Publication.Pdf

Sep 2007 • MOP 30

The Anchor Drops Naga Rising Rolling, Rolling, Everywhere The Shun Tak Shuffle

From Cotai to Cambodia Emerging Visions

Sep 2007

Emerging Visions

Page 7 ~ The Anchor Drops

Page 14 ~ Look Who’s7 Coming to Dinner

Page 19 ~14 Emerging Value

Page 26 ~ Rolling,19 Rolling, Everywhere

Page 30 ~26 The Entertainer

Page 32 ~ The30 Shun Tak Shuffle

Page 37 ~ Surveillance32 Evolution

Page 40 ~ Passing37 Another Milestone

Page 42 40~ Regional Briefs

Page 44 ~ International42 Briefs

Page 4543 ~ Online Briefs 44 Page 46 ~ The Great Internet Trade War 46

2 3 4 Editorial

Emerging Visions

It’s been over three decades since Billboard magazine named Diana Ross of Phnom Penh for a mere US$100. NagaWorld has seen a steady “female entertainer of the century” in 1976, but her rendition of “Ain’t No growth in junket revenue, and wins per junket table, and once the Mountain High Enough” was perhaps a fitting anthem to mark the open- hotel rooms are up and running, could increasingly draw mid- to low- ing of the sprawling Venetian Macao-Resort-Hotel on August 28. end junket players from across the region, as discussed in “Emerging Macau continues ascending new heights in gaming revenue and Value” on page 19. tourism arrivals, and the dawn of the mega resorts is expected to ac- Asia’s other emerging casino destinations could give Macau a run celerate the climb by lengthening the average visitor stay in the city. for its money. Macau has a 40% effective tax on gross gaming rev- The Venetian—reportedly the world’s second largest building—is a enue, which, along with intensifying competition for high-rollers, has veritable mountain in Macau. It is staffed by 16,000 workers, equiva- decimated margins in its VIP market. Singapore will have a 5% tax lent to over 5% of the local labour force. It consumes as much power on “incentivised play” (i.e. junket revenue), further pressuring Macau’s as 300,000 homes, in a city with a population of just over half a million. operators. Cambodia, meanwhile, has no fixed gaming tax, with op- It cost US$2.4 billion, which the South China Morning Post pointed out erators only having to pay a license fee every month (which, in 2007, is more than the Macau government’s total infrastructure investment was equivalent to 5% of revenue at NagaWorld). over the past five years. There are concerns that tiny Macau will be unable to cope under the Infinite demand? strain of the mega resorts. More than half the city’s electricity is now Although Singapore, Cambodia and other regional destinations likely imported from southern China, up from 15% two years ago, and ener- to legalize casino gaming soon—including Japan and Taiwan—could gy imports will only rise further following the Venetian opening. The draw away gaming revenue, Macau will raise its non-gaming reve- Venetian wisely procured a fleet of buses to shuttle customers be- nues from the current 2% of the mix to closer to the Las Vegas model, tween the property and the ferry terminal and border with mainland where over half of revenue now derives from non-gaming sources. China, but the wait for taxis on the weekend was still painfully long. The Venetian opening was preceded by regular reports in the Hong Limited air connectivity will hinder the arrival of convention visitors. Kong media about Macau’s emerging threat to Hong Kong’s conven- The list of potential infrastructure bottlenecks goes on. tion and exhibition and retail industries, discussed in depth in “The Las Vegas Sands Corp (LVS) and Macau’s other casino operators ex- Anchor Drops” on page 7 and “Look Who’s Coming to Dinner” on page press confidence that the government will rise to the infrastructure 14. The 1.2m sq. ft of expo space at the Venetian dwarfs the Hong challenge, but it is unlikely they would publicly acknowledge fears Kong Convention and Exhibitions Centre, and the Venetian’s mall is over the sustainability of their massive investments—LVS alone faces larger than any of Hong Kong’s major malls. Continued addition to a total investment bill of US$12 billion in the city. The throngs at the Macau’s retail and convention capacity, in addition to the coming Venetian opening, however, allayed fears that there will be insuffi- pipeline of cheaper quality accommodation and a more diversified cient demand to meet the surge in capacity. entertainment offering could lead to greater competition for Hong Kong’s business and leisure tourism industries. Competing visions LVS Chairman Sheldon Adelson scoffs at the idea that demand for his Several other visions are emerging across Asia. LVS is building Sin- products is finite and static, and his supply-creates-demand thesis gapore’s first casino-centred integrated resort, due for completion in has found a wide following among analysts covering Macau. Mr Adel- 2009. The company recently announced that the original US$3.6 bil- son is fond of claiming that even several Las Vegases would not meet lion budget for its Marina Bay Sands project could be exceeded by Asia’s demand. Still, results at the Hong Kong Convention and Exhibi- 20-40%. Malaysian-based Genting will follow with a similarly pricey tion Centre over the next few years may paint a different picture. resort on Singapore’s Sentosa island. Not all visions carry such exorbitant price tags. NagaCorp is complet- Kareem Jalal ing the 503-room NagaWorld hotel casino in the Cambodian capital We crave your feedback. Please send your comments to [email protected]

Editor and Publisher Kareem Jalal

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5 6 The Anchor Drops Deutsche Bank’s Karen Tang comments on the Venetian debut and the emergence of non-gaming revenue draws in Macau

Venetian Macao-Resort-Hotel took highest Macau has seen to date. According will be managed by leading hotel chains the limelight with its grand opening on to our US gaming analyst Bill Lerner, occu- including Four Seasons, Sheraton, St Regis, the Cotai Strip on August 28. The property pancy at Venetian could reach 85-95% just Shangri-la, Traders, Hilton, Conrad, Fairmont, is said to be the second-largest building in a month after the property opens. Length of Raffles, Swiss Hotel, Intercontinental, Holi- the world, and the biggest in Asia. It features stay is expected at 3-4 days, above the cur- day Inn and Cosmopolitan. All properties 3,000 all-suite guest rooms, 870 gaming ta- rent market average (1.5 days). will be connected by air-conditioned pe- bles, over 3,400 slot machines, 1.2m sq. ft of In addition to the Venetian, Las Vegas destrian walkways. On completion by 2010, convention and exhibition space, 1m sq. ft of Sands Corp (LVS) is developing another six the company’s six partner sites should boast retail space, a 1,800-seat theatre and 15,000- projects along the Cotai Strip, with casi- a further 8,400 hotel rooms, 1,800 gaming seat arena. Its US$2.4bn project cost is the nos, hotels and retail amenities. The hotels tables and 9,000 slots. 7 Las Vegas casino-hotel resort revenue trends of total revenues from gaming, with a mere 2% coming from non gaming. Over the medium term, we expect Macau’s business mix to shift to follow the Las Vegas growth path with its stock of large scale resorts that are expected to come online during the next few years. From 1990 to 2000, the development of Source: Deutsche Bank; Las Vegas Convention Center destination resort-casinos in Las Vegas had allowed non-gaming revenues to grow at a Convention space: Macau vs. Hong Kong faster rate (13% CAGR) than gaming revenue (7% CAGR). We expect these trends to be re- peated in Macau as the new casino develop- ments are much more comprehensive, aiming to turn Macau from a gambling Mecca into a holiday destination. We believe that growth potential in non-gaming revenues is considerable, as these activities now account for almost 58% of all casino-hotel revenues in Las Vegas. While it may take a long time for Macau to see non-gaming revenue reach any significant proportion, we think the emergence of Source: Deutsche Bank; Las Vegas Convention Center non-gaming revenue will be an important trend in the development of the city into a Near term, we expect Venetian will lift for all operators. real destination resort. Key sector risks in- gaming revenues, as did Sands and Wynn. We see a critical mass of entertainment, clude a slowdown in the Chinese economy, Longer term, we see Venetian as the begin- convention and hotel facilities developing in its money supply, disruptions to travel, and ning of Macau’s evolution from a pure gam- Macau, spearheaded by the Venetian launch. regional competition from other potential bling town into a convention and holiday This should create additional traffic for the MICE markets such as Singapore. destination. We are less concerned about Ve- mass market and lengthen visitor stay to netian as competition, as we believe such a benefit all gaming operators. Conventions high-quality product will expand the market At present Macau generates around 98% The Venetian boasts 1.2m sq. ft of con-

Convention pipeline at Venetian Macau

Source: Las Vegas Sands Company Data 8 Average visitor spend in Hong Kong (HK$ per trip - 2006 survey) Average length of stay in Hong Kong (no. of nights - 2006 survey)

Source: Hong Kong Tourism Board Source: Hong Kong Tourism Board vention and exhibition space, dwarfing that survey conducted by the Hong Kong Tour- ant Manchester United against the Chinese of the Hong Kong Convention & Exhibition ism Board in 2006, overseas convention Super League’s Shenzhen Football Club. Center (0.7m sq. ft), or the Asia World Expo attendees on average spent HK$9,400 per In October, the resort will play host to the (0.75m sq. ft) at the Hong Kong airport. trip in Hong Kong, or 2x the average tour- NBA China Games with two NBA teams, the Added to this, convention fees in Macau are ist spend of HK$4,700. If this trend is rep- Cleveland Cavaliers and the Orlando Magic, estimated at a 10-20% discount to those in licated in Macau, it would serve to drive facing off against each other and the China Hong Kong. up per capita visitor expenditure levels national team. The matches are to be held at As of May 2007, the Venetian convention above the average of HK$1,600 in 2006. the 15,000-seat arena. In November tennis center had signed contracts with more than The survey also reveals that convention greats Pete Sampras and Roger Federer will 20 tradeshow organizers over a cross section attendees typically stayed longer in Hong play each other in an exhibition match at the of business lines, to produce 44 events over Kong at 4.7 nights vs. the average visitor events center. The match is expected to sell the next two years. Added to this, Venetian stay of 3.7 nights. over 10,000 tickets. has also signed contracts for 20 corporate The 1,800 seat Venetian Theatre will open meetings to be held within the first four Entertainment early next year featuring an original produc- months of opening. According to manage- A series of large-scale sporting events tion from Cirque du Soleil. ment, many of the region’s most important featuring world-class athletes will be hosted These top-quality sporting and entertain- corporate meeting planners are also on at the Venetian over the next three months. ment events, coupled with the retail, gaming board to help book corporate meetings at The events, whilst being centered on the and leisure facilities at Venetian, should at- the Venetian. launch of the enclave’s first integrated desti- tract a larger proportion of overnight visitors We believe a good convention pipe- nation resort, are aimed at promoting Macau to Macau to experience the new gamut of at- line, coupled with existent gaming and as a prime location for sports and entertain- tractions. This should serve to lengthen visi- entertainment facilities, will help extend ment events in the region. tor stay above the current 1.5-day average. visitor stay in the enclave and lift hotel In late July, Venetian sponsored the Ve- occupancy, particularly during the mid- netian Macau Cup, an exhibition football Opening effects week period. Interestingly, according to a match pitting English premier league gi- Macau has thus far replicated the Las Vegas experience of “supply creates de- Monthly gaming revenue (yoy change) mand”, and we expect this theme to re- peat itself following the Venetian opening. Year-to-date, Macau gaming growth has already exceeded expectations, and we have raised our full-year 2007 gaming revenue growth forecast from 20% to 49%. By the end of the year, MGM Grand is also expected to open its doors. The Sands effect (2Q 2004) When Las Vegas Sands opened the first foreign operated casino in Macau, Sands, in May 2004, gaming revenue jumped 56% Source: Deutsche Bank; Macau government year-on-year in 2Q04 while visitation soared 9 Monthly gaming revenue (yoy change)

Source: Deutsche Bank; Macau government

91% year-on-year over the same quarter. We high-quality destination resorts opening up, attribute this strong performance in gaming our top-end expectations could ultimately growth to the new casino opening, with add- prove conservative. ed stimulus from expansion of the Individual We are less concerned about industry Visit Scheme. This served as a “pull factor” to supply than market share competition. While drive visitors into Macau to experience the we forecast gaming supply to be 3x the cur- new attraction. rent level by 2010, we view most of the new supply as high-quality product, which should The Wynn effect (4Q 2006) help expand the market, rather than simply Following Wynn Macau’s debut in cannibalizing the existing properties. September 2006, Macau gaming revenue jumped 44% year-on-year in 4Q06, com- Gaming revenue growth pared to a mere 13% year-on-year growth We expect the Macau market to grow at in the previous months (January to August a 25% compound annual growth rate over 2006). The speed of market growth was the next few years, from US$6.9bn in 2006 to higher than our original expectations (15- US$16.6bn by 2010. With a pipeline of large- 20% for full year 2006). scale destination resorts, we believe the visitor and revenue mix will see a gradual shift Industry demand & supply from VIP to mass. Revenue mix from VIPs will Backed by a large feeder market with gradually decline from 65% of the total in rising incomes, we think Macau has the po- 2006 to 55% by 2010F, in our view. We see a tential to become the ‘Las Vegas of Asia’. We strong correlation between VIP growth and forecast gaming revenues will grow at a 25% the Chinese equity markets. Hence, this seg- compound annual growth rate over 2007- ment is likely to be more cyclical and sensi- 10, at the high end of consensus. The Street tive to policy risks. seems to be consistently underestimating We believe growth in the mass market the depth of this potential market. Our view should accelerate to a 28% compound an- was reinforced recently as 1H07 revenues nual growth rate over 2007-10F, driven by jumped 45% year-on-year. With a pipeline of four main factors:

Macau gaming revenues forecast

At present Macau generates around 98% of total revenues from gaming, with a mere 2% coming from non gaming. Over the medium term, we expect Macau’s business mix to shift to follow the Las Vegas growth path with its stock of large scale resorts that are expected to come online during the next few years. Source: DICJ; Deutsche Bank 10 1. Visitation growth. The relaxation of visa restrictions for individual travelers from China has been the key driver of visitation. Since the Individual Visitor Scheme (IVS) was launched in 2003, coverage has been ex- panded to 49 cities (population net of 314m), accounting for 15-20% of the most affluent people in China. We estimate tourist arrivals to reach a 20% compound annual growth rate through 2007-10F. 2. Rising disposable income. We anticipate a strengthening wealth effect on the expanding middle class population in China given continued growth in the Chinese economy. This should translate into higher discretionary spending on leisure-related activities. 3. Quality new supply. The Septem- ber 2006 Wynn Macau opening reinforced our “quality supply drives demand” thesis, which was also seen following the unveiling of Sands two years earlier. The pipeline of new openings, including Crown (May 2007), Venetian (August 2007), MGM Grand (4Q 2007), Galaxy Mega Resort Cotai (late 2008), City of Dreams (2Q 2009), and Macau Studio City (early 2009), are designed to become destination resorts to attract leisure visitors. We believe these projects will collectively expand the market. 4. Infrastructure improvement. While infrastructure could be a bottleneck, the government is committed to addressing it. The Lotus Bridge connecting Cotai to neighbor- ing Zhuhai on mainland China opened in May 2007 (in time for the Golden Week holiday). It has capacity for 26m visitors, compared to the 13m arrivals that came through the Pen- insula border last year. The full pipeline of projects over the next three years highlights In addition to the Venetian, Las Vegas Sands Corp (LVS) is developing another six projects along the government efforts to keep infrastructure Cotai Strip, with casinos, hotels and retail amenities. development in pace with the launch of new

Visitation forecast China GDP growth

Source: DSEC; Deutsche Bank Source: Deutsche Bank; CEIC 11 casino-hotels and tourist attractions. This is Pipeline of infrastructure projects essential for the enclave to support further visitor growth Looming supply By 2010, we project the number of gaming tables will be over 3x the current level. LVS is the most aggressive in adding capacity, with the majority of the new tables in Cotai at Venetian Macau and the six partner sites. Melco PBL Entertainment is also expanding Source: Deutsche Bank fast with over 1,400 tables at its four new properties. The other license holders are adding roughly 400-800 tables each over the Macau gaming supply forecast by concessionaire period. By end-2010, LVS should have around 35% of the gaming positions in Macau. We are less concerned about industry supply than market share competition. We view most of the new supply as high-quality products, which should help expand the market, rather than simply cannibalizing the existing properties.

