapore in respect to this issue, just as much as the future.

History and Background
In 2004, Singapore was faced with the issue of how to reinvent its entertainment and leisure appeal to the larger global tourism audience. Many ideas were floated, and some of them even implemented, but to no avail. During the same time, the world’s largest tourism destination, Las Vegas, was outperforming every single other global tourism destination year after year.

One of the things that makes the Singapore government so efficient, and strategically savvy, is that they conduct constant research as to the best practices that exist globally.

Ultimately, the idea arose within the Singapore government to begin the process to understand what makes Las Vegas successful as a tourism destination.

If one thinks about it, Las Vegas can really be seen as an example of a unique combination of smart strategy from the government side, and exciting innovation from the private sector side. So began Singapore’s flirtation with the casino gaming industry in 2004. What quickly became understood was that the entire tourism infrastructure in Las Vegas was made possible by the indirect economic dynamics of the casino gaming industry. It was at this point that the political idea of legalizing casino gaming came to the forefront of Singapore’s internal affairs in 2005.
 
Tourism, Not Casinos
It’s been very clear from the beginning that the Singapore government intended for casinos to exist only in the context of tourism generation for the country. Singapore’s tourism sector is as critical to the country as its financial services or information technology sectors.

For a small country like Singapore, the economic multiplier of the tourism sector provides a substantial boost of economic opportunity that might not otherwise exist. Casino gaming has never been a very strong strategic imperative for the Singapore government, but tourism has been.

If Singapore has taught the casino gaming industry anything, it’s that casino gaming executives must understand macroeconomics and tourism economics just as much as they must understand the development and operation of a casino property. In fact, tourism-sector strategy will be the most important element to the future of casino gaming in Asia. Therefore, it will be critical for CEOs of large casino entertainment organizations to hire senior executive talent that is entrepreneurial, innovative, and something more than just your run-of-the-mill casino executive with a Harvard MBA, if these companies want to be successful in Asia.

Tourism ecosystems consist of not just integrated casino resorts, but also taxi drivers, construction companies, suppliers, auxiliary entertainment facilities, airport operations staff, and every other touch point that a tourist may experience during a visit to a country. The companies that operate in Singapore are fully aware of these ecosystems, because they are magnified. Casino gaming executives must understand that they must interact and develop relations with the local components of the tourism ecosystem in Asia, just as the industry has in Singapore.

Formal Bidding Process
Because the issue of casinos was such a politically sensitive one in Singapore, the government had to approach the issue in a way that demonstrated economic benefit with minimal social consequence. The government took a step approach to the issue of casino legalization; it issued an informal request for concepts (RFC), and then later it issued a formal request for proposals (RFP). This two-tiered approach was process-oriented and politically grounded.

The RFC stage was essentially an approach by the government to say, “If we were to legalize casino gaming, tell us what would be built here.” The government asked the industry to submit concepts for a hypothetical scenario of casino legalization in the country during the RFC stage. The hypothetical scenario presented an economic, legal and regulatory framework that allowed for the proposers to submit draft concepts. The government used these informal, non-binding concepts to demonstrate to its citizens that these were not just any casinos, but that Singapore could host possibly the largest-scale integrated resort developments in the world.

Once everybody was on the same page as to what the legalization of casino gaming in Singapore meant, the decision was made in 2005 to move forward with casino legalization, and the prime minister of Singapore openly justified it. At this point the government decided to take a very transparent, ethical and robust approach to the process and evaluation of formal proposals made during the RFP stage. The government created an RFP process which allowed for the formal propositioning by bidders to present their legally binding proposals for multibillion-dollar integrated resort developments, and the competition was robust and widely seen in the media.

The Winners
Ultimately, Las Vegas Sands and Genting (of Malaysia) won the right to develop integrated resorts in Singapore. The Las Vegas Sands project was called Marina Bay Sands (MBS) and the Genting project was called Resorts World Sentosa (RWS). The initial construction cost estimates for projects were anywhere from $3 billion to $4 billion, but ultimately the resorts ended up costing over $5 billion each.

