Sentosa
casino
The bear spin
Casino will bring benefits, but for whom, and are spin-offs
exaggerated, ask Sanjay Mathur and Christa Janjic. Courtesy
of The Edge Singapore.
Oct 21, 2004
Although
the final decision to go ahead with the controversial casino
project will depend on public feedback, we feel the authorities
are more than ever favourably disposed to it. But will it
be a winner for the economy? The general perception is that
it will – after all, casino gambling attracts tourists,
adds to local employment/local demand and fills up government
coffers. Academic literature does not contradict this view
either. However, it does caution against exaggerating the
benefits. More often than not, benefits to the overall economy
are equated with benefits to the project. Neither are casinos
spared from market risks.
Will
there be enough gamblers?
Let’s
start with market risk. Will there be enough demand for
a casino in Singapore? Going by various media reports and
official statements, the target clientele for casino population
is foreign visitors. This presumably includes Singaporeans
who gamble an estimated $1.2 billion each year in Malaysia,
Batam islands and casino cruise liners.
The
broad local population will be allowed to participate but
most likely be subjected to prudential norms. This may involve
linking individual gambling limits with income or net worth.
So, overall project viability will be contingent upon adequate
visitor inflows.
We have
two observations on this. First, with the exception of gambling
cities like Las Vegas, Macau or Atlantic City, casinos have
tended to rely significantly on the local population. In
Australia, where the liberalization of the casino industry
has been perceived as a very successful positive policy
measure, foreign visitors make up only around 4% overall
casino visitors. Their spending on casino facilities (gaming
and non-gaming) was 17% of overall spending. Data on Malaysia
is ambiguous but crudely, we estimate the share of foreigners
to be higher at 20% to 22%. However, this still underscores
our view that local participation is important.
Considering
stiff competition from the region, attracting “gambling”
foreign visitors could be difficult. Although the data is
somewhat dated, Table 1 provides a snapshot of gambling
facilities in the region. Also note that Macau is repositioning
itself as a destination for families and business conventions,
as opposed to running only gambling operations.
Is
Singapore a late entrant?
We also
understand that a group of American property and casino
operators have shown interests in developing a US$3 billion
facility on Yeong Giong Island in South Korea. The island
is easily accessible from Seoul, which in turn, is only
about an hour away from Beijing and Shanghai. Therefore,
as a late entrant, Singapore is at a competitive disadvantage.
The
issues of location and type of casino are also important.
Broadly the following combinations of location and type
of casino are available. The first is located away from
urban populations in areas with natural tourist attractions
(like Sentosa) and has in-built facilities with extensive
non-gaming activities. The second is in an urban area where
access by the local population is limited and has inbuilt
facilities with limited non-gaming activities.
Now
consider the economics of each type of facility. The first
combination is essentially the Las Vegas model, characterised
by significant revenue generation from non-gaming activities
like conventions, entertainment and accommodation.
Table
1
Major Casino Facilities in Australia/Asia
Country Year
of Legalisation No.
of Reported Casinos (Year Reported) Major
Restrictions Other
Types of Gambling Allowed
------------------------------------------------------------------------------------------------------------------------------
Australia 1973
14 (1999)
None Horse
racing, lottery and gaming machines outside casinos
Macau 1961
10 (2003)
None Horse/greyhound
racing and lottery
Malaysia 1970
1 (2004) Not
open to Malaysian Muslims Lottery
South Korea 1967
13 (1997)
Not open to South Korean nationals
Horse racing and lottery
Philippines NA
11 (1999)
None Bingo,
horse racing, slot machine arcade and lottery
Vietnam 1999
1 (1996) None
NA
The second focuses on regular leisure and business travelers
visiting casino facilities. Globally, it has been seen that
stand alone casino in metropolitan areas suffer from trade
diversion; that it, spending on casinos is accompanies by
a decline in spending on other activities. Therefore, net
value addition is generally low.
Two
Models
The
first model is clearly preferable and additionally, could
raise Singapore’s profile as a centre for conventions,
family entertainment and so on. Overall visitor arrivals
should increase on a bet basis but some cannibalization
of existing service is still likely.
An additional
risk this model runs is that prices of services like hotels
can be marked down quite sharply and therefore, affect profit/employment
levels in non-casino services. In general, gambling tends
to cross-subsidise non-gambling activities like accommodation
costs. In city states with a small area, this problem can
be significant.
What
are the more direct contributions of casino projects to
the economy? Unfortunately, a large cross-section of data
is not available and therefore, we have to contend with
2002-2003 data from the Australian Casino Association (see
Table 2). Cumulative revenue generation (both gaming and
non-gaming) from the 13 casino facilities it represents
was A$3.1 billion ($1 approx A$0.81) or A$242 million per
casino.
Table
2
Profile of Australian Casino Visitors (2002/03)
Origin of Visitors
- No. of Visitors (2002/03)
- % Share
Local 34.7m
85.7
Interstate
4.3m 10.6
International
1.5m 3.7
Total 40.5m 100
Contribution
to GDP
Value
addition or the contribution to gross domestic product was
estimated at 64%, that is, A$155 million. In the Singapore
context, this would be equivalent to 0.1% of GDP. However,
note that this would be an aggressive estimate as the high
import content of Singapore’s economy will likely
lower the level of value addition. The revenue itself could
be overstated as we have assumed full participation from
locals.
The
indirect benefits will mainly be felt via higher employment
and government tax collections. Net employment creation
is likely to be positive but should not be overstated. Firstly,
if the above discussed trade diversion takes place, there
would only be an inter-industry movement in labour.
Secondly,
part of the labour requirements may need to be imported.
Typically, some casino jobs like card dealers and blackjack
table operators require specific skills and may not be locally
available. Similarly, the tax collections should go up but
judging by the extent to which locals replace lottery and
horse betting with casino gambling, there would be a substitution.
Betting taxes account for almost 8% of overall taxes in
Singapore.
Our
overall assessment is that the casino project does have
positive spinoffs but it is important to not exaggerate
them. By treating project benefits as benefits to the economy,
it is easy to exaggerate. ENDS.
(Sanjay
Mathur and Christa Janjic are economists at UBS Investment
Research in Singapore. This piece was extracted by TheEdge,
Singapore on Oct 18 from a recent UBS economic research
report.)