The DB Macau Conference will be held at Venetian Macao on Friday, September 21. Eigh- teen gaming and property companies from Asia, Australia and the US, will conduct presen- tations and/or 1-on-1 meetings. This will be followed by a casino tour in the afternoon, and a Venetian-themed Masquerade in the evening. A Macau property tour is an optional add-on for Saturday morning. Source: Deutsche Bank 12 13 Marina Bay Sands

Look Who’s Coming to Dinner The casino that ate Macau books a place at the Asian trade show table

When a casino is a lead story on in- ‘Resort’. This isn’t one of the old style Macau of its Asian neighbours. Mr Adelson doesn’t ternational satellite news channels, it’s clear casinos with its smoky halls and ladies of du- agree. He is fond of patiently explaining to something significant is happening. bious virtue. This is a place the size of a small journalists that this view is based on the false That something is The Venetian Macao- European town with the facilities of a middle assumption that there is a finite and static Resort-Hotel, a casino resort wrapped in ar- ranking European city, including a 15,000- demand for his products. chitecture aping Italy’s famous canal city— seat arena. You could stay here for a week or He patiently explained it to them again but in this case perched on another set of even a fortnight without even needing to go at the official opening of The Venetian on mud flats thousands of miles away near the outside. In fact, that appears to be part of the 28th August. mouth of China’s Pearl River. business plan of LVS Chairman and principal “There is no facility, including Las Vegas The charm of The Venetian is partly its shareholder Sheldon Adelson. It’s as near to or several Las Vegases in Asia, that will satisfy audacity. Only an American company would wholesome family fun as a casino is ever like- the demand,” he told the assembled media— have the courage to build a fake version of a ly to get. In an unguarded moment, Mr Adel- made up this time not just of the usual sus- European Renaissance city a few miles from son’s right hand man and company president pects from the trade and regional press, but a real Unesco World Heritage Site with real William Weidner described The Venetian as of reporters from all over the world. 16th century buildings and win internation- the “casino that ate Macau”. al plaudits for it. Las Vegas Sands Corp (LVS), An idea commonly heard in the media is Threat or not? the company behind the venture, hasn’t just that The Venetian and its 1.2 million sq. ft con- Yet information from his own company got away with it. New Macau, as represented vention centre, the 20,000 hotel rooms being suggests The Venetian may well pose a threat by The Venetian, appears to have totally developed by LVS along the Cotai Strip, and to neighbouring convention markets. eclipsed old Macau—as far as a Chinese au- vast network of shopping malls will eat not In a press release LVS says: “Recent shows dience is concerned. only Macau but also Hong Kong’s convention booked by The Venetian Macao include; the The key word in The Venetian’s title is and exhibition industry and possibly some ISSA/InterClean show, which is relocating an 14 Las Vegas Sands Corp’s US$3.6 billion Marina Bay Sands will take its place along Singapore’s downtown waterfront landscape in 2009, providing 1.2 million sq. ft of convention and exhibition space—2.5 times the size of Singapore’s Suntec City convention and exhibition centre event previously held in Shanghai; The World was worth US$322 billion in 2005—with only any conventions industry to speak of—to Tobacco Show, which is relocating an event US$88bn of that coming from outside North build the world’s fastest growing economy. previously held in Bali, Indonesia. The Inter- America and Europe. They may also be wondering why, after ma- national Association of Amusement Parks The World Travel and Tourism Council jor incidents such as the 9/11 attacks on New and Attractions, a Washington D.C. based As- says that between 2007 and 2017, China will York or the regional outbreak of Severe Acute sociation, also recently chose Macao for the lead world demand for travel and tourism, Respiratory Syndrome (SARS) in the second 2008 IAAPA Asian Expo, an event being held growing by an annualised figure of 9.1%. It quarter of 2003, business-related travel tends this year in Bangkok.” suggests by 2017 the China market will be to drop dramatically without bringing the LVS says it has commitments from more worth US$1.57 trillion annually (based on world economy crashing down. than 20 tradeshow organizers stretching the US definition of trillion, i.e., a million mil- into 2013. lion). The Council adds that in ten years China Followers of fashion The release continues: “Kenfair Interna- will be the world’s leading tourism employer It’s worth remembering that trade tional (Holdings) Limited, one of Hong Kong’s with 75.7 million people making their living shows, like David Beckham or Brazilian biki- leading exhibition organizers globally recog- from the industry. UNWTO is also bullish, ex- nis, are actually a fashion. They have swept nized for producing events for the toy, gift, pecting a 4-5% growth in world tourism for the world in the space of less than thirty- premium incentive and electronics indus- 2006/07 once figures are compiled. five years. Aside from political party con- tries, has signed a long-term contract with Conventions will undoubtedly contrib- gress meetings that have been around for The Venetian Macao to produce two trade ute to that growth in Asia. But unlike the generations in the west, our grandparents shows each year.” basic human desire for rest and relaxation, had neither the means nor probably the It’s difficult for Mr Adelson to have it conventions—especially in Asia—appear inclination to travel long distances to stand both ways. Either he is competing with oth- to be a supply-led industry, fed by a slick in a big room with 10,000 other people all er Asian convention destinations, or he’s not. marketing machine. The more smart new wearing nametags around their necks. De- At any rate, he continues to tout his law of facilities you build, the more demand you spite the advent of mass media and infor- insatiable demand in the Asian gaming and create—for a time and up to a point. The mation technology that allows people to convention market. key assumption behind the selling effort of have video-conferences at the touch of a It’s not easy to find consolidated figures the meetings industry is that modern trade button, every year millions of businessmen for the global value of the meetings market, and commerce isn’t possible unless there are and women find they cannot resist the urge but a recent research paper presented to the major events where people network and ex- to fly many miles for the pleasure of being in United Nations’ World Tourism Organization change information and make deals. Sceptics an air conditioned hall the size of an aircraft (UNWTO) suggested the Meetings, Incentives may be wondering how then it was possible hangar next to someone with whom they Conventions and Exhibitions (MICE) market for China—which until now has had hardly do business in their home city. 15 Everyone claims of course that lots of convention centres had doubled to US$2.4 centre. It had been operating at only 25% ca- hard work and networking gets done at con- billion annually, increasing convention space pacity, and had been losing money ever since ferences and conventions, but speak to most by over 50% since 1990. There are now more it opened in 1981. In 2006, it racked up a defi- buyers at most Asian trade shows and they than 72 major convention centres in the US cit of C$600,000. will tell you the majority of their work has al- serving a mainly domestic market of 302.7 There’s no doubt also that the Brookings ready been done via e-mail and Skype before million people. By contrast, China has only a report on US trade shows was coming off the they get anywhere near the exhibition hall. handful of such facilities for a population of back of an international slowdown in busi- The reality for most people most of the time, 1.3 billion. ness after the 9/11 attacks. A survey by Trade- is that these events are a change of scene The Brookings report claimed that be- show Week though—the leading publisher from the grind of normal business. tween 1999 and 2003, four of the ‘Big Five’ of information for the industry in the US— This is why trade bodies choose to hold events in the US (including COMDEX) saw suggested the US attendance trend contin- conventions in places such as Las Vegas and falls in exhibit space, with the percentage ued on a downward curve in 2004, dropping Hong Kong’s Wanchai district, and not in Ak- change averaging 37.6%. It also said all five 4.5%. In 2005 however, the paper reported ron Ohio (the birthplace of Alcoholics Anony- events lost attendance, with three having that figures for rented space, attendance and mous), Urumqi (one of China’s most polluted lost more than 20% since 1999, as seen in the exhibitors all showed positive growth. In re- cities) or Basingstoke (a UK town with a seem- table above. sponse to Brookings’ claims, the US-based ingly endless collection of roundabouts and It’s clear that as any market gets crowded, Convention Industry Council said its com- a greater density of CCTV cameras than New some consolidation of capacity is likely—es- missioned research indicated professional York City). So far Chinese consumers have pecially among less popular products. In late attendance at US exhibitions had fallen only shown an inclination to follow most western August, the Canadian Broadcasting Compa- 2.9% between 2000 and 2003. consumer habits, and conventions fever is ny reported that Gatineau, a city of 250,000 Brookings did however highlight one of likely to grip them just as strongly, especially in Quebec, Canada, had closed its conference the difficulties of assessing the economic im- when the setting is Macau, a gambling town on their doorstep. There are some parallels between the conventions industry and the modern fast food industry. Both are American inventions. Both are responses to major social and economic changes. In the case of conventions, it was the advent of cheap air travel and standardised good quality hotel chains. In the case of fast food it was the retreat of the nuclear family and formal meal times. Both industries were so successful at selling that they saturated their home markets and are now looking for new territories to conquer. Seeking new markets Mr Adelson is a wily operator. He made his original fortune from the hugely successful COMDEX computer trade shows in the US, but in 1995 sold out his interest to a Japanese company at the peak of the US market. He understands that the US convention market is mature but that the Asian market still has a long way to go. Banquest hall at Venetian Macao In 2005, the Washington D.C.-based pub- Major Tradeshow Performance lic policy body the Brookings Institution published a controversial report called: ‘Space Event Floor space (sq. ft) Percent Attendance Percent Available: The Realities of Convention Centers 1999 2003 Change 1999 2003 Change as Economic Development Strategies’. The re- CONEXPO* 1,732,002 1,845,808 6.57% 101,261 80,054 -20.94% port suggested supply in convention space Super Show 1,388,053 797,390 -42.55% 65,495 62,622 -4.39% for the US market was outstripping demand because so many state and city governments Hardware Show 1,300,000 459,000 -64.69% 67,643 27,569 -59.24% had jumped on the bandwagon, seeing the ICUEE** 1,116,835 1,113,881 -0.26% 8,201 7,413 -9.61% building of conference facilities as a license COMDEX 1,155,000 150,000 -87.01% 200,000 39,229 -80.39% to print money. * CONEXPO is held every three years. The most recent data is for 2002. The report suggested that in the previ- ** International Construction & Utility Equipment Expo ous decade, public capital spending on US Source: Tradeshow Week “200” Directory for 2000, 2003, 2004 16 the survey found Hong Kong’s international stated recently that in the US, travel to busi- exhibitors stay on average 70% longer than ness events accompanied by one or more stopover tourists and spend 110% more. Re- family members had increased by 13% since gardless of whether there are any negative 2001. “Now, family time is more often an add- trends hidden away in the detailed survey, on to a business trip rather than a full week or the outlook seems positive. so away from the office,” she said. By that reckoning, an all-in-one resort Fostering the conventions habit such as The Venetian, with built in hotels, The aim of the meetings industry in Hong restaurants, shopping malls, circus shows Kong and Macau is to convince Chinese and and gondola rides, is likely to be far more ap- other Asian companies enriched by the cur- pealing to Chinese families than the exhaust rent economic boom that they and their em- fume-filled walk from Hong Kong Conven- ployees will have the quality of their lives im- tion and Exhibition Centre to the racy de- proved by picking up the conventions habit. lights of Wanchai. It’s possible though that The conventions industry has teamed up with international bodies, government or official the hotel and hospitality industries to create associations and politically sensitive indus- a formidable marketing machine focused on tries such as aviation may prefer to hold their cross-promotion and cross-fertilisation. The conventions and exhibitions in casino-free conventions industry is a key reason why Hong Kong rather than Macau. Hong Kong Hong Kong is able to keep hotel occupancy also has a much bigger and better airport rates consistently high throughout the year than Macau, with many more connections. As Trade show at Venetian Las Vegas and may well do the same for Macau. one Hong Kong government official rather Being a wily bird, Mr Adelson will be smugly told Inside Asian Gaming: “You won’t pact of the trade shows industry. aware of research from the US that suggests find the WTO [World Trade Organization] Commenting on the US market, it says: more and more women are attending con- holding meetings in Macau.” “Despite the commitment of billions of dol- ventions and exhibitions and that there’s a Mr Adelson’s response to this was to ask: lars by a variety of state and local govern- growing social trend for delegates to bring “What’s the WTO?” ments, the available national data on con- their spouses and children along to these Joking aside, he’s already got the political vention demand is at best scant, murky, and events, as a cost and time effective way of resistance to the gaming industry covered of limited reliability. The national market data having a family break. A recent report from with plans to build alternative hotel and regularly employed by consultants comes the Travel Industry Association of America in- conference facilities next door to Macau on from a small number of industry sources and dicated that the number of delegates bring- the mainland side of the border at Henqin often reflects estimates rather than perfor- ing children along on business trips jumped Island—although he is still awaiting approval mance, guesses rather than substance.” by 55% in six years. In the United Kingdom, from mainland authorities to proceed. A similar picture emerges in the Asian women make up 65% of the meetings mar- With the opening of The Venetian Ma- market, with competing convention loca- ket according to research quoted by EIBTM, cao, the only real Bridge of Sighs in the Asian tions initiating research that unsurprisingly the annual Global Meetings and Incentives conventions market is likely to be the one tends to paint a rosy picture of trends in that Exhibition. Mary Power, former Executive connecting the Hong Kong Convention and particular market. A survey on the Hong Kong Director of the Convention Industry Council Exhibition Centre to its local MTR station. conventions industry—commissioned by several government-funded industry groups and published in July—wasn’t released to the media. Instead a summary was given to journalists, highlighting what were claimed to be the headline figures, but making it difficult to delve deeper into the statistics. The Hong Kong survey digest claimed direct and indirect spending on exhibitions had risen 39% in 2006, compared to 2004 when a similar poll was conducted, representing an annual growth rate of around 18%. The survey found that directly and indirectly the industry contributed HK$26.4bn to the Hong Kong economy last year, with more than 80% of the receipts going to the hospitality sector and to retailers. It was credited with directly employing 2,100 people, and delivering HK$970 million in tax. Crucially, as evidence of the industry’s money-making capacity, The labyrinth of meeting rooms at Venetian Macao

17 18 Emerging Value Too long associated with land mines and killing fields, Cambodia has many parallels with—and advantages over—the booming casino destination of Macau. Inside Asian Gaming visited NagaWorld in the capital of Phnom Penh, which looks set to grab a greater share of the region’s mid- to low-end VIP market

Wynn Resorts scored a coup when it hawked the last remaining Macau casino sub-concession to Melco PBL for US$900 million in March 2006, practically covering the cost of the US$1.2 billion Wynn Macau, which opened in September that year with 600 hotel rooms and approximately 100,000 sq. ft of casino space. The US$300 million shortfall is hardly inconsequential, however, considering NagaCorp is building the 503-room five- star NagaWorld hotel casino in the heart of Cambodia’s capital, Phnom Penh, for a mere US$100 million. “That’s good value for money compared to other regional casinos which may cost significantly higher. Macau is now facing a dual handicap of cost push inflation and infrastructure constraints, particularly human resources issues,” com- mented NagaCorp President and CEO Tan Sri Dr Chen Lip Keong. Las Vegas Sands Corp, meanwhile, just reported that it could see a 20-40% cost escalation on its US$3.6 billion Marina Bay Sands project in Singapore, meaning the cost blowout alone could potentially add up to over 14 NagaWorlds. Cost escalation is not likely at NagaWorld, given the land has already been acquired (with land values in the area having subsequently jumped almost 20-fold), and the property’s shell and many of its rooms are already complete. NagaCorp was awarded a 70-year casino license—Asia’s longest casino license— starting 1995, and opened its first casino in a floating barge in Phnom Penh. NagaCorp was also given a 40-year monopoly on casino operations within a 200km radius of Phnom Penh. Stanley Ho’s 40-year Macau casino monopoly, which expired in 2002, allowed him to develop a powerful operation which still retains the largest share of a market now contested by several new foreign and local licensees. Dr Chen argues: “40 years is a The casino at NagaWorld 19 long time for any corporation with a good in the second quarter of 2008, rather than Macao-Resort-Hotel open. foundation, good corporate governance the end of this year as originally planned, practices, prudent financial planning, good the property will be to Dr Chen’s satisfac- Cambodia rising management, strong and yet realistic vi- tion. After all, as he points out, “What’s the Cambodia deserves the phoenix meta- sion and a bit of imagination, to create a hurry?” His attitude contrasts to that of sev- phor more than any other Asian nation. noted and respectable dot in the world eral Macau operators, who hastily convert- During the Khmer Rouge regime between gaming market.” ed residential and commercial buildings 1975 and 1979, up to half the country’s Dr Chen appears keen to take his time into casino hotels in order to tap into the population was killed, as Pol Pot moved ev- and accomplish the task properly, rather tourism and gaming boom which resulted eryone out of the cities into the countryside than rushing to increase capacity in order from mainland China’s easing of travel re- in order to establish his agrarian collective to take advantage of his monopoly posi- strictions on mainlanders wishing to visit utopia. For almost four years, Phnom Penh tion. He quotes Confucius: “He who walks Macau and Hong Kong from the second was a ghost town. Taking their cue from his own pace and never stops will reach the half of 2003. These converted buildings China’s Cultural Revolution—but going to destination.” could soon be rendered obsolete as table a maniacal extreme—the Khmer Rouge Thus, while the unveiling of NagaWorld capacity continues soaring in Macau, and tortured and killed up to 2 million people, in all its glory looks likely to only happen glitzy new properties such as the Venetian seeking to exterminate anyone whom

