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january 2015 30 MOP

Destination Manila City of Dreams, Solaire and the New Philippines

IN FOCUS Feature TECH TALK Spiraling Higher: Is It Too Late JCM Tells Why Aristocrat’s new Helix To Save Caesars? Big Is Better

COVER STORY Contents January 2015

Vincent Kelly, managing director Asia Pacific, 14 Aristocrat Weaving a Destination

The Philippines ramps up as a IN FOCUS regional gaming hub with the debut of 6 Unlocking the Box Melco Crown’s . Players have never experienced their favorite Aristocrat games like they will on the new Helix™. FEATURES 12 Challenging Manifesto A billion dollars in resort casino plans are in the cross- hairs in Sri Lanka’s hotly disputed presidential election. 26 The BIG Bankruptcy Caesars has a novel plan for rescuing its largest and most indebted subsidiary from a sea of red ink more than $18 billion deep. But creditors are skeptical, lawsuits are flying, and time is running out. 33 Northern Exposure In the US, more casinos are coming to the crowded 20 Northeast—but there may be too many already. Sky Tower TECH TALK Lifts Solaire 38 Beyond Transactions The first casino in Manila’s the rationale for JCM’s acquisition of FutureLogic mirrors rises with an elegant the philosophy underpinning the extension, as it aims to shine globally. development of its latest products: laying the foundations for enhanced capabilities and creating greater value. BRIEFS 42 Regional Briefs 44 International Briefs 46 Events Calendar EDITORIAL Fear and Loathing

nvestors who’ve bought heavily into the boom story can’t be too happy right now with the extent of our collective ignorance about China and its complexities. About US$75 billion of share value has gone up in smoke in the space of a year, and it could get worse, as it appears that what President and Communist Party General Secretary Xi IJinping has unleashed with his anti-corruption campaign is of a dimension far beyond what its supporters from the outside thought they were cheering on. Operators and analysts blame Mr Xi’s crackdown for the dramatic decline in high-roller play that plunged Macau into negative revenue territory in 2014 for the first time in the post- monopoly era and sent the Hong Kong-listed shares of the six casino concessions into a freefall from which they’ve yet to recover. Speaking of this, Standard Chartered analyst Philip Tulk was moved recently to declare: “The VIP heyday is over.” Publisher If he’s right, then investors must be wondering how it went south so quickly. Macau gaming Kareem Jalal as a stock market play is not even a decade old. The heyday had hardly begun. And if he’s right, and he’s far from the only one who believes the market has hit a wall, then the bigger question Director is: How much don’t we know about China still? João Costeira Varela In official media on the mainland they talk about the “Shanxi Gang,” the “Yunnan Fiefdom,” the “Jiangxi Gang” and in of the “ Qingliang Clique”—collective tarrings Editor James Rutherford reminiscent of the excesses of the —and these appear to be suggestive also of a massive leakage of power over the years into the clutches of party satraps at the provincial Editor At Large and municipal levels. Mr Xi looks determined to break the back of this latter-day warlord- Muhammad Cohen ism, and revitalizing the party as moral standard-bearer for the nation in the best (or worst) Maoist tradition appears to be integral to the campaign. Reports in Western media have it that Business Development Manager Danilo Madeira academics, journalists, artists and writers are under greater pressure to toe the line than they have been in years. Contributors In an interview with NBC News, James McGregor, former head of the American Chamber of Paul Doocey, John Grochowski, James Hodl, Commerce in China, said of Mr Xi, “He’s using the tools of Mao to become a Deng Xiaoping Matt Pollins, I. Nelson Rose 2.0. He’s taking on a gangster-type system, and to do that you’ve got to use the tools at your Graphic Designer disposal. He’s trying to change behavior. He sees this as a survival thing for the party.” Rui Gomes That’s one view. Long-time China-watcher Anne Stevenson-Yang, a director of J Capital Research, which advises foreign investors, sees the crackdown differently, describing it for Photography Barron’s as an “an old-style party purge reminiscent of the 1950s and 1960s with quota-driven Ike, Gary Wong, James Leong, arrests, summary trials, mysterious disappearances and suicides”. Wong Kei Cheong As for the tools, the most feared among party members is the Central Commission for Discipline Inspection. was merely the first to lay his head beneath its ax. A train of others has followed, and it’s getting longer as it reaches higher into the political and economic life of Inside Asian Gaming the country. Just to be named on the CCDI’s Web site, as upwards of 700 cadres have been, trials is published by or convictions notwithstanding, is death to a career. Denunciations are reported to be rife. The Must Read Publications Ltd South China Morning Post says more than 75,000 party members have been investigated since 5A FIT Center Mr Xi assumed power in 2012. On average, 10,000 a month are being “disciplined,” according Avenida Comercial de Macau to state news agency Xinhua. Macau Tel: (853) 8294 6755 The fear factor is such that Caixin – China Economics & Finance, a magazine published by a prominent Beijing media group, says local administration in some areas is grinding to a halt. For subscription enquiries, please email “Nobody is sleeping well now,” said Bo Zhiyue, a veteran sinologist with the National [email protected] University of Singapore. Echoing Ms Stevenson-Yang, he told the Post, “There is a lot of uncertainty and there are no clear rules as to who gets investigated. … These are not solely cases For advertising enquiries, please email of corruption, they’re political judgment calls.” [email protected] or call: (853) 6680 9419 Investors wondering what the immediate future holds will want to be aware of how close their money has resided to one of the epicenters of the campaign. The aforementioned Wan www.asgam.com Qingliang, disgraced party secretary of , the capital of Macau’s neighboring province ISSN 2070-7681 of Guangdong, and Guangzhou Vice-Mayor are two of the biggest names to be taken down. Guangdong is China’s most populous province and its wealthiest by gross domestic Inside Asian Gaming product. It is Macau’s largest and most significant feeder market. Guangzhou is its economic is an official media partner of: heart, the hub of the mainland’s largest metropolitan area. At least 65 senior, middle- and lower- ranking officials have come under CCDI investigation in Guangdong, far more than anywhere else in the country.