This year, the casinos at each integrated resort (IR) became operational even though the resorts themselves had not fully completed construction. The first indications of visitor flows to the IRs were off the charts, but primarily driven by visitation from the locals—Singapore citizens and permanent residents.

Opening Performance
So far, it looks like Singapore has opened in a way that is both exciting and strategically interesting at the same time. This excitement is obviously derived from the fact that Singapore’s monthly casino gaming revenues have come in at a significantly higher rate than what was initially estimated. However, those who know Asia well also know that Asia tends to be a novelty-factor-driven economy. This is a region in the world where the latest opening of a new project becomes the most frequented one, but also becomes a not-so-frequented one a few years later. Will the Singapore IRs become “old news” in Singapore a few years from now? Only time will tell.

It’s estimated that the Singapore market could ultimately be as high as $6 billion in gross casino gaming revenue, with many estimates projecting a minimum of $4 billion in casino revenue. These numbers are quite high considering that each of Singapore’s casinos amounts only to a little over 100,000 square feet of casino gaming space, a little over 200,000 square feet for the entire market.

As many readers of this magazine will note, those are huge casino revenue numbers for the limited amount of casino space. Clearly, both Las Vegas Sands and Genting have become winners in Singapore. The big question remains as to whether they will be able to maintain this level of casino gaming revenue for many years to come.

Recent Developments
As this magazine went to print, a unique development occurred in Singapore’s regulatory activities in the casino gaming industry. For those that know Singapore well, it would not surprise them that Singapore intends to strictly enforce the regulation and laws on its books in regards to casino gaming. The country will certainly emphasize the idea that the casino gaming operators in Singapore must be sensitive to the government’s desire to limit, in large part, the activities of locals in the casinos.

A few weeks ago, it was discovered by the relevant government regulatory authorities that the casino gaming operators in Singapore were providing free bus services from the local residential communities in Singapore to the casino facilities themselves. This activity by the casino gaming operators in Singapore was clearly an affront to the strategic objective of the government to reduce the participation of locals in the casino gaming facilities in favor of tourists.

The government took issue with this, and both of the casinos in Singapore have immediately ceased the practice of providing free shuttle service from the local residential areas to the casino facilities.

It is very important for industry professionals to remember that the development of integrated casino resorts in Singapore was always a tourism exercise, not one to just simply introduce a new industry into the market for local customers to be dominant.

The Future
The success of the integrated resorts in Singapore should be measured not only by the absolute cash flow derived from the casinos, but also on the total return on investment (ROI) that’s realized from the $5 billion investment (each) into these two projects. The absolute measures of investment success should be focused on return on assets, return on investment, and ultimately net income, not just cash flows. 

Singapore’s future development of its tourism-driven casino gaming industry could possibly involve increasing the number of casino license holders in the market to further develop resort-focused tourism infrastructure. Later this decade, the government will have to explore that idea of increasing the number of integrated casino resorts, because the exclusive casino license period for both MBS and RWS will be expiring. If the existing integrated resorts in Singapore demonstrate that they induce inbound tourism to Singapore, then the issue will have serious consideration.

Leading Edge
It’s certainly useful for casino executives to look at Singapore as a successful model of ethics, transparency and solid business practice in the legalization and development of its tourism-driven casino gaming industry. As Singapore continues to interact with the industry, the industry should continue to look to Singapore to develop leading-edge practices of casino regulation in Asia.

When given the chance, casino executives should share with other governments in Asia, and around the world, the successful case study of how Singapore ultimately drove significant economic development for its country in the billions.

Singapore’s future in the casino gaming industry is exciting and dynamic, and will certainly be a beacon of demonstrated success for the industry overall for many years to come.

Jonathan Galaviz is the managing director of Galaviz & Company, a world-renowned strategy and economic research consultancy that focuses on creating success for its clients in Asia in government relations and regulatory analysis. Galaviz holds an MBA from the University of Oxford, England. For more information, visit www.galaviz.com.

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