20 the Khmer Rouge feared could organize country’s booming tourism industry: “In cently been found off Cambodia’s coasts.” to challenge their authority. Most of the 1993, as United Nations-sponsored elec- country’s educated people were targeted. tions signaled the end of the civil war that Similar package, much lower cost Up to 1.5 million more died of the famine followed the Khmer Rouge regime’s col- Sheldon Adelson is fond of pointing that ensued from the Khmer Rouge’s poli- lapse, Cambodia got only 154,000 foreign out that 3 billion people reside within a 5 cies. It is interesting to note that none of visitors. Last year there were 1.7m, up 20% hour flight of Macau, but the same is also the gamblers Inside Asian Gaming spoke to on the previous year, and they spent some true of Cambodia. Unlike Macau—as men- at NagaWorld had made the 45 minute trip US$1.4 billion, or around twice the gov- tioned by Octo Chang in the following ar- to the Killing Fields, or had seen the Geno- ernment’s entire tax revenues. Everything ticle, “Rolling, Rolling, Everywhere”—where cide Museum (a secondary school Pol Pot from construction to financial services is casino operators face a steep 40% tax on had converted to a torture camp) right in booming too. Last year’s overall economic gaming revenue (35% direct tax and 4-5% the heart of town. growth was far better than expected, at mandatory social and welfare contribu- Cambodia has shaken off its sad past 10.5%. Cambodia is slowly but, it seems, tions), NagaCorp needs only pay a fixed with conviction, and is now a magnet for surely dragging itself up from a very low license fee every month. That fee stood at foreign investment and tourists. A recent base. And things could get brighter still: US$142,383 in 2007, equivalent to about report in The Economist highlighted the substantial oil and gas reserves have re- 5% of NagaWorld’s casino revenue. This al-

21 lows NagaCorp a lot more flexibility in offering incentives, especially junket rolling commissions, to players. Cambodia’s other big advantage is that starting salaries for dealers in the country are about US$80 per month, compared to as high as US$2,000 in Macau. Dr Chen elaborates on the advantages of Cam- bodia’s cheap and plentiful labour force: “Cambodia has a population of 16 million, compared with about half a million in Macau, and most of them are young. These young people are hard working, hospita- ble, and provide good VIP services. This is complemented by Cambodia’s tourist attractions, including Angkor Wat [designated one of the new ‘Wonders of the World’], lovely beach, rich culture, and one of Asia’s fascinating rivers.”

Cambodia’s cost advantages allow Na- gaWorld to offer greater comps and commissions to players with less front money compared to operators in Macau. The mid- to low-end VIP market could increasingly migrate to Cambodia once NagaWorld is fully operational. NagaWorld’s revenue from junket players has been growing fast over the past few years, from US$21.6 million in 2003 to US$52.6 million in 2006 (although main hall revenue has been static as capacity has yet to increase). The average win per junket table per day has also risen from US$2,959 in 2003 to US$6,550 in 2006, while Macau’s average win per VIP table has steadily declined as capacity explodes. Currently, 40% of NagaWorld’s junket customers hail from Malaysia, with 25% from China and 22% from Singapore. Vietnam accounts from 9% and Thailand 4%. Notably, however, in 2006, Chinese junket players brought more front money to NagaWorld than players from any other country. NagaCorp was listed on the Hong Kong stock exchange in October 2006, with the IPO priced at HK$1.25 per share. It became the first casino operator to list in Hong Kong, and is the first Cambodian company to be listed anywhere. The stock was trad- ing at around HK$2.3 in early September. The company faces no restrictions on its future expansion (locations, number of tables, size of premises, etc). Given its considerable cost advantages, once Naga- World is completed, the company’s slogan, “NagaCorp Rising”, could well characterise Rendering of the planned dancing fountain in front of NagaWorld its stock price. 22 23 24 25 Rolling, Rolling, Everywhere Casino marketing columnist Octo Chang sees a vision of Macau’s future in a Cambodian border town

I recently visited Cambodia, where I was intrigued by tales of a booming casino scene in the border town of Bavet, mere meters away from the crossing into Vietnam. The place evokes scenes of an old cow- boy town out of the American Wild West. There are two ways to get there. The first is from Ho Chin Minh City (Vietnam) via a de- cent road which takes a bit over an hour. The second way, which I took, was from Phnom Penh. The countryside scenery was quite lovely, though the scrolling vista of buffalos and paddy fields was somewhat spoiled by the volatile displacement of my ocular sens- es (read very bad road). After about three and a half hours in the SUV, which included a charming ferry ride across the Mekong, the hard-packed dirt track interspersed with bits of bitumen mi- raculously transformed into a proper road, flanked by a row of shiny new streetlamps Crossing the road to the other side, I en- rooms, some of them with up to about three and bordered on both sides by large new tered another casino which has the ambi- hundred rooms, and there is even a new one casino hotels, resplendent with bright neon ance of an SJM casino. I was surprised to see being built which will boast a four hundred lights. On one side were the new Las Vegas the sheer number of people in the main hall. rooms. And almost all of these rooms are Sun City and Volvo Mocbai. On the other Almost every gaming table was full of play- comped through the Junket Agents. were the wonderfully named Le Macau, ers, but the thing that stood out most was New World, King’s Crown and Sun City. The the large number of females wearing jackets The Bavet business model old Fullhouse is currently empty with a of different colours circulating in the crowd. So what is the business model in Bavet brand new US$50 million facility being con- I learnt that these were the “Rolling Girls”; and why is it booming? structed to replace it, complete with an 18- each coloured jacket representing a differ- For starters, there is no above-the-line hole golf course. ent junket agent. Their jobs were to “roll” the gaming revenue tax in Cambodia, so the ca- The latest arrival on the ‘strip’ is Las Ve- chips for the players—i.e. customers would sinos in fact enjoy the full 2.52% (or 2.7% if gas Sun City, complete with a logo that’s hand them cash or cash chips in exchange you subscribe to the American belief) theo- strikingly similar to that of Las Vegas Sands for junket chips, akin to the transactions that retical house advantage. The casinos pay Corp’s Sands Macau. I rubbed by eyes—had occur in any VIP room in Macau, except that the agents 1.6% plus some minor soft costs I just landed in mini Macau? I wandered in- this was happening on the main floor. like free hotel rooms and F&B coupons. As- side and lo and behold, there was even a mini I went to inspect the other four casinos, suming these soft costs add up to 0.4%, the replica of Sands’ famous chandelier. Just like and they were all the same. In fact, the nine casino still enjoys a net 0.5% hold or a profit Sands, there was an also-ran Filipino band or so junket agents in Bavet control all the margin of 20% belting out covers on the stage. And what’s main hall business of the town’s six casinos Not bad, when you compare it to the 0.2- more, there were even the same ‘G-wings’ (each agent has between 50-100 ‘rolling’ girls 0.3% house margin in Macau. above the tables to house the lighting and working 24/7). What do the Junket Agents get for bring- surveillance cameras. The only thing missing The other common feature I noticed ing in the players from Ho Chi Minh City? was the unique two tone black and bronze among Bavet’s casinos is that most of the VIP Not only do they get the commission and uniforms, but that was probably because an- rooms sat empty. The junket agents there in- the freebies, they also get special incentives other casino over at the border with Thailand formed me this was because casinos wanted in the form of visa and transport reimburse- (Poipet) had already used that design. Las Ve- too much in terms of underlying lease/rent, ments; basically reducing their expenses to gas Sun City seemed to be doing good busi- leading the junkets to take their clients back just two major items: credit and ‘rolling staff’ ness considering it was the middle of the day, into the main hall. (each ‘rolling’ staff gets about US$100 per in the middle of the week. Each casino has its own inventory of hotel month plus tips; a pretty good wage package 26 considering a dealer gets between US$60- ran out of ‘rolling’ chips. due to surging table capacity and squeezed 100 in that area). The Junket Agent explained that they margins, we will probably see a downgrad- It’s a pure supply and demand market. used to put their customers into designat- ing of certain properties accompanied by On one side you have about 8-9 Junket ed VIP Rooms, but when the casino tight- the increased introduction of rolling action Agents bringing in ever increasing numbers ened the terms, they moved them out to in the main halls. Already, some agents have of players from Ho Chin Minh, and enjoying the main floor. surfaced to facilitate these transactions on nice profits. On the other, you have six casi- So what do the players get out of all this? the main floor, whereby they will buy or ‘roll’ nos with more coming online soon. For starters, if they play on credit, they get the chips with the Promotional Chip desks, You have a fast growing gaming industry no commission, but F&B and perhaps a free exchange them with the players with whom perched on one side of the border servicing a room. However if they are cash players, they they have extended credit, and resell the market where there is a penchant for gaming get up to 1-1.2% plus the freebies, depend- freebies, such as ferry tickets (plenty of touts in a country where there are restrictions on ing on their rolling. hanging around the Macau ferry terminal the opportunity to play. Sound like Macau? We are already seeing some signs of this selling the tickets for a HK$10-20 discount) The growth in the number of casino op- new trend in Macau. and F&B coupons (you can buy these buf- erators is restricted only by land availabil- Most of the Macau casinos offer their Jun- fet coupons for as low as a third of their ac- ity and the demand for gaming. Junket op- ket Agents 1.2 to 1.3%, but nothing on the tual value) to give them extra profit (Grand erators are free to come and go, their profit main floor. To compete against the superior Emperor’s buffet voucher of HK$150 can be driven by their direct costs and the amount attraction of the big new halls, a few of the bought for HK$50 on the ground floor). of credit extended to their customers and smaller casinos have been offering 1.0-1.2% We have also already seen some casino underwritten by the casinos. Competition is direct to players with extras like F&B and fer- shareholdings change hands—e.g. Waldo, very keen, each of the junket agents repre- ry tickets. Fortuna, President, Louvre, Arabian President. The latest I’ve heard is that the sented in all the casinos. Customers usually Nights, Diamond at Holiday Inn, and Golden recently opened Grand Waldo is on the pick one agent over another because they Dragon have all been utilizing this tool. market. Obviously, its main hall is unable to have been given extra incentives such as As the bigger casino operators continue draw sufficient customers. Grand Waldo has bonuses when certain ‘rolling targets’ have expanding the number of tables across the reportedly been paying HK$1,000 per bus- been achieved. board, the only effective method for the load of low-end mainland tourists in order The most amazing outcome of this free- smaller guys to compete is to commoditise to render the casino less empty, when perfor-all competition is that all the action on both the VIP and main hall business. These haps it should be looking at offering com- the main gaming floor is ‘rolling’ action. little guys are not able to compete on ser- mission on the main floor. vice because all the good staff have been Some of the smaller and unprofitable ca- Everybody’s rolling lured to the big operators. They don’t have sinos may even go the same way as the ca- There was not a single cash player in any expensive attractions such as dancing foun- sinos in Bavet—i.e. leave the efforts to bring of Bavet’s six casinos. Not one. Every cus- tains, Swarosvki baubles galore, canals and players into the main hall to the agents, a tomer there played for either a percentage frescos, or mammoth aquariums (coming), complete circle, as the history of the evolu- rebate on the rolling commission, and/or for but what they do have are lower overheads tion of the Macau Junket concept originated complimentaries. So intense was the compe- and greater flexibility in terms of re-engi- from this unique arrangement. tition for customers that the ratio of players neering their product. So does Bavet portend the future of to junket ‘rolling staff’ was almost one to one. At the moment, this practice of intro- Macau? My companion and I sat down to a game, and ducing rolling commission to the average With the number of gaming tables set to a ‘roller’ was immediately behind us to swap punter is limited to a handful of the smaller increase exponentially, and the number of our cash chips for ‘rolling’ chips each time we casinos, but with the recent reports of losses customers growing by a much smaller per-

The Las Vegas Sun in Bavet and Sands Macau: Different as day and night 27 centage, it is easy to see that there will be some consolidation in the industry within the next couple of years. The big operators will have deeper reserves to dig into when table revenues dive below the average break-even point, leaving the smaller operators to try and find niches for themselves. A question of survival? It would make sense for these little guys, particularly for the ones currently managed by SJM, to follow the Bavet model. Unlike the Galaxy City Club setups, most of the existing SJM sub-franchises do not bear any costs associated with the operation of the casinos in their buildings. Under the 40:40:20 model, SJM bears all the costs associated with the operation of the casino, leaving only the marketing and F&B to the owners. The owners get 40% net, and now with the ever increasing labour costs, they are increasingly disinclined to ac- cept the new service agreement that David Chow of the Pharoahs casino in Landmark signed, whereby in return for control of the casino management, he gets 55% of revenue rather than 40%, but must also assume the This has resulted in an unintended con- that they have the ability to maximize cost- costs of managing the casino. If they stayed sequence. When Galaxy first introduced revenue efficiencies. SJM jumped into the under the original model, and spend minimal the 40:50:10 arrangement at its City Clubs foray with its 40:55:5 model, which gave amount of money on marketing and only the (approximate with 40% to the government, the owners more revenue to cover costs, basic F&B needs, by adopting the Bavet mod- 50% to the City Club owners, and an av- thus undercutting the Galaxy management el of inviting Junket Agents onto their main erage of 10% derived from grind and VIP model. Pharaohs has had this contract floor, they have effectively withdrawn from play to Galaxy), the ability of the owners since December, and the new contract is the advertising battle, and more importantly, to have a greater say over the operations now available to all the other SJM, but no- have linked their marketing costs directly to of their casino was a big draw. The owners body else has jumped on the bandwagon the volume of business in the form of rolling were able to justify shouldering all the ca- (whereas 5-6 months ago, they were all commission given out. sino operational expenses by rationalizing clamoring for it.). The reason—they have all seen labour and other costs go through the roof, while the market’s ever increasing supply of tables has resulted in sharply dropping revenue. This has resulted in the shareholdings of the Galaxy City Clubs enter a constant state of flux. It is likely there will soon be M&A opportunities in the lower end of the operators market. Recently released quarterly results also show some the large operators struggling in the face of the capacity explosion. If the small- and medium-sized casinos increasingly adopt gaming commodisation, the large operators could face even greater pressure on their bottom lines.