James Rutherford We crave your feedback. Please email your comments to [email protected] www.gamingstandards.com 4 inside asian gaming January 2015

FIneature Focus

Unlocking the Box

Vincent Kelly, managing director‒Asia Pacific, Aristocrat

Players have never experienced their Helix™ is all that. Casinos in Australia and the US are deploying it as we speak. Asia got its first look at this striking application of favorite Aristocrat games like they Aristocrat’s technological prowess at the Macao Gaming Show in November, and Mr Kelly expects it will be on Macau’s floors by will on the new Helix™ Christmas and then fan out regionally from there. “We’ve had some very nice feedback from customers around the world,” he says. “Early days, but all the signs are very positive that it’s doing what we hoped that it would do.” HE·LIX What Helix™ does is reimagine the interaction between player /’hē-liks/ and game in ways that have to be seen to be fully appreciated. New • a type of smooth space curve, i.e. a curve in three- processors in a souped-up hardware package power a dual 16:9 LED dimensional space; back-lit interface. Both screens are a spacious 23 inches across (or • the shape formed by a line that curves around and along a better yet, sample the 32-inch optional Super Screen) and fully HD at central line; a dazzling 1,080 pixels. • of or relating to the advancement to higher levels through a But here’s the “twist”—the displays are frameless, infinity-edged, series of cyclical movements. so the action appears to float away from the cabinet surface in planes and proportions that are seamless, continuous, almost three- dimensional. 5 Dragons’ lucky monster head talisman seems to leap he company that created the most popular games on into independent space in vivid, lifelike contours. Fortune King Choy Macau’s bustling slot floors has designed an exciting Sun Doa showers his coins into an illusion of thin air. new environment for its players to enjoy them in. Combined with quad sound boosted by a ported, enclosed It’s called Helix™—“a cabinet with a few amazing subwoofer and rear-surface ambient lighting, the total effect is twists,” as Aristocrat cheekily refers to its innovative new marvelous, completely enveloping from where the player sits. The platform—and certainly the description is apt. lighting also can be controlled to draw attention when the game is T “Very simply it looks better and it does more,” says Vincent Kelly, idle—not that attracting players will be difficult given the market- who arrived in Macau in October as the company’s new managing leading content that finds Aristocrat, a decade on, still firmly in director–Asia Pacific. “One of my team described it as a graphics possession of the largest share of Macau’s floors. powerhouse.” Helix™ comes in three stylish models, Upright, Slant and

6 inside asian gaming January 2015 In Focus

Helix’s screens are frameless, infinity-edged, so the action appear to float away from the cabinet surface in planes and proportions that are seamless, continuous, almost three- dimensional. Combined with quad sound and rear-surface ambient lighting, the total effect is marvelous, completely enveloping from where the player sits. “In Australia it’s doing very nicely for us,” says Vincent Kelly, managing director–Asia Pacific. A“ nd going through into the Americas, we’re pretty confident we will see the same. And certainly the feedback from our customers … when they say to us, ‘Yep, this is good,’ it carries a lot of weight.”

Slant Super Screen, to accommodate any size floor, and each is distinguished by clean, curved lines finished with customizable edge and pinstripe lighting around a champagne-hued exterior that’s both elegant and reassuring. And players will instantly respond to the comfort that’s built into it, the culmination of some industry-leading ergonomic research that factors a range of male and female heights into ensuring that sight lines are effortless, that leg room is ample and the interactive LCD button deck is within easy reach, well-padded and just the right elevation from the floor. “Players have told us in research, ‘Yes, yes, yes,’ but it’s when they have the opportunity to go into their favorite venue and play it, then we’ll know,” says Mr Kelly. “And, as I say, so far so good. In Australia, where it’s on the floor, it’s doing very nicely for us. And going through into the Americas, we’ll get the numbers from there, and we’re pretty confident we will see the same. And certainly the feedback from our customers … when they say to us, ‘Yep, this is good,’ it carries a lot of weight.” The strategic thinking is no less exciting, for Helix™ not only solidifies Aristocrat’s status as a premier innovator in an intensely competitive industry rich with innovation, it provides the Australia- based slots and systems giant with one of its most compelling opportunities yet for injecting new energy into proven performers. Given the lead it enjoys across most of Asia, the approach to game development, particularly in Macau, where Aristocrat has the market leading position, relies heavily on leveraging the core portfolio and its vaunted math models, the formula that struck a chord that still resounds with China’s gambling-minded players and largely started machine gaming in Macau on the road to the US$1.7 billion-plus business it is today. The Legends series—5 Dragons Deluxe, 50 Dragons Deluxe, 5 Koi Legends and Fortune King Deluxe—is a potent example. At G2E Asia last May we saw the addition of 5 Dragons GOLD with its improved Making legends — 5 Dragons Gold combines proven maths with an graphical interface and mix of multipliers (up to 40 times in the base enhanced graphics package. >> game) and enhanced Reel Power layout in which increased bets

January 2015 inside asian gaming 7 FIneature Focus

Good Fortune Hyperlink —a five-level progressive with separate standalone jackpots in the base game.

activate stacked wilds in reels 2, 3 and 4. It’s also fitted with a unique essentially exploit the same great maths: Hyperlink’s Dragons on top box feature where full credits extend the middle reels up one to the Lake, for example, and 5 Frogs and Sunset King in the Super take the player from 243 ways to win to 576 ways. Feature series. Sunset King, a 1024 ways Xtra Reel Power offering, We’ve seen Hyperlink’s Cash Express, an old favorite, reintroduced incorporates the high-volatility formula that is working so well for in the form of Gold Class. And last year, FA FA FA’s Choy Sun returned Aristocrat in North America with Buffalo. The choice of games in another new Hyperlink, Good Fortune, which is supported by an and multipliers in 5 Frogs, a Reel Power 243 ways, is similar to 5 exclusive version of 5 Dragons and a game called Dragons of The Dragons with the addition of an optional 10-credit ante bet that Easten Ocean, both integrated into the five jackpot levels with triggers a bonus (the Super Feature of the title), which randomly stacked wilds on any spin, both also functioning independently with adds as many as 15 games to the player’s choice. There’s more their own standalone jackpots within the link. volatility behind that, because Super Feature might also burn To bolster the core, new games are selectively introduced that off the two lowest multipliers in that choice. So, for example, a

5 Frogs’ high-volatility Super Feature randomly adds free games to the player’s choice of multipliers.

8 inside asian gaming January 2015 In Focus

stacks of symbols appear on reels 2, 3 and 4, and each game starts with the symbols on one of the reels randomly transformed into wilds. “Mini” and “Minor” jackpots can be won in the feature as well, and multiple jackpots can be won on a single spin. Panda Paradise and Electric Boogaloo offer similarly integrated jackpots in the base game for frequent awards, and players also enjoy a chance to play for jackpots in the feature with the “sticky wild” generating more five-of- a-kind pays. The 4 x 5 matrix in both incorporates heavy stacking of symbols and a jackpot qualifier on reel 5. “At G2E our theme for the show was ‘The Next Level,’ and, of course, it’s always about that,” says Mr Kelly. “It’s always about taking it up to the next level, not resting on our laurels and saying, ‘Well, we’re as good as we’re going to be,’ because that cannot possibly be true. But you have to work hard at keeping that going. We invest considerably in doing that to make sure, for ourselves and for our customers, that we’re bringing new things to the market that will excite players and entertain them.” It’s been a new experience for the UK native, and like most newcomers to the industry—he joined Aristocrat only last January Helix made its Asia debut at after more than a quarter-century in executive roles in hospitality, November’s Macao Gaming Show. pubs and beverage sales in Britain, Hong Kong and Australia—he finds it fascinating. “It has more dimensions to it because we’ve got the massive investment that we make in our product through our creativity, player who’s opted for the biggest gamble—10 free games and through our technology,” he says. “I saw the size of our R&D spend a multiplier up to 40 times—could end up with 25 free games, compared to what I’ve been used to—it’s mind-blowing. But that’s all times 40. something we have to do to make sure our product stays fresh, Standalone progressives provide an important third element relevant and embraces all the creativity and technology that we see, to the mix. Aristocrat believes strongly in their wider regional and you’ve just seen, in the Helix™. And it makes it an exciting place appeal and has dedicated a lot of innovative thinking to them with to be.” series like Jackpot Streak, Gold Pays and Quick Fire. The company As a former general manager for Carlsberg HK, he’s no newcomer is particularly strong for Quick Fire and is supporting it with four to the , and his years in Australia, most of them medium-volatility titles: Golden Peach, Panda Paradise, Electric spent with Lion Nathan, the continent’s leading brewer (think XXXX, Boogaloo and Pharaoh’s Ransom. In Golden Peach, any three, four Boags, Tooheys), now part of Japan’s multinational Kirin group, or five scatter symbols trigger the free games feature, during which frequently took him back to the Fragrant Harbour and occasionally