Octo Chang is the pseudonym of our regular columnist, a casino marketing professional with extensive qualifications and background in the gaming industry. Please feel free to forward any amusing anecdotes or observations of the marketing variety to him at ka.chng@ gmail.com 28 29 The Entertainer The dawn of the mega-resorts in Macau will draw a new breed of visitor seeking more entertaining and “light” forms of gaming. Inside Asian Gaming went in search of the most fun-to-play game in the city

tables had previously discouraged invest- markets, players look more to the entertain- The US$2.4 billion Venetian heralds ment in slot machines in Macau, but the tide ment value of the games they play. the dawn of the mega resorts in Macau. The is clearly turning as both table and slot ca- Macau had 8,234 slot machines at the opening day crowds were primarily intent on pacity show explosive growth, but wins per end of the first half of this year, with the gaming, but as the world’s second biggest slot have remained steady while wins per Venetian alone adding a further 3,400+ at building settles into the Macau landscape, table have declined. opening. Analysts predict the city will have as its expansive and diversified entertainment, Visitors to Macau currently hail primarily many as 50,000 new slots by 2010, and it’s a dining, retail and convention and exhibition from mainland China, Hong Kong and Taiwan safe bet to expect entertainment will feature facilities will drive the city’s evolution from (over 90% of the total), but the mega resorts more prominently in the mix. hardcore gaming getaway to a more diversi- will increasingly draw more international fied tourism hub in the Vegas mould. visitors and those coming primarily to expe- Getting the party started The new demographic of visitor drawn rience the city’s new non-gaming offerings. Inside Asian Gaming toured Macau’s casi- to Macau by the coming wave of mega re- Casino operators predict this will lead to even nos and slot halls to pick out the product we sorts will dramatically alter the tourism and greater growth in demand for less “hardcore” felt appeared to be engaging players most gaming markets. Slot machines in particu- forms of gaming—namely, slots. in the overall entertainment experience, lar will gain prominence. Slots contributed Slot preferences will also evolve. To date, and would thus appeal to the new breed a mere 4.2% of casino revenue in Macau in hyperlinks and progressive jackpots have of player set to descend upon the city. Two the second quarter of 2006, compared to proved especially popular with Chinese play- product ranges earned our pick, both from close to 70% in Vegas as a whole (and over ers seeking a big win. While WMS—Jackpot Party Progressive™ and Hot 50% on the Strip). Still, Macau’s slot revenue Chinese love to gamble, Hot Penny™. has already shown explosive percentage they are also relatively Although both ranges have been on the growth as traditionally table-loving Chinese new to slots. In more market for a while, they are still ahead of gamblers finally start trusting and becoming m a t u r e competing products in terms of rich sound familiar with gaming machines—slots made and the sheer appeal of their graphics—In- up a mere 0.8% of revenue in 2003. side Asian Gaming witnessed that appeal first The half-million sq. ft casino at Venetian hand during its trip to Cambodia last month, Macao devotes a lot more of its floor space when we spotted the unmistakable Jackpot to slot machines than any other casino Party “star” characters making cameo appear- in the city. When Sands Macao opened, ances on the signage in front of a large non- it had a slot to table ratio of 1.46, but gaming amusement park under construction Venetian’s ratio at opening is 3.9. High in the capital of Phnom Penh. r e t u r n s from putting in more The latest Jackpot Party

30 Progressive™ line merges the classic Jackpot Party game with a multi-level progressive, so there is still a chance of scoring the “big win” while having your “light” fun. Play- ers can win both credits and progressive awards in the bonus. The themes on offer include Treasures of the Acropolis™ (our personal favourite), Lighthouse Loot™, Dancing Dolphins™ and Riches of the Amazon™. The Hot Hot Penny™ slogan—“More Free Spins More Often”—held true, with the flaming visual and sound encountered when earning our free spins getting us caught up in the action. Hot Hot Penny™ is “created especially for the low denomination player” seeking entertainment and a bit of gaming fun in between the conventions, shopping and shows, rather than the hardcore gam- bler intent on a more volatile experience. The range includes Blue Lagoon™, Gem Hunter™ and King of Africa™. The future’s fun At the G2E Asia gaming expo in June, Inside Asian Gaming tried out the revo- lutionary WMS Top Gun™ game, which recreates the thrills and spills of the F-14 dogfights of the classic movie “Top Gun” Dubbed “sensory immersion gaming” by WMS, the Bose® 3Space™ Surround Sound Gaming Chair allows players to feel the rumble as jets whiz by in true 24-bit color aided by next-generation graphics on the CPU NXT™2 platform. Few video arcade games boast sound and graphics as rich as WMS’ Top Gun. WMS plans on releasing new themes for the system every 6 to 8 months. year 2006, up 82.2% year-on-year. Property Development Profit The company says it is working on extremely attractive margins HK$ millions amounting to 65% on the Nova City project. 5,000 The Shun Tak Shuffle Coincidentally, the investment bank Nomura estimates com- Nova City 4,500 pound annual growth rates in Shun Tak’s core earnings of 65% over Pokfulam Road

Macau’s leading ferry operator is placing its bets in other sectors the financial years 2007-09. 4,000 Nam Van Stie

Morgan Stanley estimates that by 2009, around 78% of STH’s in- 3,500 One Central come will derive from property as revenues from major projects such as One Central (the joint venture with Hongkong Land in which STH 3,000 has a 51% stake) and further stages of Nova City are booked in. 2,500

2,000

new American gaming operators in Macau—Hong Kong-listed STH growth opportunity. We believe the market has underappreciated Strong connections 35% has been repositioning itself as the most diversified Macau play on the potential.” JP Morgan says it is confident Shun Tak will find more property Shun Tak Operating the market. Macau investments launched or planned by the company development opportunities in Macau because of the company’s links $0.51 $0.94 EBITDA Expenses between now and 2013 include grade A apartments and shopping Benefits of change to STDM. (35%) malls, a low-cost airline, a new luxury hotel managed by Mandarin The structural changes in STH’s business are already feeding “Given their strong Macau connection and ties with STDM, which Source: Company data, Morgan Stanley Research Oriental and what could in the long term be the most significant de- through to the balance sheet. is believed to be one of the biggest land owners in Macau, we believe velopment—two casinos operated under licences from Stanley Ho’s In financial year 2006, Shun Tak posted joint venture-related Shun Tak should be able to replenish its land bank in Macau on an Morgan Stanley says the Harbour Mile casino is likely to cost gaming company SJM, one of them near the future City of Dreams operating profit of HK$383 million (HK$328 million of it booked ongoing basis.” HK$350 million and will be pitched to the mass market, with 180 being developed by Melco PBL Entertainment on Cotai. to sales at the property development Nova City at Taipa, in which STH already had significant interests in the Hong Kong property tables. It says the presence of the adjacent shopping mall and hotel As a result, there’s consensus among a significant number of STH has a 25% share). This was up 446% year-on-year. The contri- market, but the growth rates currently available in the Macau market should help generate visitors. Analysts add they expect the tables to Hong Kong-based investment analysts that Shun Tak is currently bution helped boost net profits to HK$664 million in the financial made investment there impossible to ignore. bring in annually 1.5 times the average mass table in Macau (the aver- 32 year 2006, up 82.2% year-on-year. Property Development Profit The company says it is working on extremely attractive margins HK$ millions amounting to 65% on the Nova City project. 5,000 The Shun Tak Shuffle Coincidentally, the investment bank Nomura estimates com- Nova City 4,500 pound annual growth rates in Shun Tak’s core earnings of 65% over Pokfulam Road

Macau’s leading ferry operator is placing its bets in other sectors the financial years 2007-09. 4,000 Nam Van Stie

2,000

Shun Tak Income Statement 1,500 2004 2005 2006 2007E 2008E 2009E Revenue 1,000 Transportation 1,659 1,742 2,006 2,207 1,986 1,986 500 Property 1,901 501 302 443 184 7,227 Hospitality 161 289 325 357 413 529 Investments and others 135 118 162 153 143 208 2006E 2007E 2008E 2009e 2010e Eliminations (18) (109) (176) (199) (172) (627) Total 3,838 2,541 2,618 2,962 2,555 9,324 Source and estimates: Morgan Stanley Research Source: Company data, Morgan Stanley Research Ownership of casinos could provide further long-term revenue. Analysts at JP Morgan estimate that by 2011, more than half Shun Tak’s There are concerns though from UBS that this property- annual earnings will come from its planned casinos at Harbour Mile supported business model based on building and then selling and Cotai, though its margins are likely to be significantly lower than off may be hard to sustain as undeveloped prime sites become many other casino owners because it will rely on an SJM licence. scarcer in Macau. UBS says: “While 2008/09 profits will continue to be dominated Property Development Profit by Macau projects, additional ‘hidden gems’ on similar prime location HK$ millions and large scale as One Central and Harbour Mile may be harder to Hotels (Marriott at HK Airport, Nam Van, Westin, Mandarin at One come by in future.” Central and the old Mandarin) 88 Morgan Stanley thinks one way around this is for the company to Transportation (ferry, airline, and coaches) 300 position itself as a developer-manager. Existing investment properties 62 New investment properties (Malls at One Central, Nam Van, and Its report says: “Over 90% of the company’s property portfolio is office building at Nam Van) 300 development property, with the remaining 10% investment proper- Nam Van casino 400 ties. The latter number is likely to move up over time because the Cotai casino 650 Total 1,800 f Las Vegas Sands Corp’s unofficial Macau motto is: “Build It and undervalued, and the company’s stock has been recommended as a company is likely to keep several of the buildings currently under I Source: JPMorgan estimates, company data. They Will Come”, then Shun Tak Holdings’ motto should be: “Build It ‘buy’ in research papers issued by Morgan Stanley, JP Morgan, UBS construction for long-term rental purposes, including the retail, office, and We Will Take Them There”. and Nomura. hotel, and serviced apartments from the HK Land JV [One Central] Shun Tak, the Hong Kong-listed shipping and property business, A recent report from JP Morgan states: “As the only conglomer- and Harbour Mile sites. Shun Tak-Owned Casino Profit Split was responsible for transporting 72% of the 6.7 million visitors arriv- ate play focusing on Macau, we found Shun Tak’s share price un- Shifting the property portfolio towards investment would pro- Wager ing in Macau by high-speed ferry last year, with services from Hong derperformance unjustified given that Macau is one of the fastest vide a steady rental revenue stream for future balance sheets, as well $100 Kong, Shenzhen and Guangzhou. Those 4.85 million passengers rep- growing economies in the world, outpacing not only Hong Kong as offering potentially attractive leveraging power as property capital resented a year on year increase of 18% compared to 2005. but also mainland China. In 2006, Macau GDP rose 16.6% (versus values increase. Win Rate 2.65% At present, Shun Tak’s ferry business accounts for most of the Hong Kong’s 6.8%).” Morgan Stanley notes: “One of the main issues relating to STH’s company’s revenues, but there are storms ahead in this sector, with It continues: “Median wages rose 25% (versus 0% in Hong Kong). balance sheet is its lack of leverage. We welcome the value enhancing $2.65 jumpy fuel prices, competition from a new operator and challenges We believe the transformation of Macau has just started and strong practice of share buybacks (i.e., reduces cash and buys at discount to Tax 55% SJM from road transport—especially if the ‘super bridge’ connecting Hong economic growth should continue for the next three to five years. Net Asset Value (NAV), with STH having spent more on buybacks year- 40% 5% Kong-Zhuhai-Macau is built by 2012 as planned. With outstanding assets in property, transportation and gaming in to-date than 05 and 06.” $1.06 $1.46 $0.13 Steadily—and without all the razzmatazz associated with the Macau, Shun Tak should be able to take advantage of this promising new American gaming operators in Macau—Hong Kong-listed STH growth opportunity. We believe the market has underappreciated Strong connections 35% has been repositioning itself as the most diversified Macau play on the potential.” JP Morgan says it is confident Shun Tak will find more property Shun Tak Operating the market. Macau investments launched or planned by the company development opportunities in Macau because of the company’s links $0.51 $0.94 EBITDA Expenses between now and 2013 include grade A apartments and shopping Benefits of change to STDM. (35%) malls, a low-cost airline, a new luxury hotel managed by Mandarin The structural changes in STH’s business are already feeding “Given their strong Macau connection and ties with STDM, which Source: Company data, Morgan Stanley Research Oriental and what could in the long term be the most significant de- through to the balance sheet. is believed to be one of the biggest land owners in Macau, we believe velopment—two casinos operated under licences from Stanley Ho’s In financial year 2006, Shun Tak posted joint venture-related Shun Tak should be able to replenish its land bank in Macau on an Morgan Stanley says the Harbour Mile casino is likely to cost gaming company SJM, one of them near the future City of Dreams operating profit of HK$383 million (HK$328 million of it booked ongoing basis.” HK$350 million and will be pitched to the mass market, with 180 being developed by Melco PBL Entertainment on Cotai. to sales at the property development Nova City at Taipa, in which STH already had significant interests in the Hong Kong property tables. It says the presence of the adjacent shopping mall and hotel As a result, there’s consensus among a significant number of STH has a 25% share). This was up 446% year-on-year. The contri- market, but the growth rates currently available in the Macau market should help generate visitors. Analysts add they expect the tables to Hong Kong-based investment analysts that Shun Tak is currently bution helped boost net profits to HK$664 million in the financial made investment there impossible to ignore. bring in annually 1.5 times the average mass table in Macau (the aver- 33 age being HK$6.9 million) and that the casino will pay back its project out, with prices averaging HK$4,500 per square foot, with some Harbour Mile, a site near Shun Tak’s Macau Tower and Conven- costs within a year. duplex units costing more than HK$6,000 per sq. ft. tion Centre is not due for completion until 2010. It will have a gross Morgan Stanley says the Cotai casino—due to be constructed on floor area of 3.8 million feet, containing a 500-room hotel likely to a piece of land acquired in a swap with the Macau Government— is Development Timeline for Nova City I-V be pitched at executive travellers, a 200,000 sq. ft casino, 500,000 unlikely to be completed for another five to six years because of Shun No. of GFA Estimated sq. ft of office space, 700,000 sq. ft for retailers and 2 million sq. ft Tak’s other property commitments. Units (000 sq.ft.) Compl. Cost (HK$) of residential space. Nova City PHase I 5 blocks 680 million Because of its prime location, Morgan Stanley thinks Harbour (684 units) 1,100 completed (620/sq.ft.) Looking beyond Macau Nova City PHase II 4 blocks 680 million Mile’s apartments are likely to attract sales premiums of at least On the face of it, STH has enough projects on its books to drive (552 units) 970 Apr-07 (640/sq.ft.) HK$5,500 per sq. ft. growth for half a decade. Other analysts think though that as Macau’s Nova City PHase III 4 blocks 700 million gaming and tourism markets mature, STH may need to seek new op- (552 units) 970 Apr-08 (620/sq.ft.) Taking flight portunities in mainland China in order to maintain growth. Nova City PHase IV 5 blocks 640 million In addition to its property interests, the company has a direct 600 units 680 Jan-09 (620/sq.ft.) UBS said in its recent report on the company: “To sow the seeds Total 5 blocks stake in another growing sector likely to be increasingly important of growth beyond 2009, we believe STH may announce within 2007 2,388 units 3,700 2,640 million in Macau’s economy—air travel. It has a 31.4 % share in Macau Asia new projects outside Macau, be it in property, hospitality, or transport, Nova City PHase V Approx. 680 million Express, a low cost carrier due to start services from Macau to other and whether in China or beyond. Early announcement of a sensible (under planning) 1,400 units 1,622 Dec-10 n/a Asian cities later this year. STH has told analysts the airline will have growth plan would not only allay investor concerns about growth, Source: Hopewell Holdings, Morgan Stanley Research an initial HK$30 million investment and start operations with two air- but also reduce calls for return of capital given STH currently sits on HK$2.5 billion of net cash.” Shun Tak Development Properties Shun Tak also has indirect exposure to Stanley Ho’s VIP and mass- Shun Tak will face competition from new ferry services offered by Total Attri, Cost of Pending Market Market market casino operations. This comes through Shun Tak’s 11.5% stake Venetian-operator Las Vegas Sands Corp (LVS). Last month, LVS pur- % Est Dat Of Floor Area Floor Area Construction Const Cost Price Value in STDM, Dr Ho’s umbrella organisation for his business interests. chased 10 high speed ferries to launch a CotaiJet service linking Hong Project Name Location Held Completion (sq,ft,) (sq,ft,) (HK$/sq,ft,) (HK$M) (HK$/sq,ft,) (HK$M) STDM in turn owns 80% of SJM, which runs Dr Ho’s casino operations. Kong directly to the Cotai Strip. The service is expected to commence Harbour Mile Macau Morgan Stanley values Shun Tak’s indirect stake in SJM at HK$3.6 bil- late this year or early 2008. Residential 100% Jun-10 2,000,000 2,000,000 800 1,231 5,500 7,504 lion, less a 15% discount because Shun Tak doesn’t have control over An analyst from a European investment bank recently reported that Residential 100% Jun-10 700,000 700,000 900 489 4,800 2,292 cash flows. after playing golf in Macau and missing his Sunday afternoon ferry Residential 100% Jun-10 500,000 500,000 900 355 4,000 1,364 back to Hong Kong, no amount of money could buy him a seat on a Residential 100% Jun-10 500 500 600,000 237 2,000,000 682 One Central Macau, PRC ferry or even a helicopter until 11.15pm that night. Ferries still deliver Residential 51% Jun-09 1,500,000 765,000 800 535 4,500 2,671 Although demand for ferry capacity seems at present to be out- Looking to the long term, significant diversification from sea Residential 51% Dec-08 380,000 193,800 800 145 9,600 1,532 transport is probably wise. Although the numbers on ferry revenues stripping supply, ferry operators’ margins have been choppy recently Residential 51% Dec-09 760,000 387,600 900 288 5,500 1,558 still look very healthy, the growth in ferry arrivals is much flatter than because of volatility in fuel prices, though JP Morgan says Shun Tak Residential 51% Jun-09 210 107 1,200,000 115 4,000,000 332 the growth in arrivals by road from mainland China. In anticipation of has engaged in fuel hedging which should help stabilise its operating Nova City Macau this trend, STH has started a coach service between Macau and main- costs until the first quarter of 2008. Residential 25% Apr-06 1,100,000 275,000 620 31 1,750 481 land China. It recently added 10 new coaches, taking its fleet to 40 A quick glance at Shun Tak’s balance sheet and future estimated Residential 25% Apr-07 970,000 242,500 640 108 1,900 459 vehicles, and has plans to increase the pool to 100 coaches. revenues suggests the ferry operation will account for around three Residential 25% Apr-08 970,000 242,500 730 176 2,400 514 quarters of STH’s income until at least 2008. In the 2006 financial year, Residential 25% Jan-09 680,000 170,000 940 147 2,650 366 Macau Visitors by Type of Tansport passenger numbers were up 13% and operating profit in its transport Residential 25% Dec-10 1,622,000 405,500 940 278 2,900 761 Shuk Tak Cotai Macau Visitor (mn) sector rose 12%. Land 10% Exist 2,100,000 1,680,000 0 0 1,000 1,680 14 The company realised some time ago ferries alone were unlikely Sea Land Air to deliver the levels of profit growth demanded by Shun Tak’s share- 12 holders in Macau’s bullish market.

10 Property forays 8 Shun Tak has been using its excellent contacts in the territory to reposition its business and take advantage of the demand for A- 6 grade residential and commercial units. 4 This process began as far back as 2002 when the Las Vegas-style casino resorts of Wynn, LVS and MGM Mirage were still at the plan- 2 ning stage. STH began buying land or taking stakes in prime develop-

0 ment sites on peninsular Macau, Taipa and Cotai. 2000 2001 2002 2003 2004 2005 2006 2007 YTD The first of Shun Tak’s recent Macau property projects, Nova City—a medium grade high rise development at Taipa—is, as men- Source: DSEC, Morgan Stanley Research tioned, already contributing to the balance sheet and will add more From next year, Shun Tak’s ferries will have direct competition value as new phases are built between now and 2010. from Las Vegas Sands Corp (LVS), which intends to operate a Hong One Central, the JV with Hongkong Land, overlooking Nam Kong to Macau service via a new pier at Macau International Airport, Van Lake at the southern end of the Macau peninsula, will feature in order to funnel visitors direct to its huge new Venetian resort at a luxury shopping mall similar to The Landmark in Hong Kong, nearby Cotai. a new five-star hotel managed by Mandarin Oriental and luxury One Central, the JV with Hongkong Land, overlooking Nam Van Lake at the southern end of the Macau peninsula, will feature a luxury shop- Extra ferry capacity does though appear to be urgently needed. apartments. The company says the housing on the site is now sold ping mall similar to The Landmark in Hong Kong, a new five-star hotel managed by Mandarin Oriental and luxuryapartments. 34 age being HK$6.9 million) and that the casino will pay back its project out, with prices averaging HK$4,500 per square foot, with some Harbour Mile, a site near Shun Tak’s Macau Tower and Conven- costs within a year. duplex units costing more than HK$6,000 per sq. ft. tion Centre is not due for completion until 2010. It will have a gross Morgan Stanley says the Cotai casino—due to be constructed on floor area of 3.8 million feet, containing a 500-room hotel likely to a piece of land acquired in a swap with the Macau Government— is Development Timeline for Nova City I-V be pitched at executive travellers, a 200,000 sq. ft casino, 500,000 unlikely to be completed for another five to six years because of Shun No. of GFA Estimated sq. ft of office space, 700,000 sq. ft for retailers and 2 million sq. ft Tak’s other property commitments. Units (000 sq.ft.) Compl. Cost (HK$) of residential space. Nova City PHase I 5 blocks 680 million Because of its prime location, Morgan Stanley thinks Harbour (684 units) 1,100 completed (620/sq.ft.) Looking beyond Macau Nova City PHase II 4 blocks 680 million Mile’s apartments are likely to attract sales premiums of at least On the face of it, STH has enough projects on its books to drive (552 units) 970 Apr-07 (640/sq.ft.) HK$5,500 per sq. ft. growth for half a decade. Other analysts think though that as Macau’s Nova City PHase III 4 blocks 700 million gaming and tourism markets mature, STH may need to seek new op- (552 units) 970 Apr-08 (620/sq.ft.) Taking flight portunities in mainland China in order to maintain growth. Nova City PHase IV 5 blocks 640 million In addition to its property interests, the company has a direct 600 units 680 Jan-09 (620/sq.ft.) UBS said in its recent report on the company: “To sow the seeds Total 5 blocks stake in another growing sector likely to be increasingly important of growth beyond 2009, we believe STH may announce within 2007 2,388 units 3,700 2,640 million in Macau’s economy—air travel. It has a 31.4 % share in Macau Asia new projects outside Macau, be it in property, hospitality, or transport, Nova City PHase V Approx. 680 million Express, a low cost carrier due to start services from Macau to other and whether in China or beyond. Early announcement of a sensible (under planning) 1,400 units 1,622 Dec-10 n/a Asian cities later this year. STH has told analysts the airline will have growth plan would not only allay investor concerns about growth, Source: Hopewell Holdings, Morgan Stanley Research an initial HK$30 million investment and start operations with two air- but also reduce calls for return of capital given STH currently sits on HK$2.5 billion of net cash.” Shun Tak Development Properties Shun Tak also has indirect exposure to Stanley Ho’s VIP and mass- Shun Tak will face competition from new ferry services offered by Total Attri, Cost of Pending Market Market market casino operations. This comes through Shun Tak’s 11.5% stake Venetian-operator Las Vegas Sands Corp (LVS). Last month, LVS pur- % Est Dat Of Floor Area Floor Area Construction Const Cost Price Value in STDM, Dr Ho’s umbrella organisation for his business interests. chased 10 high speed ferries to launch a CotaiJet service linking Hong Project Name Location Held Completion (sq,ft,) (sq,ft,) (HK$/sq,ft,) (HK$M) (HK$/sq,ft,) (HK$M) STDM in turn owns 80% of SJM, which runs Dr Ho’s casino operations. Kong directly to the Cotai Strip. The service is expected to commence Harbour Mile Macau Morgan Stanley values Shun Tak’s indirect stake in SJM at HK$3.6 bil- late this year or early 2008. Residential 100% Jun-10 2,000,000 2,000,000 800 1,231 5,500 7,504 lion, less a 15% discount because Shun Tak doesn’t have control over An analyst from a European investment bank recently reported that Residential 100% Jun-10 700,000 700,000 900 489 4,800 2,292 cash flows. after playing golf in Macau and missing his Sunday afternoon ferry Residential 100% Jun-10 500,000 500,000 900 355 4,000 1,364 back to Hong Kong, no amount of money could buy him a seat on a Residential 100% Jun-10 500 500 600,000 237 2,000,000 682 One Central Macau, PRC ferry or even a helicopter until 11.15pm that night. Ferries still deliver Residential 51% Jun-09 1,500,000 765,000 800 535 4,500 2,671 Although demand for ferry capacity seems at present to be out- Looking to the long term, significant diversification from sea Residential 51% Dec-08 380,000 193,800 800 145 9,600 1,532 transport is probably wise. Although the numbers on ferry revenues stripping supply, ferry operators’ margins have been choppy recently Residential 51% Dec-09 760,000 387,600 900 288 5,500 1,558 still look very healthy, the growth in ferry arrivals is much flatter than because of volatility in fuel prices, though JP Morgan says Shun Tak Residential 51% Jun-09 210 107 1,200,000 115 4,000,000 332 the growth in arrivals by road from mainland China. In anticipation of has engaged in fuel hedging which should help stabilise its operating Nova City Macau this trend, STH has started a coach service between Macau and main- costs until the first quarter of 2008. Residential 25% Apr-06 1,100,000 275,000 620 31 1,750 481 land China. It recently added 10 new coaches, taking its fleet to 40 A quick glance at Shun Tak’s balance sheet and future estimated Residential 25% Apr-07 970,000 242,500 640 108 1,900 459 vehicles, and has plans to increase the pool to 100 coaches. revenues suggests the ferry operation will account for around three Residential 25% Apr-08 970,000 242,500 730 176 2,400 514 quarters of STH’s income until at least 2008. In the 2006 financial year, Residential 25% Jan-09 680,000 170,000 940 147 2,650 366 Macau Visitors by Type of Tansport passenger numbers were up 13% and operating profit in its transport Residential 25% Dec-10 1,622,000 405,500 940 278 2,900 761 Shuk Tak Cotai Macau Visitor (mn) sector rose 12%. Land 10% Exist 2,100,000 1,680,000 0 0 1,000 1,680 14 The company realised some time ago ferries alone were unlikely Sea Land Air to deliver the levels of profit growth demanded by Shun Tak’s share- 12 holders in Macau’s bullish market.

Macau Air Arrivals and Departures, 2006 Visitors 2,451,280 49% Transit 2,254,348 45% Residents 270,465 5% Total 4,976,093 100% Source: DSEC, Morgan Stanley Research Macau recorded a 19% increase in air arrivals and departures in 2006 compared with the previous year.

Macau Visitors and Growth by Air

Visitor (millions) 1.4 45%

Airport Heliport Growth

1.2 30%

1.0 15%

0.8

0.6

-15% 0.4

-30% 0.2

- -45% 2000 2001 2002 2003 2004 2005 2006 2007 YTD

Source: DSEC, Morgan Stanley Research Infrastructure links STH’s links to Macau’s infrastructure go deep, thanks to its connections to the business empire of Dr Stanley Ho, Macau’s former gaming monopolist. Dr Ho is no longer Shun Tak’s chairman, but still sits as an executive director on the board, as does Dr Ambrose So, widely regarded as Dr Ho’s right-hand man at SJM. Dr Ho’s daughter Pansy Ho is Shun Tak’s managing director. She has built a reputation as an astute businesswoman in her own right, and in a personal capacity is also a 50-50 partner with MGM Mirage on the MGM Grand Macau casino resort due to open on the peninsula in the fourth quarter of this year. Morgan Stanley says: “We believe Shun Tak will be a key benefi- The Four Pillars ciary to the heavy infrastructure investments deployed by the Macau Shun Tak Holdings Ltd, founded in 1972 and listed on the Hong Government given its leverage to the overall economy. We have in- Kong Stock Exchange since 1973, has four core businesses: creased our valuation for Harbour Mile and One Central’s retail por- » Shipping. An approximate 80% share of the HK-Macau ferry tions to HK$6,000 and HK$12,000/ sq. ft respectively considering the market. It has diversified into inter-city ferry services to Shenzhen rents of HK$55-60/sq. ft being achieved on relatively more oversup- and Guangzhou plied Cotai. Two further catalysts are the conclusion of the Cotai site » Hospitality. Owns 50% of Mandarin Oriental Macau and 34.9% acquisition and the potential SJM listing, which could add another of Westin Resort Macau HK$1-2/share.” JP Morgan adds: “We continue to view Shun Tak as the “blue chip” » Gaming. Owns 11.5% of STDM. STDM subsidiary SJM is the dominant gaming licence holder in Macau diversified Macau play, and we believe the opening of The Venetian, Shun Tak’s announcement of its Cotai casino project, and the pre- » Property. A development ‘landbank’ of 8 million sq.ft in Macau, sales of the Nam Van project at the end of this year should be the HK$2.5bn of investment properties, and a 10m sq. ft gross floor area property management portfolio in Hong Kong and Macau. main drivers for the stock.” 36 Surveillance Evolution Internet and digital technologies spur improvements in casino surveillance

A s digital technology continues to as cameras and encoders, more intelligent, can be costly. “Some casinos use 1,000 pervade casinos and their surrounding prop- only the video containing useful segments is cameras or more, which can cost several erties, gaming operators are getting hip to transmitted back to operators. So when the thousand dollars each,” said Kostas Mel- the notion of deploying digital surveillance software detects an event that meets certain los, sales leader of enterprise video at GE systems throughout every nook and cranny, criteria, such as an abandoned object, only Security. “Altogether, including storage, both on the floor and in back of house opera- the video containing that event needs to be per-channel video costs can be as high as tions. More than other businesses, the gam- viewed by surveillance. US$5,000-6,000.” ing industry has been in the forefront of digi- One of the overriding themes in secu- Given those parameters, security person- tal surveillance, undeterred by its relatively rity today is being able to derive a return nel are extremely picky about choosing tech- high cost compared to analog systems. Given on investment on a security system. “While nology providers. Typically, purchasing deci- the stakes involved, the benefits in improved ROI has not traditionally been a security sions are made by a committee composed of risk management far outweigh the costs. practitioner’s concern, security has become senior execs, which has a checklist of require- Digital systems allow video footage to accountable to business metrics,” said Leon ments. “The committee will look for whether be viewed immediately, which means bet- Chlimper, vice president of systems at Bosch integrators have the capability to maintain ter customer service. If a customer makes a Security Systems. systems, and whether the technology is state claim that a dealer took his push bet, for in- IP video technology with video content of the art,” Mellos said. stance, the floor manager will call the surveil- analysis can also be used in other areas of Casinos being built from scratch, such as lance room, which immediately reviews the a casino property for functions that provide Atlantis Cove Resort, have the opportunity footage to see what happened. In an analog benefits outside the traditional realm of se- to leapfrog competitors by installing state- world, it would be necessary to pull the tape curity over gaming operations. A scheduled of-the-art technology. Located in Nassau, Ba- and spend several minutes, maybe even an truck delivery of four pallets of supplies can hamas, Atlantis Cove tapped North American hour, going through and searching for the be verified by the surveillance system at the Video to serve as systems integrator, utilizing specific incident. loading dock by using a counting feature in the capabilities of the MDI Unified Technol- There’s also greater flexibility. With digital, VCA. Or, a costly theft of hotel linens can be ogy Platform as its security command and operators have the ability to choose combi- discovered, further adding to the return on control solution. nations of monitors to view and display them investment of the surveillance system. “The MDI solution was specifically re- all on one screen. They can drag a dozen or “With the advent of IP technology, many quested by the Atlantis security team based more cameras into the viewer at one time, features of today’s systems can be used for on its capabilities as a unified system,” said group them all together, and play back all at functions outside of security—the unattend- Cyndi Freschi, president of North American the same time; managers can look at an ened delivery truck or counting people as they Video. “The open architecture customiza- tire section of the casino floor and drag and enter the casino, capabilities that improve tion capability of the MDI system is beyond drop cameras at will. operations and add to the value of the sys- that of most typical integrated software and IP video surveillance, technology that of- tem,” said Chlimper. is able to accomplish security requirements fers real-time delivery of video and still imag- In the case of IP video, many casinos have that no other system that we have worked es via a LAN or the Internet, is also enhancing a very substantial analog camera infrastruc- with can meet.” surveillance operations at casino properties. ture that remains completely viable. Many The MDI system is currently control- Access to recorded video is nearly instanta- casinos are opting for a hybrid solution, re- ling over one thousand edge devices on neous, enabling security personnel to make taining the cameras and the matrix switcher, the Atlantis project including end points on quick and efficient decisions about how to for example, while adding encoders and a slot machine doors, retail stores and secure respond to specific incidents. IP technology storage solution to take advantage of the counting rooms to name a few. The system is also makes possible the use of video con- conveniences digital recording has to offer. integrated with North American Video’s line tent analysis, which provides an automated of video surveillance products and utilizes analysis of the video at the camera level. And Intelligent design their consoles, power supplies, workstations as manufacturers are making devices, such Moving toward a digital infrastructure and racks. North American Video is working 37 on expanding the system to additional new variety of IT, digital and analog technologies tion for comprehensive user, group and prop- facilities on the property. and vendor partner products that will be erty security management. integrated and installed by North American The iTrak system provides Sandia’s se- Extra extras Video teams. Partner products will include curity and surveillance departments with a Casinos are also adopting security and video surveillance solutions from American complete integrated risk management tool. surveillance software platforms, which Dynamics, system management hardware It replaces traditional inefficient and unreli- help in reducing losses and managing risk and software solutions from Honeywell, able paper-based systems, and enables pur- through the rapid identification of individu- video surveillance and control services from chasing of relevant modules required for a als involved in loss, threat creation and other Nice Systems, and network and digital video specific application environment. The Lost specific activities. recorders from Sanyo. & Found module maintains lost reports and Earlier this year, North American Video Meanwhile, Sandia Resort & Casino has matches them against large found item da- was awarded integrated video security and tapped iView’s iTrak incident reporting and tabases. An operator can review lost reports surveillance systems design and installation risk management software, and its Lost & and found items while managing their return contracts from MGM Grand in Detroit, Isle of Found and Gaming modules, to provide a or disposal with complete ID and signature Capri in Pompano, Fla., and Harrah’s in Ches- complete end-to-end security and surveil- capture options. The gaming module delivers ter Downs, Pa., along with phase two of the lance solution. The iTrak platform includes a a standardized system for performing audits massive system recently installed at the new daily log, briefing log, full incident reporting, of customizable policy and procedural viola- Wynn Casino in Macao. M. Malia and Associ- subject profiling, personnel tions for gaming activities, such as dealer, ates are designing the security and surveil- management, vehicle player and departmental audits, while lance systems for these casino projects. tracking, contacts providing comprehensive reporting The various systems will incorporate a and administra- on these activities.