“We’ve got this great collection of creative geniuses who produce this great content for us. And we’ve been able to accommodate their creativity and their genius within the confines of a corporation, which is not always easy to do. This is like having your own in- house advertising agency.”

January 2015 inside asian gaming 9 FIneature Focus

“If you’re lucky like me and you’re surrounded by a whole group of people who really know their markets, really know their products, really know their customers, really know their players, you can learn, and you can also concentrate on helping them to be the best that they can.. Hopefully, that’s something I can share with them.”

to family outings in Macau, which amazes him still when he thinks workhorse Viridian Wide Screen, all graphically rich and engineered about the massive changes that gaming has wrought on a city that for fun, accessibility and time on device. They include Sky Rider, which still bore the sleepy trappings of its colonial past when he first set takes Aristocrat’s popular Max Stacks technology—stacked symbols foot in it. added to the reels on each spin, with both the symbol and stack He recalls, “I’d been back two or three times with customers generated randomly—and spices it up with a bit of 5 Dragons math from Australia, and it hadn’t gotten much further than the first big in the form of selectable free games. Another is Storm Queens, which casino you see when you get off the ferry, and I hadn’t seen the rest offers a less volatile experience that innovates on Max Stacks with an of the development that had taken place until I came up earlier this oversized block symbol that unlocks the feature when it appears on year. The thing that’s really bowled us over is the scale of what has reels 2, 3 and 4 and can combine with stacked symbols on the ends happened, and the speed with which it’s happened, and the quality, to fill the screen. and it’s really the quality thing that made us sit up and go, ‘Wow!’” “We’ve got this great collection of creative geniuses who produce He’s joined Aristocrat on the heels of a banner year marked by this great content for us,” says Mr Kelly. “And we’ve been able to an 11.5% surge in global EBITDA on revenues that grew by 7% over accommodate their creativity and their genius within the confines of 2013 to more than A$870 million. The leadership the company enjoys a corporation, which is not always easy to do. I guess this is like, from in East Asia was a big part of the story, and when he looks across my previous life, having your own in-house advertising agency.” the region, at markets in the throes of transformation such as the It’s a life he believes has prepared him well for ensuring at his Philippines, he’s doubly confident in the company’s prospects. end that the creativity rolls on. “As an Australian resident outside gaming I had no idea,” he As he puts it, “The older you get the more you realize that your remarks. “I knew about Macau, and I guess I’ve always had a special success is determined by the success of your team. … You will interest in Macau. But amazing things are happening in Manila, the undoubtedly not know as much about the product, the customers, development that’s happening now. There’s a lot going on.” the market, the players, as they do. But you don’t have to on Day 1. Which touches on something about the larger strategy discussion Because if you’re lucky like me and you’re surrounded by a whole he finds especially appealing: the sizable investment the company group of people who really know their markets, really know their makes in reaching across different market segments with games products, really know their customers, really know their players, really that embody a whole different development paradigm—lines like the know their regulations, you can learn, and you can also concentrate E*Series—designed in partnership with the likes of Joe Kaminkow of on helping them to be the best that they can and do the job for their IGT fame and Dan Marks, one of the founders of High 5 Games. The customers and their stakeholders in the best way possible. Hopefully, E*Series boasts six colorfully themed titles currently available on the that’s something I can share with them.”

10 inside asian gaming January 2015 January 2015 inside asian gaming 11 Feature Rendering of Crown’s planned Sri Lanka resort

Challenging Manifesto

US$1 billion in resort casino Buddhist majority, who are very influential politically and are skeptical of the president’s vision of casinos as economic development tools plans are under fire in Sri Lanka’s capable of boosting tourism and attracting foreign investment in new presidential election hotel construction. The platform is incorporated in a manifesto endorsed by the United National Party, the main parliamentary opposition, and built around a vow to weed out official corruption and advance populist he leading challenger to Sri Lanka President Mahinda measures such as extended farm loan waivers and lower fuel prices Rajapaksa’s bid for a third term in office says he will aimed at weakening Mr Rajapaksa’s rural power base. cancel the licenses issued to Crown Resorts and John Dealing a further blow to Crown’s and John Keells’ prospects Keells Holdings to develop resort casinos in the capital was the subsequent defection of Mr Rajapaksa’s counsel and deputy of Colombo. minister of investment, Faizer Mustapha, just days ahead of the Mithripala Sirisena, who quit as Mr Rajapaksa’s health minister election. Mr Mustapha had been until then the public face of the toT run for president in the 8th January election, has crafted a platform president’s casino policy and its most vocal proponent. designed to appeal to the spiritual leaders of the island nations’s Mr Rajapaksa and his family have held a lock on government since succeeding at the end of the last decade in winning a civil war against a militant Hindu Tamil minority that raged in the north of the island for 25 years. The Rajapaksas’ resistance to Western calls for investigations into alleged war crimes in suppressing the rebellion scores highly with voters among Sri Lanka’s dominant ethnic Sinhalese-Buddhist majority, and the regime has been successful in countering Western sanctions with large-scale infrastructure investment from China. China’s booming travel market is a prime target of the pro-casino development strategy. “I would achieve for the country 10 times the development that actually occurred during the past six years,” Mr Sirisena said, and although Mr Rajapaksa is favored to win re-election, his challenger’s message is reported to be gaining support in urban areas and from Tamils and the country’s Muslim and Christian minorities with promises to purge the foreign service and establish independent commissions to deal with the war crimes allegations and secure the impartiality of the judiciary, police and other public services. “The extent of corruption in Sri Lanka in the last few years is unprecedented and unheard of,” his manifesto states. Sri Lanka is home to four officially sanctioned casinos, all relatively small, foreigners-oriented venues comprising a market that Melbourne-based Crown and resort conglomerate John Keells, Sri Mithripala Sirisena, who quit as Mr Rajapaksa’s Lanka’s largest listed company, want to revolutionize by investing health minister to run for president in the more than a combined US$1 billion in luxury casinos with hotels in Colombo’s tourist core. The administration supports both projects, 8th January election, has crafted a platform but gaming approvals have been held up by political and religious designed to appeal to the island nation’s opposition. influential Buddhist clergy, who are skeptical Mr Sirisena’s manifesto does not mention the country’s largest operator: the three-casino group owned by Sri Lanka’s richest man, of the president’s vision of casinos as economic Dhammika Perera, which also is set to expand with the addition of a development tools. $350 million gaming resort in Colombo.

12 inside asian gaming January 2015 January 2015 inside asian gaming 13 Cover Story

Weaving a Destination

The entertainment district begins to take shape with the soft opening of City of Dreams Manila

By Muhammad Cohen

ity of Dreams Manila started small with its soft opening The sneak preview attracted an estimated 13,000 people to the on Sunday, 14th December. Just the mass gaming floor resort with the slogan “Where everything is above all else.” Above opened along with a handful of food and beverage all else in the center of the main casino floor sits the high wattage outlets. But the property’s elevated stage at the casino Center Stage Bar featuring Philippine crooners, European dancers entrance, three international hotel brands and two and lighting panels above that change color and can descend to famous name nightclubs say the first Macau casino operator in the envelop the stage, which also can rise and descend. The rectangular PhilippinesC aims to make a big splash. ground level main gaming floor surrounds Center Stage, with 120 of “It’s the only casino here that resembles Vegas or Macau,” Manuel the 166 table games with minimums ranging from 300 Philippine Gana, executive vice president and chief financial officer of property co- pesos (US$7) to PHP3,000, and most of the 1,700 gaming machines. owner Belle Corporation says, noting the entertainment factor and accent The roughly 5,000 square meter gaming floor layout is spacious, on flashiness and fun. “Quality-wise, it’s on par with Solaire,” the first orientation is simple and signage is ample. casino resort in Manila’s bay front Entertainment City casino district that The casino’s upper level, featuring a 12-table poker area, links opened in March 2013 and began rolling out its Phase 1-A expansion in to the developing retail mall, DreamWorks indoor theme park and November. City of Dreams Manila, “the gateway to Entertainment City,” nightclub impresario Michael Van Cleef Ault’s Pangaea and Chaos, as it styles itself, occupies 6.2 hectares at the city end of the burgeoning all expected to open before Chinese New Year. Also coming soon, the integrated resort cluster, where two more IRs are expected to open by 2018. premium-mass Signature Club, an understatedly luxurious members-

14 inside asian gaming January 2015 Cover Story

only space off the main floor, and VIP gaming areas. Nobu, Hyatt and Crown Towers hotels with a total of around 900 rooms are all due to open by mid-February. The Nobu restaurant, featuring chef Nobu Matsuhisa’s signature dishes, was doing a lively business on opening night. The Nobu Hotel in Manila will be the star-studded group’s first in Asia, after Las Vegas and Riyadh. Hyatt began registering guests during Christmas week.

EVOLVING DREAM Melco Crown Entertainment operates the new resort, its first project The sneak preview attracted an estimated 13,000 people to the resort with outside Macau, where it owns the original City of Dreams resort, the slogan “Where everything is above all else.” casino hotel Altira, Mocha Club slot parlors and expects to open Studio City Macau next year. Through a Philippine-listed subsidiary, the company jointly owns City of Dreams Manila with property developer Belle Corporation, part of the SM Group controlled by the in licensed resorts based on hotel room count and room area, giving family of the Philippines’ richest man, Henry Sy. credit for lodging quality as well as quantity. The Belle-Melco Crown In 2012, Melco Crown agreed to team with Belle on the casino resort’s allotment jumped from 242 tables and a combined 1,450 side of the planned Belle Grand resort. “If we continued with our slot machines and electronic table games to 374 tables, 1,695 slots plan and built Belle Grand, it would have been five-star but not the and 1,695 e-tables. The change prompted Melco Crown to rebrand unique facility we have now,” Mr Gana says. “No one in SM Group the resort as City of Dreams Manila, up the partnership’s combined ever operated a casino. That’s what Melco Crown brings to the table.” investment to about $1.3 billion and take over operations. In October 2013, Philippine regulator Pagcor revised its formula “Quite simply, City of Dreams brings nearly a decade of Macau to determine the number of gaming tables and machines permitted gaming know-how to a market that needs more international

“Quite simply, City of Dreams brings nearly a decade of Macau gaming know-how to a market that needs more international operators to set up shop in order to raise the profile of Philippines as a gaming destination,” Union Gaming Research Macau Managing Partner Grant Govertsen says.

January 2015 inside asian gaming 15 Cover Story

operators to set up shop in order to raise the profile of Philippines as a gaming destination,” Union Gaming Research Macau Managing Partner Grant Govertsen says. “That said, it isn’t clear that it will have an overnight impact. It’s important to remember that building a VIP business takes time and a lot of elbow grease. Mass market is not a slam dunk either, as other properties—especially Resorts World Manila—have a many year head start on capturing what is a fairly significant pool of local customers.” “After Resorts World Manila and Solaire, City of Dreams brings a third far superior gaming bricks-and-mortar experience relative to the government-owned and -operated Pagcor casinos located in the area,” Macomber International President Dean Macomber says. “Perhaps less obviously, it brings a short-term burst in generic credibility for the Philippine gaming market in general and, in the specific, to the two remaining Manila Bay projects not yet opened. The sustainability of this credibility infusion will be determined by the success of City of Dreams Manila.”

PHYSICALLY CHALLENGED By taking over the project in midstream, Melco Crown had to work with Belle’s basic building structure already in place and perhaps not what Melco Crown would have constructed from scratch. “Being a real estate developer, we don’t think like an integrated resort developer does,” Mr Gana says.

Making Manila Pay

Philippine casinos have a decided tax advantage over their Macau rivals. But for City of Dreams Manila operator Melco Crown, that advantage may not be as big as it looks. Philippine gaming taxes are 5% on VIP play and 17% on mass play, paid in the form of licensing fees to Pagcor, the government- owned corporation that regulates licensed casinos and operates its own gaming properties under the Casino Filipino brand. Pagcor cut those fees by 10 percentage points after the government’s Bureau of Internal Revenue ruled Pagcor and its licensees were subject to the national 30% corporate income tax. The fee cuts were implemented to offset the impact of the income tax. Bloomberry Resorts Corporation, the Manila-listed parent of Solaire Resort & Casino, has filed suit to reverse the BIR decision, a battle Pagcor fought unsuccessfully. If the income tax decision is reversed, Pagcor license fees will return to 15% on VIP and 27% on mass play. Either way, it’s lower than the 39% gaming tax Melco Crown pays on its Macau casino revenue. But Union Gaming

16 inside asian gaming January 2015 Cover Story

Other Manila operators enthusiastically welcome their new rival to town. “The opening of City of Dreams should expand

Nobu, Hyatt and Crown Towers hotels with a total of the market. They’ll be bringing in a around 900 rooms are all due to open by mid-February. TheNobu Hotel in Manila will be the star-studded group’s whole new set of players,” Travellers first in Asia, after Las Vegas and Riyadh.Hyatt began International Hotel Group Chief of registering guests during Christmas week. Corporate Planning Patricia May Siy says.