Decentralized Surveillance at Venetian Macao

The Venetian Macao-Resort-Hotel features one of the world’s largest fully digital casino video surveillance systems.

Phase one of the system consists of both fixed and movable cameras to monitor the casino, restaurants and the hotel. The system will also monitor cameras installed in 2004 at the nearby Sands Macau Casino. Later phases of the project will see additional video systems from nearby Las Vegas Sands Corp resorts on the Cotai Strip tied in to the system.

The system’s decentralized recording is carried out by Dallmeier USA’s modular audio/ video recording and transmission systems. These units allow the resort to simultaneous- ly record and transmit live video signals and replay recorded video. Because the system records directly to integrated storage, the Venetian Macao is able to ensure maximum uptime and data availability, even if its network experiences problems or failures. This decentralized storage concept also reduces bandwidth requirements.

Compared to centralized recording solutions, the Venetian Macao-Resort-Hotel found that the cost advantage of a decentralized system was approximately three to one because of the resources required for storage, network and fail-safe reliability within a centralized system.

38 The system has enabled Sandia’s surveillance personnel to make a seamless tran- sition from a paper-based incident tracking and reporting system to one that’s completely automated. “The multiple applications enable us to share, communicate and retrieve information from across several departments,” the casino said. I want my CCTV The demanding closed-cir- cuit television requirements of casino operations, which include high resolution video images and fast analysis of recorded footage, are fueling demand for IP Video and its benefits of scalability, real-time camera- based analytics and fault tolerant configu- rations. The Casino del Sol and Casino of the Sun, operated by the Pascua Yaqui Tribe in Arizona, are having their current analog sys- said tems completely upgraded. The tribe recent- Ma- lance, ly awarded a multimillion-dollar contract to teo Flores, casino IndigoVision to upgrade the casinos to a fully director of sur- o p e r a t o r s digital CCTV operation. IndigoVision claims veillance for the Pas- would do well to ex- this is among the first casino operations in cua Yaqui Gaming Enterprise plore the many options available the United States to go fully digital. Division. “We were particularly impressed in this fast developing technology. The two systems, totaling over 1,100 with the video quality, the functionality of cameras, are being installed by a local In- the control center software and the efficient By Steve Marlin. Reprinted with permission digoVision integration partner. The migra- use of NVR storage.” from International Gaming and Wagering tion to digital is being phased so the casi- As the industry migrates to digital surveil- Business (IGWB) magazine. nos can remain open and any downtime is kept to a minimum.All of the original cameras will be reused, but the analog matrix, VCRs, and video cabling will be replaced. The overall footprint of the CCTV system in the equipment room will be reduced by 70%, thereby releasing valuable space for future system expansion. The two casinos, which are located approximately one mile apart, will be connected via a fiber link that allows monitoring of both casinos from one location. However, each casino will have its own security control room, where operators will use IndigoVision’s video and alarm management software to view live and recorded video from any of the cameras in the system. The aging VCR system will be replaced with IndigoVision’s network video recorders (NVRs), which provide fast access to recorded footage—vitally important to resolve gaming disputes quickly. IndigoVision’s technology “was chosen following extensive trials of competing sys- The Intelligent Video Motion Detection device produced by Bosch Security Systems uses digital and tems and visits to existing casino installations,” IP technology to enhance the analytical capabilities of surveillance cameras and systems 39 Passing Another Milestone Global lottery sales in 2006 sailed past the US$200 billion with a year-on-year increase of nearly 10%

There seems to be no end to the exclusive club last year, the latter due pri- party—worldwide lottery sales continued marily to video lottery terminals, reported their upward march in 2006, reaching a as cash-in amounts. A total of 48 lotteries with multiple operators are still included reported US$205 billion last year, a gain achieved sales in excess of $1 billion. Almost under the AAMS banner. of almost 10% over 2005’s US$187 billion. all of these big lotteries increased their sales After temporarily leading the world In the past five years, global lottery sales in 2006, both in terms of local currencies and for the first time in 2005, Spain’s Loterias y have soared more than 65%, an average of when converted to US dollars. Apuestas del Estado ended up in the second almost 11% per year. Some big gains were reported by some spot in 2006, but still produced a solid 4.5% As we’ve noted in previous years, this lofty big lotteries. China’s Welfare lottery increased sales increase, reaching US$12.1 billion. Just sales total doesn’t include some lotteries in sales by nearly 24% to reach US$6.2 billion, behind it was French national lottery op- Asian and South American countries, and following an extraordinary 83% gain in 2005 erator La Francaise des Jeux, third on the list reporting in Asia, Africa, and Latin America as that country’s lottery industry continues with US$11.9 billion in sales, a 7.2% increase remains sketchy at best. India is a prime ex- its phenomenal rise up the world ranks. In over 2005. ample of a new lottery market with competi- Europe, Greece’s O.P.A.P. continued a recent The only lottery among the top ten to ex- tive operators where sales figures are hard to trend of double-digit growth with a 27% in- perience a decline in sales, at least in terms of come by, and sales could be in the billions. crease to US$5.8 billion, and Italy’s Lottomat- US dollars, was Japan’s national lottery oper- Another growing lottery is the Construction ica grew sales by 22% to hit US$13.3 billion. ator, fourth-ranked Mizuho Bank. Sales were Lottery in Hanoi, Vietnam. According to news Numerous other large lotteries checked in down 2.6% to US$9.5 billion, but that was reports, sales in 2005 were approximately with growth rates above 10%. due to a fluctuating exchange rate—sales in US$1.3 billion, but exact figures are difficult It is especially challenging for these large yen were actually up by 2.8%. to obtain and are therefore not included in lotteries to maintain double-digit growth as Rounding out the top five lotteries the chart here. many have, or even any growth year after worldwide, as it has for the past four years, Clearly, US$205 billion is at the low end of year, so those that have done so should be was the UK National Lottery, with operator any estimate of global lottery sales; the actu- considered exceptional performers. Camelot reporting sales of US$9.1 billion in al figure could easily be more. The estimate is 2006, a 5% increase. derived from the most recent available data Lottomatica back on top The balance of the top ten lotteries re- from 180 lotteries in 88 countries. As has been the case for the past few mained unchanged from 2005, with the New Sales for 2006 were reported by 102 years, with significant growth spurts by the York Lottery checking in at number six with of those lotteries, and the vast majority re- world’s largest lotteries, there were several US$6.8 billion in sales (up 8.5%). It was fol- ported gains over 2005 levels, both in terms changes among the ranking of the top ten lowed by China’s Welfare lottery at US$6.2 of local currencies and US dollars. More than lotteries by 2006 sales. billion (+23.7%); Greek operator O.P.A.P. one-third reported sales increases of greater Italy’s Lottomatica regained the top US$5.8 billion (+26.5%); the Massachusetts than 10%. Currency effects had very little im- spot it last held in 2004 with US$13.3 billion Lottery at US$4.5 billion (up just barely, by pact overall, with Japan being a major excep- in total sales, thanks to a whopping 170% in- 0.8%); and China’s Sports lottery at US$4.1 tion—operator Mizuho Bank, Ltd., showed a crease in the country’s still-evolving instant billion (+9.7%). small gain in yen, but a small decline when ticket category, as lotto sales continued to When grouped by countries, there was lit- sales were converted to dollars. sag. It should be noted that in last year’s re- tle change in the rankings among top lottery In the United States, every lottery report, Italy’s instant ticket sales were attribut- markets in 2006, the only movement coming ported a sales increase, a rare occurrence in ed to the Amministrazione Autonoma Mo- from China, which is continuing its march up recent years, although it also happened just nopoli di Stato (AAMS), which oversees all the top ten. Now ranking fifth in the world, two years ago. lottery activity in the country. For 2006, we the country’s lottery sales (including Hong Among the largest lotteries, 31 around have placed instant ticket sales under the Kong) totaled US$11.1 billion last year. the world reported more than US$2 billion Lottomatica name, which operates these The United States continues to lead the in sales, compared to 28 in 2005—lotteries games on behalf of a consortium awarded world in total lottery sales, as its 42 state lot- in Portugal, Ontario and Oregon joined the the contract in 2001. Other games in Italy teries plus the District of Columbia gener- 40 ated US$58.3 billion in sales during the 2006 lotteries in certain situations are not includ- fiscal year. Two new lotteries began during ed (such as Ontario’s slots-at-tracks program the year, in North Carolina and Oklahoma. and Danske Spil’s PitStop gaming venues). Italy (with three operators plus numer- Similarly, some lotteries also operate casino ous concessionaires; it should be noted that gaming, and revenue from that activity is 2006 sales were not reported for some of also excluded. the operators) held second with US$18.2 bil- It should also be noted that with VLTs, the lion, and Spain (with three lotteries) reached reporting of revenues varies by country, and US$14.9 billion in total sales. France (with a is usually either net revenues (after prizes) single lottery operator) and China rounded or cash-in figures. Sales of other electronic out the top five. games, such as electronic instant tickets, are also often reported net of prizes. The “other” Games people play category includes games offered by lotteries Lotto-type games and their added-value which don’t fit into the traditional definitions, options (spiel games) continue to be the and include bingo, which is rapidly growing most popular lottery product category, but in popularity as a lottery-operated game. its market share continued to decline in 2006. One additional note regarding sports Lotto games accounted for roughly 36% betting: a number of lotteries conduct bet- of global sales, down slightly from 37.5% in ting on horse races, but it has been our gen- 2005. Instant games made up almost 23% of eral policy to exclude parimutuel horse (and the market, increasing its share compared greyhound) racing handle from the compila- to 2005’s 21.5%. Numbers games accounted tion of lottery sales. This is simply because lot- for about 12% of global sales (little change teries and parimutuels have historically been from 2005); traditional passive draw lotteries separate classes of gaming, and we continue made up 10.6% (down from 11.5%); EGMs/ that pattern in this report. VLTs contributed 7% (up from 6.2% in 2005); Although most of the data provided in keno was relatively flat at 5.2%; sports at 4.7% this report was collected directly from the in- (up from 3.7% in 2005); and other games individual lotteries, some lottery data was pro- creased marginally from 1.6% to 1.7%. vided courtesy of the World Lottery Associa- The EGM/VLT category includes video lot- tion. Intralot and GTECH Corp also provided tery terminals and other forms of electronic sales figures for a few lotteries. gaming machines, such as electronic instant By Patricia A. McQueen. Reprinted with per- tickets and pull-tabs. However, as in previous mission from International Gaming and Wa- years, traditional slot machines operated by gering Business (IGWB) magazine. 41 Regional Briefs

Cost of Marina Bay Sands Could Swell Tabcorp Going Back to Basics The original budget of Singapore’s first casino-centred inte- Australia-based slot and parimutuel giant Tabcorp has named El- grated resort could be exceeded by up to 40%, as the developer mer Funke Kupper as its new chief executive officer. His brief from struggles to control escalating construction costs. shareholders is to maximize cash flow from existing assets. Las Vegas Sands Corp (LVS) President and CEO William Weidner Funke Kupper’s most immediate challenge will be negotiating said the original US$3.6 billion cost of developing the Marina Bay an extension of the contract with the New South Wales government Sands along Singapore’s downtown waterfront area could rise by which guarantees Star City casino operating exclusivity in the state. 20-40%. “We’re struggling, quite frankly, to stay within our budget” He will also deal with recently introduced smoking bans in New South on the Singapore project, Singapore’s Today newspaper quoted Wales as well as the continued fallout from slot parlor restrictions in Weidner as saying. Victoria and Queensland. Marina Bay Sands, scheduled for completion in 2009, is already set He has indicated he will seek to increase the market share of the to be the world’s most expensive single integrated gaming resort. Sydney and Queensland casinos by upgrading gaming and accom- Weidner cited escalating building costs, sparked by an Indone- modation facilities. There are plans to spend more than US$210 mil- sian ban on sand exports, as well as refinements to the design. “It’s a lion at the Star City flagship. very, very complicated and sophisticated building ... now that we try At the same time, the board expects him to cut back on opera- to execute it in concrete and steel, it’s a bit of a challenge,” Weidner tional costs, particularly management overheads. said. “We’re looking for means and methods to construct it more ef- The company also faces increased competition in its off-course ficiently,” he said. race betting business after Tattersall’s became a rival for the mantle of Marina Bay Sands is to feature three 50-story hotel towers which Australia’s largest operator with the takeover of Unitab. curve upwards in a design by Moshe Safdie and Associates. It will also Funke Kupper, apart from identifying the need to re-invest in the boast 1.2m sq.ft of convention and exhibition space, as well as an “Art- company’s New South Wales holdings, also aims to breakdown the Science Museum,” pictured here. company’s hierarchical structure. In January, Indonesia banned the export of land sand to Singa- The appointment of an internal candidate to the position of chief pore. Stricter checks by the Indonesian Navy on barges bound for the executive was not universally well received, with several analysts be- island republic disrupted granite supplies as well. Sand and granite lieving the company needed a shake-up from outside the structure. are both key ingredients for concrete. There were also questions as to whether Funke Kupper was suf-

42 At the signing of a five-year exclusive contract in Manila with ESL and with Playtech, the gaming industry’s leading online gaming software provider, it was announced that Pacquiao’s casino and poker room will be online and ready for play later this year. Pictured here are Pacquiao and ESL Group CFO Kan Tang.

ficiently experienced for the role. “My job is as much about leadership as it [is] experience in operations,” Funke Kupper said. “I’m not denying I have a lot to learn at the operational level, but we already have tremendous depth in the operations.” Indeed, the Funke Kupper hiring is the second time in a row Tab- corp has opted to go with a chief executive with limited gaming ex- Taiwan casinos still on hold perience. Like Funke Kupper, ex-CEO Matthew Slatter had a banking Reports that the Taiwanese government has cleared the way for background with extensive experience in mergers and acquisitions. the establishment of three land-based casinos appear to have been a His appointment five years ago was interpreted as an aggressive move bit premature, according to the XFN Asia news service. on the part of the company, which has in the past few years acquired Taipei newspapers claimed the Council for Economic Planning Sydney’s Star City casino, the Jupiters group of casinos in Queensland and Development (CEPD) approved plans to issue three 20-year and the NSWTab. But declining profits over the past eighteen months casino permits, with the winning bidders having to pay a yearly fee led to Slatter’s demise. equivalent to 40% of gaming revenue. Foreign ownership in any of Funke Kupper has ruled out any incursions into Asia in the short the ventures would be capped at 60%. term unlike his predecessor who initiated ventures in China and was The casino legalization statute, which was undertaken to help an early bidder for the Singapore Marina Bay license. “I was quite vo- boost the Taiwan’s tourism industry, was expected to be finalized in cal that we were doing too much,” Funke Kupper said. October, various newspapers reported. However, in subsequent press The company decided earlier this year to focus on local opera- releases, the CEPD stated that it is still “some way” from a final decision tions. Funke Kupper said the top priority was to sharpen the focus on on casino legalization, and no plans have been made on the number the existing operations. of casinos, locations, fee amounts or length of licenses. His annual salary will be just over US$1 million with a similar amount in incentives. In addition he will receive share options currently valued at almost US$1.5 million. Aristocrat Profit Rises on Japan, Macau Sales Aristocrat Leisure Ltd, the world’s second-largest maker of slot machines, reported first-half profit rose 20% on increased sales in Ja- ESL to Launch Manny Pacquia Online Casino pan, Macau and Europe. Following the exclusive signing of internet icon, Tila Tequila, and Chief Executive Officer Paul Oneile is boosting spending on new the successful launch of Tila Casino and Tila Poker in Europe, leading game development to win sales in Europe and Asian markets, such as Asian gaming company ESL has signed Philippine boxing idol, Manny Macau, and limit the impact of slowing growth at home. He’s trying “PacMan” Pacquiao, and will soon be launching the boxing champ’s to revive sales in Japan with games such as ``Kaido-oh’’ that comply own online casino and poker room. with new regulations after a change in rules led operators to defer Manny “PacMan” Pacquiao, is the reigning WBC International purchases. Super Featherweight champion and one of Asia’s most respected “I am particularly pleased with our results in emerging mar- sportsmen. ESL will launch a series of internet gambling sites bearing kets where we have captured a significant share of new opportu- his name, including MannyCasino.com and MannyPoker.com. nities,”’ Oneile said in the statement. ”This provides us with con- MannyCasino will offer over 80 table and card games, as well as fidence about the company’s potential given the expansion we slot machines, video poker, arcade games, progressive jackpots, and anticipate over the next few years. Aristocrat, already the biggest Live Games; MannyPoker.com will be Pacquiao’s very own online pok- slot machine supplier in Macau, is increasing its market share as it er room where players will be able to play community poker games supplies casinos including those operated by Las Vegas Sands Inc. including Texas Hold ‘Em, Omaha, Omaha Hi-Lo, and 7 Card Stud. and Wynn Resorts Ltd. 43 International Briefs

Poker Ruled Game of Skill in Denmark forward as planned, according to Culture Secretary James Purnell. In a decision that could have wide-ranging implications in Europe, Purnell said the “large” and “small” casinos, as they’re titled in the a municipal court in Denmark has ruled that poker tournaments are 2005 Gambling Act, will be resubmitted to Parliament for approval games of skill. this autumn. The decision, which was likely to be appealed, was based on the “I don’t think there’s any question… of anything changing in re- judge’s assessment that competence in the game—Texas Hold ’Em in lation to them,” a spokesman for Prime Minister Gordon Brown told this instance—is vital to success. the press. “I think the prime minister is happy with policy in relation “This case is unique in that we believe it is the first time anywhere to those 16.’’ in the world that the rules of poker have been closely scrutinized,” Whether all 16 will go ahead is another matter because political said attorney Anders M. Hansen, managing partner of the Danish alignments within some of the local councils have changed since firm of Danders & More, which represented the defendant, Frederik the locations were awarded back in January. Support for some of the Hostrup, chairman of the Danish Poker Association. projects reportedly has diminished. The ruling resulted in Hostrup’s acquittal on charges lodged in The 16 casinos were thrown onto the rails back in March in a close 2006 accusing him of violating Danish gambling laws by organizing vote in the House of Lords — victims of an unremitting controversy poker tournaments that collected entry fees from players. The case surrounding the super casino, which was fought over by opposing was brought by police on behalf of Horesta, a national restaurant, politicians, competing cities in need of regeneration and pro- and tourist and hotel trade organization. anti-gambling forces. The 5,000-square-meter “super casino,” the “re- “The court has recognized that a poker tournament played gional” casino as it is termed under the Act, was to have 1,250 unlimit- over many hours requires a range of strategic, analytical and math- ed-prize slot machines and was to be located in Manchester. Both the ematical skills, and without these skills a player is unlikely to win,” concept and the location were so unpopular that Brown wasted no Hansen said. time after taking office in July to shelve the proposal indefinitely. Poker is popular in Denmark, with an estimated 300,000 people The 16 large and small casinos have generated their own share of playing the game every week. controversy because of the competitive threat they pose to the ex- The brains-versus-luck debate took another interesting twist re- isting industry. The Gambling Act permits them more slot machines cently at a Hyatt hotel in Vancouver, Canada, when the annual meet- and more varieties of games than Britain’s 130 or so existing casinos, ing of the Association for the Advancement of Artificial Intelligence which must operate under 40-year-old regulations that cap them at pitted two poker pros against a poker-playing computer program 20 limited-prize slots each. The British Casino Association petitioned named Polaris—and the humans won. the country’s High Court of Justice for a review of the Act in the hope In the “First Man-Machine Poker Championship,” as the exhibition that a favorable ruling would compel Parliament to reconsider the old was dubbed, Phil Laak and Ali Eslami defeated the computer in four restrictions. The court, however, rejected the BCA’s appeal in May. sessions played over two days. Each session consisted of 500 hands As it stands, if local authorities confirm their host status then of duplicate limit-Hold ’Em. Polaris finished ahead in the first two ses- Great Yarmouth, Kingston-upon-Hull, Leeds, Middlesborough, Milton sions (but only by US$70 in the first session, which was determined Keynes, Newham, Solihull and Southampton will be home to one ca- a “statistical tie”). Eslami and Laak (whose girlfriend, Jennifer Tilly, sino each that is permitted up to 4,000 square meters of total space was among the spectators) took the last two bouts by a cumulative and up to 150 £4,000 slot machines, 30 table games and the option to US$570 and walked away with US$12,500 in prize money. offer sports betting and bingo. Polaris is the creation of the University of Alberta’s Computer The authorities of Bath and North East Somerset, East Lindsey, Poker Research Group, whose goal is not a World Series of Poker ring Luton, Scarborough, Torbay, Wolverhampton, Dumfries and Galloway but the development of true artificial intelligence, for which game- in Scotland and Swansea in Wales will host one casino each of up to playing is particularly fruitful as a field of research, so the experts say. 1,750 square meters, 80 £4,000 slots and 40 tables. The Group spent nearly two decades studying checkers before Of the authorities who indicated their intentions, Leeds, Milton unveiling an ostensibly unbeatable program that has finally “solved” Keynes, Hull and Torbay said they would proceed with existing plans. the game by always choosing the best possible move. Southampton, Scarborough and Solihull said they would resubmit Jonathan Schaeffer, chairman of the university’s Department of theirs for consultation. Wolverhampton’s councillors were slated to Computing Science, was philosophical about Polaris’ loss to a couple vote on the issue. Great Yarmouth said it would look for a more attrac- of mortals. tive package of economic benefits. “We’re going to keep working on this,” he told PokerNews.com. “Poker is fun.” Czechs Gamble Record €3.5 Billion Among Europeans only the Portuguese and the Danes spend UK’s Large and Small Casinos to Proceed more gambling than the Czechs, whose betting this year on lotteries, Britain’s super casino may be dead, but development of 16 smaller slot machines and in casinos is expected to hit a record €3.5 billion. casinos operating under a more liberalized regulatory regime will go The report in the Prague Daily Monitor and Czech news agency 44 CTK quotes the findings from a comprehensive study the Swiss tery, and more than 100 casinos. Institute of Comparative Law compiled in 2006 for the European “These are extraordinarily high figures given population size Commission. and incomes compared to other countries, and the number of The Monitor notes that in the Czech Republic there are more than gambling facilities is expected to further grow in the future,” the 50,000 gambling devices—which can be found in unregulated and Monitor said. untaxed “gray market” varieties in hotels, cafes, restaurants and petrol On a per capita basis, the average gambling spend per citizen stations—plus 5,000 sales outlets for the country’s leading Sazka lot- over the age of 15 will hit almost €400 this year.