“Ultimately Melco Crown owns about 70% revenue minus comps) or property EBITDA, according to Belle Executive Vice President and Chief Financial Officer Manuel Gana. of Melco Crown Philippines, which in turn Belle chooses either 15% of mass net win plus 5% of VIP net win or owns about 50% of the economics of City 50% of EBITDA with rent added back—“I’m not going to pay for rent of Dreams Manila,” Union Gaming’s Grant to myself,” Mr Gana says—minus a theoretical management fee to the operator of 20% of net win or 7% of EBITDA. Govertsen says. “We think that VIP profit “Ultimately Melco Crown owns about 70% of Melco Crown is probably 20 cents on the dollar in the Philippines, which in turn owns about 50% of the economics of City of Dreams Manila,” Union Gaming’s Mr Govertsen says. “We think Philippines versus about 10 cents on the that VIP profit is probably 20 cents on the dollar in the Philippines dollar in Macau. Melco Crown would only versus about 10 cents on the dollar in Macau. Melco Crown would receive 70% of 50% of that 20 cents, or 7 only receive 70% of 50% of that 20 cents, or 7 cents on every dollar of VIP revenue, which is slightly unfavorable relative to Macau. For cents on every dollar of VIP revenue, which is the economics to make sense for Melco Crown, VIP EBITDA margin slightly unfavorable relative to Macau.” would need to be 30% or better, which we’re not convinced will be the case. “The reason that markets like the Philippines (or Korea, or Research Macau Managing Partner Grant Govertsen doesn’t believe Cambodia, etc.) are able to attract VIP players is that they pay higher that’s a big enough edge to drive Melco Crown to divert VIPs from commission rates to VIP junkets given that they face a lower tax Macau to Manila. “We aren’t necessarily sold that the math works.” burden. As such, most of the benefit of having a lower tax on VIP City of Dreams Manila is a partnership between Melco Crown gaming is therefore eaten up by the junkets who are receiving a Entertainment’s Manila-listed subsidiary Melco Crown (Philippines) higher commission rate,” the Macau based analyst says. Resorts Corporation and Belle Corporation, part of the Philippine “Melco Crown can still generate incremental cash flow from conglomerate SM Group, which holds the casino license though a the Manila project as some number of customers there will be new subsidiary. to the Melco Crown family and/or these are players who might Melco Crown Philippines operates City of Dreams Manila as otherwise have allocated incremental trips to other operators and master lessee of the property. It pays rent to Belle, and they split are now allocating trips to another Melco Crown property,” Mr property revenue based on either net gaming win (gross gaming Govertsen adds.

January 2015 inside asian gaming 17 Cover Story

With two resorts plus other attractions in the Manila Bay area, including Mall of Asia, its adjacent 16,000-seat indoor arena and a nearby convention center, it’s time to “weave the elements into a destination,” Pagcor Vice President for Licensing and Development Francis Hernando says.

Manila Bay’s Entertainment City Area

The gold-sheathed structure features a two-story base with six International Hotel Group Chief of Corporate Planning Patricia 10-story towers clustered in pairs along its periphery, plus the dome May Siy says. A joint venture of Genting Hong Kong and Philippine called the Fortune Egg that will house the nightclubs. The roof of the billionaire Andrew Tan’s Alliance Global Group, Travellers owns base has hotel swimming pools and will feature dining. Each hotel Resorts World Manila near Terminal 3 of Manila’s Ninoy Aquino occupies a pair of towers and has its own lobby at ground level. International Airport, currently undergoing significant expansion, and “I do like the access,” Tiger Resort Deputy Chief Financial Officer has broken ground on Bayshore City Resorts World in Entertainment Laurence Hawke says. “It’s easy to drive up to the casino entrance City, expected to open in late 2018. “The Philippines is gaining ground or the hotel entrances and be a few steps from the casino.” Tiger, as an alternative to Macau,” she says. controlled by Japanese pachinko tycoon Kazuo Okada, is developing “The more here, then critical mass sets in, the more business for the $2 billion Manila Bay Resorts at Entertainment City, aiming for its everyone,” Tiger’s Mr Hawke says. own soft opening late this year. Mr Hawke also likes the Center Stage “We’re good compliments for each other as we all look to grow Bar as a focal point for the mass floor: “The Philippine market needs Entertainment City,” Solaire President and Chief Operating Officer some entertainment.” Thomas Arasi says. Pagcor Vice President for Licensing and Development Francis “The attractions are very different,” Mr Hernando says of Solaire Hernando says the regulator’s board members making their walk and City of Dreams Manila, about one kilometer apart along ASEAN through inspection found the result “pleasantly surprising” given the Avenue, which public- and private-sector planners hope to develop challenge. “How they could turn that structure into something that into Manila’s version of the Vegas Strip. Solaire has a Broadway-style relates to the Melco Crown brand is impressive.” theater but no nightclubs; City of Dreams will have two world-class Mr Hernando said the opening details were left to Melco Crown, clubs but no theater. “There seems to be complementation, not but the operator had initiated the process to begin casino operations duplication,” Mr Hernando observes. months ago, eyeing a debut date as early as October. “At that point, With two resorts plus other attractions in the Manila Bay area, rather than Pagcor getting caught up in business judgments, we including Mall of Asia, its adjacent 16,000-seat indoor arena and a nearby agreed we’d work on a permit valid to open by 31st December,” Mr convention center, it’s time to “weave the elements into a destination,” Hernando explains. Mr Hernando says. He expects Pagcor and Entertainment City “We’re leaving the sequencing to them” regarding VIP operations, licensees to begin work on streetscaping based on a Paul Steelman plan hotels openings and other project elements, he adds. “We’ll give for the district, initiate shuttles and make other improvements through them slack until Chinese New Year.” Melco Crown has said the their joint council to oversee Entertainment City. property’s grand opening will take place ahead of the holiday falling Other landowners in the area are also likely to begin on 19th February this year. complementary projects in the 120-hectare area, including hotels, retail and housing. “City of Dreams is accelerating interest to MASSING IN MANILA develop,” Mr Hernando says. Other Manila operators enthusiastically welcome their new rival to With a new toll road from the airport directly to Entertainment City town. “The opening of City of Dreams should expand the market. due to begin operating by the end of this year, he says, “Everything is They’ll be bringing in a whole new set of players,” Travellers there. We don’t need to wait two more years.”