Online Briefs

EC Threatens Action Against France and back-office functions for an 888-branded site. Revenues would The European Commission has told France it must allow foreign be shared between the two companies. operators to take bets online or face legal action. For Rank, a tie-up could be appealing given 888’s global presence, At issue is the country’s draft law on online gambling, which the which would help extend BlueSquare’s reach. Commission considers a violation of Article 49 of the Treaty of Rome. 888 and Ladbrokes were exploring a merger earlier this year, but A cornerstone of the Common Market, Article 49 guarantees the right the talks collapsed, reportedly over Ladbrokes’ concern that 888 may of service providers from Member States to trade freely throughout yet encounter legal troubles in connection with the heavy business it the European Union. once did in the United States. “We sent a detailed opinion to France concerning the draft law, which is aimed at prohibiting foreign operators from coming to sell their services on the French market,” said EU spokesman Ton Mexico Legalizes Online Gaming Van Lierop. While no one was looking Mexico legalized online gaming. The French government was given until August 24 to change the So says a recent report carried by Interactive Gaming News from law, which will formally outlaw Web gambling with the exception of the popular Mexico City daily newspaper La Jornada. the state-sanctioned operations of Francaise des Jeux and Pari Mu- The paper discovered that Mexico’s guiding federal legislation, tuel Urbain, the country’s monopoly lottery and betting companies. the 60-year-old Ley de Juegos y Sorteos, acquired a provision permit- The ban is incorporated in two amendments to a delinquency pre- ting online companies to operate legally in the country in the course vention measure that was backed by President Nicholas Sarkozy of an ongoing expansion of Mexico’s burgeoning gambling machine when he was Interior minister. One amendment requires banks to market. block money transfers to and from gambling Web sites and to and According to IGN, though, the sector is a problematic one for pro- from gamblers. The second amendment targets ISPs, requiring them spective operators and suppliers as the law provides for minimal gov- to inform French players seeking access to gambling sites that the ernment interference and lacks critical regulations, safeguards and sites have been designated as “reprehensible by the minister of the security mandates. Interior” and informing them of the risks of participating in games that are operating “unlawfully.” ISPs could face fines up to €75,000 for failing to comply. AOL, FLUXX Enter UK France already bans advertising and marketing by online opera- AOL and German operator FLUXX have joined forces to provide tors. Fines for violators were raised last year from €4,500 to five times AOL’s British customers with the ability to bet on sports and horse the cost of the advertising. races. FLUXX’s British subsidiary JAXX UK is providing the platform. “The British market is one of the largest and most attractive in the 888, BlueSquare Close to Partnership world. Yet the online market is still notably underdeveloped,” said a BlueSquare was reported the front-runner last month in negotia- FLUXX spokesman. “Together with AOL, we have now created a highly tions with 888 to provide the casino gambling portal with the sports competitive service that will help us to tap into this growth.” betting operation it has pursued ever since the shutdown of the U.S. Gaming Intelligence Group reports that the model is one that market last autumn. FLUXX and AOL have applied with success in Germany’s lottery mar- “Negotiations are ongoing with a number of potential partners,” kets going back to 2003. The partnership is one of AOL Germany’s a source told British daily The Telegraph. most lucrative e-commerce ventures. “It is no secret 888 wants a sports book, either by acquisition or The two also plan to extend their partnership to other European through a white-label deal, as it would complement their other busi- countries. nesses,” another industry source said. “We are looking at a range of partnerships and initiatives to drive The deal with BlueSquare, the online subsidiary of casino and bin- our business forward in Europe,” said Michael Steckler, AOL Europe’s go giant Rank Group, likely would call for Rank to provide software vice president/Interactive Marketing. 45 take remote bets on horseracing within the stood last month, about 1,000 Web sites— But maybe this story begins not in United States. almost half the total estimated to be active Potsdam but way on the other side of The Great Internet Trade War The ruling was released in November in the world today—failed to make the cut. the world, in the southwestern United 2004. Over Antigua’s objections the United Yet, not one is based in the tax havens of States, deep in the Southwest, in the States won leave to appeal. The case dragged Gibraltar or Malta, or anywhere else in the sun-baked Texas border town of El The Antiguan mouse has roared, too loudly; now everyone wants a piece of the action on until March of this year when the Appel- European Economic Area. The EEA, in fact, is Paso, home of the law firm of Men- late Body of the WTO found that the United automatically “white-listed” for advertising in del Blumenfeld, whose clients include States had failed to show that its restrictions Britain under Common Market rules. Not sur- World Sports Exchange—WSEX, as it’s on remote gambling did not constitute “arbi- prisingly, the British crown protectorates of known, based in Antigua and co-found- In one of the stranger dramas to play trary and unjustifiable discrimination” against Alderney and the Isle of Man also have been ed by Jay Cohen, the only executive of out lately on the global economic stage, this Antigua’s operators within the meaning of judged compliant. a licensed Internet operator ever to be month finds the eyes of several of the world’s the applicable treaty, the General Agreement Over the last year or so, 10 EU Member convicted in a US court and sent to most powerful nations turned toward, of all on Trade in Services. States have been under investigation by prison for illegal gambling. things, Internet gambling. Washington at this point was already un- the European Commission for government- It is expected, though not certain, that a der a WTO order either to extend its Internet backed monopolistic and anti-competitive panel of World Trade Organisation arbitra- prohibition to US racing or open the country gambling practices. Despite their claim to tors will decide sometime around the 27th to Antigua’s 500-plus gambling Web sites. be operated for the public good, EC Presi- whether the Caribbean island nation of An- That either of these things will happen is dent Jose Manuel Barroso has gone so far as tigua and Barbuda is entitled to billions of about as likely as a foreign retailer winning to say that these monopolies, which mostly dollars from its giant neighbor to the north permission to sell lottery tickets in Great are publicly owned, “cannot be regarded as as compensation for US laws that ban gam- Britain in competition with the National non-profit organizations, given that they are bling operators not licensed in the United Lottery (a possibility, by the way, which the subject to strict annual revenue targets and States from taking bets by telephone and on European Court of Justice has specifically often rely on commercial retail outlets to the Web. rejected, even for operators within the Euro- market their various gambling services.” Providing a legal home for these opera- pean Economic Area). Among the 10, France and Sweden were tors has grown over the last decade into a Still, the decision of the WTO Appellate warned last month to amend their protec- mainstay of the Antiguan economy, which Body did accomplish one thing: it opened tionist policies or they could be hauled be- has little else to offer the world except sand, the door for Antigua to seek damages. fore the European Court of Justice. palm trees and balmy ocean breezes. In May 2007, the United States responded “Too many member states persistently Gambling is not a mainstay of the econo- to this likelihood by exercising its option to infringe Community law,” said Barroso, “and mies of Japan, Australia, Canada, India and remove gambling as one of the “recreational that is why we are determined to act.” the European Union. Yet, they’re petitioning World Sports Exchange—WSEX, as it’s known, to separate language, family, culture, money services” covered by GATS. This was done on Little of consequence has actually been the WTO for compensation, too, as are the based in Antigua and co-founded by Jay Co- and trade are a chimera here. the grounds that the government signed on accomplished, however. The Commission can 15 nations of the Caribbean Community and hen, the only executive of a licensed Internet It’s kind of like the Internet, when you to the treaty back in 1994 never intending investigate, it can issue an opinion that a vio- Common Market, everyone figuring that if operator ever to be convicted in a US court think about it. It’s a good place to observe that gambling would be included as a pro- lation has occurred, it can set conditions for a little Antigua can cash in so can they. and sent to prison for illegal gambling. first-hand the interconnectedness of global tected “service”—indeed, gambling over the government to remedy the violation. In the To understand how this absurdity bal- commerce. Maybe that’s what gave Mark Internet hardly existed at the time. It was a final resort it can bring an infringement ac- looned into a genuine trade dispute you ‘Arbitrary and unjustifiable’ Mendel and Bob Blumenfeld the idea to chal- perfectly legal move, albeit an alarming one, tion to the ECJ. Then once that happens the have to go back a few months and several Two hundred years before there was a lenge Washington’s Web gambling restric- “unprecedented in dispute settlement his- process starts all over again. thousand miles to Potsdam, Germany, to United States, Spanish conquistadors explor- tions not as a matter of criminal law, which tory,” according to a trade policy analyst with In hindsight, if you look at how Europe’s the Emperor William II’s Schloss Cecilienhof, ing the upper Rio Grande River founded an failed utterly in the case of Jay Cohen, but as a the Cato Institute, a libertarian, pro-market heads of state intervened last year to ensure where Truman, Stalin, Churchill and Atlee outpost at a ford the Indians had traversed dispute in international trade. One story goes think tank based in Washington. It is this, on that gambling was excluded from a contro- met in the summer of 1945 to dicker over for millennia. They called it El Paso del Norte, that the idea was suggested in a letter a sup- the surface anyway, that has the EU and the versial directive aimed at opening up the EU the post-war world order, and where in the the “Pass of the North,” and it grew into an porter sent to Cohen in jail. However it came other big claimants like India, Australia and services sector to cross-border competition, summer of 2007 the latest failure of the so- important route linking central Mexico to the about, Blumenfeld was at Cohen’s side when Japan up in arms. But it’s only part of the sto- what you see is something very similar to the called Doha Round of global trade talks has Santa Fe Trail and California, and its popula- he left Nellis Federal Prison Camp outside Las ry. From El Paso to Potsdam the line is fairly US response this year with GATS. But then it’s left WTO members large and small, rich and tion grew and spread along both banks of Vegas in March 2004 after serving 17 months direct. But a stop in Brussels is necessary. difficult to find anything in the EU’s actions poor looking to cut separate deals, looking to the river. Today, this stretch of the Rio Grande, of a 21-month sentence for violating the US that pays more than lip service to Antigua’s make good on compensatory claims, looking the boundary between Texas and Mexico, is a Wire Act. Cohen went back to his home in ‘We need new concessions’ plight. Certainly there is no evidence of a mis- for concessions—looking for leverage, basi- cement ditch. A bridge to the Mexican city of San Francisco to serve out his probation and Considering the persistent manner in sion on the part of Brussels to make the world cally, any kind of leverage, even from some- Juarez spans hundreds of yards of industrial pick up the pieces of his former life as a fi- which Europe’s Internet gambling operators safe for unfettered Internet gambling, which thing as esoteric and suspect in mainstream no man’s land: boxcars, gutted warehouses, a nancial markets trader. But that same month, have been shut out of their own Common in any event no EU Member State is prepared thought as gambling on a home computer. tangle of railroad tracks, barbed wire. Every that novel trade approach crafted by Mendel Market, for the EU to cry discrimination vis-à- to welcome under its national roof. Witness But maybe this story begins not in Pots- morning, the need to make a living drives Blumenfeld bore fruit. Now representing the vis US law smacks of the very hypocrisy that the muted response from Internal Market dam but way on the other side of the world, thousands of people out of Juarez and over government of Antigua, the firm won a ruling Washington is accused of by Antigua. Commissioner Charlie McCreevy to the big in the southwestern United States, deep in the bridge. In the evening they go back. There from the WTO in favor of its contention that Great Britain, for example, has set stan- US crackdown last autumn in the form of the the Southwest, in the sun-baked Texas bor- are parts of downtown El Paso where it’s im- US law discriminates against the island na- dards for social responsibility that licensing Unlawful Internet Gambling Enforcement der town of El Paso, home of the law firm of possible to tell which country you’re in. So it’s tion by banning its Web operators from the jurisdictions must impose on operators if Act. “In my view it is probably a restrictive Mendel Blumenfeld, whose clients include always been. The political lines that presume US market while allowing US operators to they want to advertise in Britain. As things practice,” he said. Although he did add, “We 46 take remote bets on horseracing within the stood last month, about 1,000 Web sites— But maybe this story begins not in United States. almost half the total estimated to be active Potsdam but way on the other side of The Great Internet Trade War The ruling was released in November in the world today—failed to make the cut. the world, in the southwestern United 2004. Over Antigua’s objections the United Yet, not one is based in the tax havens of States, deep in the Southwest, in the States won leave to appeal. The case dragged Gibraltar or Malta, or anywhere else in the sun-baked Texas border town of El The Antiguan mouse has roared, too loudly; now everyone wants a piece of the action on until March of this year when the Appel- European Economic Area. The EEA, in fact, is Paso, home of the law firm of Men- late Body of the WTO found that the United automatically “white-listed” for advertising in del Blumenfeld, whose clients include States had failed to show that its restrictions Britain under Common Market rules. Not sur- World Sports Exchange—WSEX, as it’s on remote gambling did not constitute “arbi- prisingly, the British crown protectorates of known, based in Antigua and co-found- In one of the stranger dramas to play trary and unjustifiable discrimination” against Alderney and the Isle of Man also have been ed by Jay Cohen, the only executive of out lately on the global economic stage, this Antigua’s operators within the meaning of judged compliant. a licensed Internet operator ever to be month finds the eyes of several of the world’s the applicable treaty, the General Agreement Over the last year or so, 10 EU Member convicted in a US court and sent to most powerful nations turned toward, of all on Trade in Services. States have been under investigation by prison for illegal gambling. things, Internet gambling. Washington at this point was already un- the European Commission for government- It is expected, though not certain, that a der a WTO order either to extend its Internet backed monopolistic and anti-competitive panel of World Trade Organisation arbitra- prohibition to US racing or open the country gambling practices. Despite their claim to tors will decide sometime around the 27th to Antigua’s 500-plus gambling Web sites. be operated for the public good, EC Presi- whether the Caribbean island nation of An- That either of these things will happen is dent Jose Manuel Barroso has gone so far as tigua and Barbuda is entitled to billions of about as likely as a foreign retailer winning to say that these monopolies, which mostly dollars from its giant neighbor to the north permission to sell lottery tickets in Great are publicly owned, “cannot be regarded as as compensation for US laws that ban gam- Britain in competition with the National non-profit organizations, given that they are bling operators not licensed in the United Lottery (a possibility, by the way, which the subject to strict annual revenue targets and States from taking bets by telephone and on European Court of Justice has specifically often rely on commercial retail outlets to the Web. rejected, even for operators within the Euro- market their various gambling services.” Providing a legal home for these opera- pean Economic Area). Among the 10, France and Sweden were tors has grown over the last decade into a Still, the decision of the WTO Appellate warned last month to amend their protec- mainstay of the Antiguan economy, which Body did accomplish one thing: it opened tionist policies or they could be hauled be- has little else to offer the world except sand, the door for Antigua to seek damages. fore the European Court of Justice. palm trees and balmy ocean breezes. In May 2007, the United States responded “Too many member states persistently Gambling is not a mainstay of the econo- to this likelihood by exercising its option to infringe Community law,” said Barroso, “and mies of Japan, Australia, Canada, India and remove gambling as one of the “recreational that is why we are determined to act.” the European Union. Yet, they’re petitioning World Sports Exchange—WSEX, as it’s known, to separate language, family, culture, money services” covered by GATS. This was done on Little of consequence has actually been the WTO for compensation, too, as are the based in Antigua and co-founded by Jay Co- and trade are a chimera here. the grounds that the government signed on accomplished, however. The Commission can 15 nations of the Caribbean Community and hen, the only executive of a licensed Internet It’s kind of like the Internet, when you to the treaty back in 1994 never intending investigate, it can issue an opinion that a vio- Common Market, everyone figuring that if operator ever to be convicted in a US court think about it. It’s a good place to observe that gambling would be included as a pro- lation has occurred, it can set conditions for a little Antigua can cash in so can they. and sent to prison for illegal gambling. first-hand the interconnectedness of global tected “service”—indeed, gambling over the government to remedy the violation. In the To understand how this absurdity bal- commerce. Maybe that’s what gave Mark Internet hardly existed at the time. It was a final resort it can bring an infringement ac- looned into a genuine trade dispute you ‘Arbitrary and unjustifiable’ Mendel and Bob Blumenfeld the idea to chal- perfectly legal move, albeit an alarming one, tion to the ECJ. Then once that happens the have to go back a few months and several Two hundred years before there was a lenge Washington’s Web gambling restric- “unprecedented in dispute settlement his- process starts all over again. thousand miles to Potsdam, Germany, to United States, Spanish conquistadors explor- tions not as a matter of criminal law, which tory,” according to a trade policy analyst with In hindsight, if you look at how Europe’s the Emperor William II’s Schloss Cecilienhof, ing the upper Rio Grande River founded an failed utterly in the case of Jay Cohen, but as a the Cato Institute, a libertarian, pro-market heads of state intervened last year to ensure where Truman, Stalin, Churchill and Atlee outpost at a ford the Indians had traversed dispute in international trade. One story goes think tank based in Washington. It is this, on that gambling was excluded from a contro- met in the summer of 1945 to dicker over for millennia. They called it El Paso del Norte, that the idea was suggested in a letter a sup- the surface anyway, that has the EU and the versial directive aimed at opening up the EU the post-war world order, and where in the the “Pass of the North,” and it grew into an porter sent to Cohen in jail. However it came other big claimants like India, Australia and services sector to cross-border competition, summer of 2007 the latest failure of the so- important route linking central Mexico to the about, Blumenfeld was at Cohen’s side when Japan up in arms. But it’s only part of the sto- what you see is something very similar to the called Doha Round of global trade talks has Santa Fe Trail and California, and its popula- he left Nellis Federal Prison Camp outside Las ry. From El Paso to Potsdam the line is fairly US response this year with GATS. But then it’s left WTO members large and small, rich and tion grew and spread along both banks of Vegas in March 2004 after serving 17 months direct. But a stop in Brussels is necessary. difficult to find anything in the EU’s actions poor looking to cut separate deals, looking to the river. Today, this stretch of the Rio Grande, of a 21-month sentence for violating the US that pays more than lip service to Antigua’s make good on compensatory claims, looking the boundary between Texas and Mexico, is a Wire Act. Cohen went back to his home in ‘We need new concessions’ plight. Certainly there is no evidence of a mis- for concessions—looking for leverage, basi- cement ditch. A bridge to the Mexican city of San Francisco to serve out his probation and Considering the persistent manner in sion on the part of Brussels to make the world cally, any kind of leverage, even from some- Juarez spans hundreds of yards of industrial pick up the pieces of his former life as a fi- which Europe’s Internet gambling operators safe for unfettered Internet gambling, which thing as esoteric and suspect in mainstream no man’s land: boxcars, gutted warehouses, a nancial markets trader. But that same month, have been shut out of their own Common in any event no EU Member State is prepared thought as gambling on a home computer. tangle of railroad tracks, barbed wire. Every that novel trade approach crafted by Mendel Market, for the EU to cry discrimination vis-à- to welcome under its national roof. Witness But maybe this story begins not in Pots- morning, the need to make a living drives Blumenfeld bore fruit. Now representing the vis US law smacks of the very hypocrisy that the muted response from Internal Market dam but way on the other side of the world, thousands of people out of Juarez and over government of Antigua, the firm won a ruling Washington is accused of by Antigua. Commissioner Charlie McCreevy to the big in the southwestern United States, deep in the bridge. In the evening they go back. There from the WTO in favor of its contention that Great Britain, for example, has set stan- US crackdown last autumn in the form of the the Southwest, in the sun-baked Texas bor- are parts of downtown El Paso where it’s im- US law discriminates against the island na- dards for social responsibility that licensing Unlawful Internet Gambling Enforcement der town of El Paso, home of the law firm of possible to tell which country you’re in. So it’s tion by banning its Web operators from the jurisdictions must impose on operators if Act. “In my view it is probably a restrictive Mendel Blumenfeld, whose clients include always been. The political lines that presume US market while allowing US operators to they want to advertise in Britain. As things practice,” he said. Although he did add, “We 47 might take it up in another forum.” And on and on it goes. Europe and the sents a material escalation in the stakes at That was in January. In June, with the United States are wrangling with each other play in the gambling case”—one it hopes will Doha talks in meltdown in Potsdam, and the over farm subsidies at the same time as they persuade the US Congress to make friends US promising compensation for GATS any- demand quid pro quo from developing na- with the offshore gambling industry and en- way, that forum presented itself. tions for keeping out their manufactures. act legislation like that proposed in May by On June 17, the EU announced that it Poorer nations resent the domination of criti- Rep. Barney Frank to legalize it. would not press for an opening of US markets cal services and financial sectors by multina- “The reality is that the US lost a very im- to its gambling operators. Instead it would tional corporations, which they say drives up portant case in the WTO that will ultimately seek “unspecified” market access for compa- prices and impedes internal development. A force the US into either compliance or reject- nies in other sectors. Said one Brussels official real sore point among the have-nots is the ing the entire WTO process,” Mark Mendel at the time, “We need new concessions that WTO agreement on Trade Related Intellec- said in an interview published in August on would be equal with the benefits lost.” tual Property Rights (TRIPs), which they say the Gambling911 website. This was just a couple of days before the is robbing them of rightful patents and copy- Washington says US$3.44 billion is “pa- lights went out at the Cecilienhof. rights, gouging them on technology costs tently excessive”—and it is about four times and denying generic medicines to the poor. Antigua’s entire annual gross domestic Made in Antigua In light of all this gambling looks pretty product, which is still heavily dependent on Doha’s problems have many diplomats trivial. Then again, the fact that it’s suddenly tourism and on Americans, who account for and trade officials fearful that something akin become a card worth playing is a good about one-third of visitors to the islands. to a Hobbesian State of Nature will blot out gauge of how wide the cracks in the WTO The claim could backfire for other rea- their grand vision of a global free market. have grown. sons. The inevitable push-back against WTO The problem is, it may already be upon us. The EU, in this respect, wields enough inequities, real or perceived—and sensa- This latest Doha Round broke down over clout to play the gambling card for conces- tional headlines about food safety and lead- the failure of the so-called G-4 states, the sions in other economic areas. Antigua and coated toys haven’t helped—will not fail to United States, the European Union, Brazil Barbuda obviously is not so well-situated. affect gambling, which is an easy target in and India, to reach agreement on agricultural The government sees electronics exports as a the best of times. subsidies, the issue that has haunted the ne- possible growth industry. It was weakness in “The WTO’s ruling was not some fluke but gotiations since they were launched in the the tourism sector the last several years (the rather a preview of coming attractions, given Qatar capital six years ago. result of tropical storms and other factors) how extensively the WTO’s rules interfere There are big cracks in the WTO, need- that turned the tiny nation of 70,000 more with non-trade domestic policies,” said Lori less to say, mostly in the form of fundamen- aggressively toward the licensing of Internet Wallach, director of the Global Trade Watch tal differences arising from the competing gambling in the first place, although for a Division of Public Citizen, an American non- needs of rich and poor nations. Lavish farm country with Antigua’s reputation as an off- profit organization founded by consumer subsidies have closed US and European mar- shore tax and banking haven the move was advocate Ralph Nader. kets to the agricultural products of develop- a natural. That said, the government’s request She went on, “It’s good news that the ing countries while Europe and the United for yearly compensation from the United Bush administration finally is listening to the States dump their agri-goods all over the States to the tune of US$3.44 billon, with its state attorneys general and others who have world, deflating prices. Even in the midst of intellectual property obligations under TRIPs asked for the US trade representative to re- this summer’s talks, Brazil was threatening an as hostage, might be aiming a bit high. move gambling from WTO jurisdiction and Antigua-like WTO action against the United “This action,” the country’s Financial Ser- thus eliminate further attacks on US gam- States over this. vices Regulatory Commission states, “repre- bling regulation.” Down in El Paso, even Mendel concedes that within American society at large the issues just don’t arouse much passion either way. “It seems to amount to public grand- standing by politicians with no public con- nect,” he told Gambling911. “I think that is why domestic interests have had little problem getting their exemptions carved into legislation. Nobody cares.” But he does profess to find hope in this. “Because nobody cares that much, I think that this may be one of the rare circumstanc- es where public citizen input to legislators might make a real difference.”

By James Rutherford, International Editor of International Gaming and Wagering Busi- It was weakness in the tourism sector the last several years (the result of tropical storms and other fac- ness (IGWB) magazine. Reprinted with permis- tors) that turned the tiny nation of 70,000 more aggressively toward the licensing of Internet gambling. sion from IGWB. 48 49