18 inside asian gaming January 2015 January 2015 inside asian gaming 19 Cover Story

Sky Tower Lifts Solaire

very top tier of world-class integrated resorts, and is a tremendous The first casino in Manila’s game changer in providing best-in-class guest experience,” Solaire President and Chief Operating Officer Thomas Arasi says. After Entertainment City rises joining Solaire in October 2013, Mr Arasi reportedly ordered key changes to Sky Tower as part of revamping the resort’s strategy and with an elegant extension, positioning. Despite that, Sky Tower arrived “on track and on spec,” parent company Bloomberry Chairman and Chief Executive Enrique as it aims to shine globally Razon Jr said just ahead of the new wing’s 21st November ribbon cutting. Solaire opened as the first property in Pagcor’s Entertainment City integrated resort district with a 488-room hotel tower and 18,500 By Muhammad Cohen square-meter (200,000 square foot) gaming area, plus a grand ballroom and about a half-dozen food and beverage options. Sky Tower advances Solaire toward becoming a full-fledged integrated resort with additional rooms, VIP gaming, F&B options, meeting rooms, and a theater, all packaged around a spectacular lobby. The $1.2 billion property, currently averaging 14,000 daily visitors, will roll hen Solaire Resort & Casino opened its first out more non-gaming attractions throughout this year. phase in March 2013, observers proclaimed it Non-gaming revenue accounted for about 3.5% of Solaire’s set a new standard for the Philippine market. third quarter overall revenue of 22.3 billion Philippine pesos With its Phase 1A Sky Tower that opened in late (US$531 million). “The non-gaming side has performed well, November, “Solaire raised the bar again. They noting, however, that much of our non-gaming is pretty much being definitely outdid Phase I with Phase 1A,” says Francis Hernando, vice sopped up and consumed by the gaming side. … So it’s really been presidentW for Licensing and Development of the country’s gaming supporting the gaming business,” Mr Arasi says. “Once we build regulator, Pagcor. out everything in the Sky Tower, we’ll be able to solidly grow our “The Sky Tower elevates Solaire yet another step higher into the non-gaming business.”

20 inside asian gaming January 2015 Cover Story

Sky Tower advances Solaire toward becoming a full-fledged integrated resort with additional rooms, VIP gaming, F&B options, meeting rooms, and a theater, all packaged around a spectacular lobby.

SPLASHY START Sky Tower’s two-story-high lobby atrium makes an immediate splash with a twin waterfall highlighting a tropical garden with palm trees and other greenery. Natural light pours in through the central skylight. Oasis Garden Café serves as the atrium’s striking centerpiece. Sheathed in light wood loosely woven to resemble a bird’s nest, Oasis is an inviting patisserie by day and a stylish piano lounge once the sun goes down. With views of the lobby and Manila Bay, Waterside Restobar advances the gastro-bar concept, serving meals and snacks with Mediterranean and Latin accents from its ensemble of show kitchens. Waterside’s next step will be alfresco dining, including tapas at sunset. Like the rest of Solaire, the lobby features original modern artwork, many pieces from the private collection of Mr Razon, a billionaire thanks to his global ports business. A massive abstract

January 2015 inside asian gaming 21 Cover Story

The Mona Lisa Project atSolaire Sky Tower

With views of the lobby and Manila Bay, Waterside Restobar advances the gastro-bar concept, serving meals and snacks with Mediterranean and Latin accents from its ensemble of show kitchens.

canvas by Philippine artist Gen Cab on the wall facing Sky Tower’s reception area has been valued at US$1 million. Sky Tower brings Solaire’s key count to 800. “We’re fairly big- sized now, but I would strongly suggest we feel more intimate than most other places like us do,” Mr Arasi says. “It’s how we’re designed. It’s a more intimate design. It’s different venues within the overall envelope.” Some credit is also due Solaire’s 5,600 employees, whom Mr Arasi calls “the best team members I’ve ever worked with.”

SKY SUITES Suites in Sky Tower range from 124 square meters to a whopping 936 square meters. Interiors by Solaire Director for Interior Design Samantha Drummond mix the hotel’s signature orange with earth tones and basic black to luxurious effect. In most suites, the separate sitting area with views of the bay has a sectional sofa, easy chair with ottoman, artworks and a high boy concealing the minibar. The effect is elegant and sophisticated, yet homey and comfortable. Some suites are entered via recessed vestibules off the hallway and can be combined, not via the traditional connecting doors inside rooms, but by closing off the vestibule area from the hallway. Sky Tower expands Solaire’s VIP gaming with 66 tables in 10 bright and airy private gaming suites, “the most gorgeous gaming salons ever to see a deck of cards,” Mr Arasi contends. The new

22 inside asian gaming January 2015 Cover Story

Sky Tower expands Solaire’s VIP gaming with 66 tables in 10 bright and airy private gaming suites, “the most gorgeous gaming salons ever to see a deck of cards,” Mr Arasi contends. The new suites, onSky Tower’s second level and linked to the original Bay Tower VIP area, bring its VIP table count to 180.

Suites in Sky Tower range from suites, on Sky Tower’s second level and linked to the original Bay 124 square meters to a whopping Tower VIP area, bring its VIP table count to 180. Bay Tower has larger gaming suites, nine of them housing Solaire’s fixed junkets. 936 square meters. Interiors Sky Tower’s smaller suites cater to direct VIPs and casual junkets by Solaire Director for Interior as well as players who want private rooms. Direct VIP buy-ins begin at HK$300,000. Solaire takes bets in both Hong Kong dollars and Design Samantha Drummond mix Philippines pesos. Minimum bets on the VIP area’s open floor begin at HK$2,000 with a HK$1.5 million maximum. the hotel’s signature orange with Player pampering enrichments extend to exclusive F&B for earth tones and basic black to VIPs only. Macallan Whisky and Cigar Bar, named for the premium Scotch whiskey brand, has a clean, elegant look and full drink service, luxurious effect. featuring whiskey tasting menus. The separate cigar divan—Mr Arasi admits to enjoying an occasional cheroot—has a clubby feel, and offers Cuban as well as Philippine smokes. House of Zhou features northern Chinese cuisine, a counterpoint to Solaire’s original restaurant, Red Lantern. The VIP enhancements are the latest step in a revamp of Solaire’s gaming business that began when Mr Arasi came on board, replacing Global Gaming Asset Management. (Bloomberry and GGAM remain in arbitration over termination of their five-year management contract.) The resort has added hundreds of gaming machines— including 223 linked to the Sky Tower opening—and about two dozen tables to its main gaming floor, bringing the overall mass table count to 384. Off the main floor, the premium mass Solaire Club for top- level Solaire Rewards Club members has 30 tables, half of them baccarat. Blackjack, its cousin pontoon and roulette are also popular in the market, more similar to the table mix in Singapore than Macau.

SINGAPORE SKILLED Mr Arasi worked in the Singapore market as CEO at Marina Bay Sands and thinks that experience has helped him at Solaire. “Here, like in Singapore, you had to define your niche and tap into the opportunity that is unique in the circumstances of that particular market,” he says. “In Singapore, we had to very quickly excel in a pan-Asian marketing strategy. We could not enjoy one gigantic market providing

January 2015 inside asian gaming 23 Cover Story

Macallan Whisky and Cigar Bar, named for the premium Scotch whiskey brand, has a clean, elegant look and full drink service, featuring whiskey tasting menus. The separate cigar divan has a clubby feel, and offers Cuban as well as Philippine smokes. most of what we needed. We had to have a pan-Asian marketing and execution effort. It’s the same here in the Philippines. Now I think that’s a very good thing because it allows us to be more diverse in terms of the origins of business.” Another similarity was the need to look past the short term for a “balanced, long-term sustainable business model,” the veteran hospitality executive says. “That means having a nice balance between table games and slot machines, having a nice balance between mass gaming and VIP gaming, and having a nice balance between international business and building a foundation from domestic business. So slots and tables, mass and VIP, international and domestic, that was required in Singapore and is an opportunity here and, actually, is a pretty virtuous circle here. If you can have synergy and strength in each of those areas, between tables and slots, between international and domestic, between VIP and mass, that’s a great way to build a profitable, valuable business.” Another common challenge was introducing the “new-fangled, much, much larger integrated resort” model to the Philippines. “It’s somewhat opening a new market,” Mr Arasi says. “Harkening back The resort has added hundreds of gaming machines—including 223 linked to lessons learned from Singapore and being sensitized how to to the Sky Tower opening—and about two dozen tables to its main gaming approach that, and how to balance all of the factors that go into its floor, bringing the overall mass table count to 384. success was very helpful.”

STAGECRAFTING The Theater at Solaire spotlights the property’s move toward Broadway musical “Chicago” inaugurated the theater with a three- becoming a true IR. Built Broadway-style with a relatively narrow week run from early December. The upcoming performance menu footprint, the 1,760-seat theater has a balcony and orchestra pit, includes a mix of Philippine, regional and international shows, and plus a theater bar in its lobby. The backstage area opens directly Solaire has a full-time theater director to keep the stage lit. to a loading dock, making it easier to move in large sets. Its Meyer For MICE, Sky Tower adds The Forum, a 2,000 square meter Sound state of the art Constellation acoustic system is just the third flexible meeting space, divisible into separate rooms and linked to installed in Asia, following installations in Macau and Singapore. the resort’s main ballroom, the largest in Manila with a capacity of

24 inside asian gaming January 2015 Cover Story

up to 1,200. Meetings can be a profitable niche business forS olaire, Bloomberry director of investor relations Leo Venezuela believes. “There aren’t a lot of good meeting facilities in Manila,” he points out. Other attractions will open later this year, including 10,000 square meters of luxury retail, a destination spa, karaoke bar and nightclub. Mr Arasi says that’s all just the first course. “Where it becomes transformational for the non-gaming business is when Phase 2 comes in,” he says. Preliminary plans for Phase 2 call for “a lot more of what we currently have,” including hotel rooms, casino space, entertainment and retail. A decision on whether to proceed with Phase 2 from Mr Razon and the Bloomberry board of directors, where Mr Arasi holds a seat, could come as soon as the completion of the Sky Tower. “What the Bay Tower and the Sky Tower have done is given us an incredible property that is of global luxury standard, and we’re The Theater at Solaire spotlights the in there, we’re in that global top echelon,” Mr Arasi says. “Phase 2 enhances that top echelon position of what’s already open, [and] it property’s move toward becoming a true actually gives us more global scale. It gives us a lot more of everything IR. Built Broadway-style with a relatively again, so we just have a lot more facilities and supply to offer, so we can really scale up, and we can leverage the brand we will have built, narrow footprint, the 1,760-seat theater we can leverage our position, our marketing presence, our loyalty has a balcony and orchestra pit, plus a programs, our goodwill, our management expertise, and of course our site.” theater bar in its lobby.

Fly-Drive Special

Entertainment City is barely six kilometers from suggests being adjacent to the airport could subject guest rooms to Manila’s Ninoy Aquino International Airport yet the trip can take more jet noise. than an hour in the Philippine capital’s legendary traffic. However, “There’s no other major gaming destination where you have a work is well under way on an elevated toll road that will connect the critical mass of integrated resorts like Entertainment City where the airport to Entertainment City, as well as the main business district airport is as close,” he asserts, although he concedes that the south Makati and Metro Manila’s highway network. end of the Las Vegas Strip is nearer to that city’s McCarran International The Entertainment City portion could be completed by the end of Airport. “If you’re at the north end of the Strip, then it’s a dogfight” this year, and Solaire President and Chief Operating Officer Thomas with Entertainment City for the shortest distance from tarmac to chip Arasi can’t wait. “The trip from the airport, you can hardly call it a trip. rack. “Point is, that’s really important,” he says of airport proximity. “It It’s going to be under 10 minutes,” he says. provides a low-friction coefficient” for bringing guests to the resort. In September, Caesars Entertainment pitched Philippine The Cotai Strip is awfully close to Macau International Airport, President Benigno Aquino on a US$1 billion integrated resort Mr Arasi acknowledges. “But I believe the vast majority of [air travel] in Manila directly adjacent to the airport. Caesars President for customers come into Hong Kong,” he says. “So they’ve got to go International Development Steve Tight believes Entertainment City into Hong Kong, then they’ve got to get over to the ferry, then they’ve is too far away, but Mr Arasi maintains, “If you look at those roads got to get on the ferry, then they’ve got to get off the ferry. It’s all very coming in, how much closer could you get to the airport?” He also efficient, but it’s more friction for the international customer.”

January 2015 inside asian gaming 25 Feature

The BIG Bankruptcy

Caesars has a novel plan for rescuing its largest and most indebted subsidiary from a sea of red ink more than $18 billion deep. But creditors are skeptical, lawsuits are flying, and time is running out

aesars Entertainment has spent the last seven years guarantees that as currently structured it never will. The face value trying to grow, sell, mortgage, cut and restructure its of the debt stood at $25.4 billion at the end of the third quarter. way out of the consequences of a leveraged buyout that Most of it, $18.4 billion, is held by the subsidiary known as Caesars took the world’s biggest casino operator private and Entertainment Operating Co., which directly owns or manages 38 saddled it on the eve of the Great Recession with more of the casinos. Given the leverage and the fact that CEOC’s fate is than US$30 billion of debt. It won’t get another seven. The New Year bound up with mostly stagnant US regional markets, its survival isC unfolding amid the possibility that the company may have only past this year, absent new financing, in Caesars’ own words, is a weeks to fend off its many creditors and restore itself to financial matter of “substantial doubt”. health on its own terms. Negotiations have been ongoing and intense since last summer Caesars, which owns, operates or holds an interest in 50 casinos with holders of the company’s bank loans and first-lien bonds to in 14 US states and five foreign countries and employs 68,000, reach agreement on a court-supervised reorganization of CEOC, a hasn’t seen an annual profit since 2009, and its debt service pre-packaged bankruptcy, as it’s known. The latest iteration proposes

26 inside asian gaming January 2015 Feature

Caesars wants a pre-packaged bankruptcy agreement that would compensate first- in-line creditors with cash, securities and equity in a new REIT structure. However, several major creditors—holders of both bank loans and first-lien bonds—have quit the talks. The measure of their dissatisfaction was apparent when the bank lenders posted the company’s previously confidential proposals online.

same lenders. The payment was due in mid-December. Caesars skipped it and come mid-January is officially in default. The pre-packaged plan would compensate first-in-line creditors with cash, securities and equity in the REIT structure that would require them to exchange their $18.4 billion for $8.6 billion of new debt. Five lenders were said to be in agreement, representing 39% of the senior obligations, according to a company filing with the US Securities and Exchange Commission. Reporting on Christmas Eve, to take the unit into the protection of Chapter 11 of the US Bankruptcy Bloomberg said 60% were needed by 5th January for the plan to go Code and quickly lead it out again on more or less amicable terms as forward. Caesars said the 9th is the operative date. However, several a partner in a newly minted real estate investment trust with its debt major creditors—holders of both bank loans and first-lien bonds— load shaved by more than half. have quit the talks, and by doing so are free to trade the debt. The Caesars’ management and its private-equity owners, TPG Capital measure of their dissatisfaction was apparent when the bank lenders, and Apollo Global Management, want this to happen between the who presumably are to be made 100% whole in the deal, posted the 15th and 20th of this month. The timing is significant because a company’s previously confidential proposals online. sizable number of second-tier creditors are not happy about where The question for Caesars was whether to proceed into Chapter 11 all this is going and are suing to put CEOC in receivership. A Chapter without their blessing, a perilous course in all likelihood, one whose 11 filing would automatically halt their claims. outcome no one can predict. Caesars also is working against a 30-day grace period to make Analysts are divided. Some say the REIT structure sets Caesars good on a $225 million interest payment owed a number of these firmly on the road to profitability.O thers argue that any consensus

January 2015 inside asian gaming 27 Feature

with so many lenders involved isn’t practicable and the issues will languish in Bankruptcy Court indefinitely, mired in endless objections. “That’s the amazing thing about it,” a New York portfolio manager familiar with the talks said. “If you put 20 managers and analysts in a room, you’re going to get 20 different opinions on Caesars.” Either way, the clock is ticking.

Caesars posted a net loss through 30th September of $1.79 billion after interest payments of $1.95 billion and was looking at forking over another $737.9 million for debt service before 2014 was out. Arrayed against these obligations was possibly $1.8 billion or so in property EBITDA for the entire year.

A QUESTION OF BALANCE entity (Nasdaq: CZR) for what would be three discrete asset portfolios: It has to be believed that Caesars still wields the upper hand in Five Las Vegas casinos, four of them on the Strip, together with these negotiations by virtue of the logic that gave birth to it: it’s too Harrah’s Atlantic City were shunted into Caesars Entertainment Resort big to fail. For while creditors farther back in the queue may see a Properties with a refinanced debt load of $4.7 billion. Planet Hollywood breakup of the company as their best shot at a recovery, the last thing in Las Vegas, CZR’s current 41% stake in Horseshoe Baltimore, the institutional investors want is to be custodians of a couple dozen online and mobile business known as Caesars Interactive Entertainment drive-up gambling houses in places like Joliet, Illinois, and Council and the World Series of Poker brand were reorganized as Caesars Bluffs, Iowa, and Tunica, Mississippi. Growth Partners and spun off as a second public company, Caesars The US regional casino environment where Caesars is so heavily Acquisition (Nasdaq: CACQ), majority owned by CZR, Apollo and TPG. invested is “fundamentally weak,” as investment brokerage Union Caesars Growth Partners’ debt stands currently at around $2.3 billion, Gaming Research put it last September, and has been ever since and in May of last year, in a move that really riles creditors, CEOC sold the recession technically ended. Commercial and tribal casinos Harrah’s New Orleans, Bally’s Las Vegas and the two newest Strip combined produced $66.3 billion in gaming revenue in 2013, which casinos, the remodeled and rebranded Cromwell and the LINQ Hotel was a record, but it was only 1.6% better than 2012, despite the & Casino, to Growth Partners, thus leaving CEOC with only one Las fact that six states opened new casinos or expanded their offerings. Vegas asset, Caesars Palace, which CZR is now proposing to break off Same-store results nationwide were down 3.1%. Since the worst of as its own REIT and remortgage to support the CEOC restructuring. the downturn, five new states have added casinos, five have added Caesars, it turned out, was also too big to succeed. racetrack slots and more than 20 new tribal venues have opened, and over this time, gaming revenue has grown an average of 1.46% a year. Through September, only three of 15 commercial markets tracked by Union Gaming showed year-on-year growth, and all three had new Caesars is heavily invested openings to credit it to. Overall, Moody’s Investors Service rates the in ‘fundamentally weak’ US gaming industry’s prospects as “negative” for at least the next 12 regional markets to 18 months and believes annual revenue collectively could actually decline over this time. Caesars has responded by selling or closing five casinos. But the risks inherent in its capital structure were apparent long before the downsizing began. In fact, within two years of engineering that structure, Apollo and TPG were working to dismantle it, and in 2012, Caesars was led back to the public markets and rejiggered as a holding

28 inside asian gaming January 2015 Feature

What remains to its largest unit, Caesars Entertainment Operating “The entrance of REITs into the gaming Co., is a disparate collection of commercial casinos in 20 regional markets together with the former London Clubs International estate sector will potentially drive up trading EV/ of eight UK casinos and a casino in South Africa. The company EBITDA multiples, provide new sources of has management contracts with casinos owned by Indian tribes in three states, investments and operating deals with two casinos capital (e.g. sales and lease-backs), create and a racino in Ohio, a casino it runs in Windsor, Ontario, two in better transparency on the value of physical Cairo inherited from LCI, and a piece of a casino in Uruguay. This agglomeration generates the majority of parent CZR’s revenues, casino assets and the gaming licenses and 61.7% of them, according to the latest available results, down 13% possibly increase tolerance for higher year on year through the first nine months of 2014. CEOC improved its perennial operating loss by more than 60% over this period, but leverage,” says Fitch Ratings Service. its debt service over the next 12 months will exceed $1.8 billion. The corporation as a whole posted a net loss through 30th September of $1.79 billion after interest payments of $1.95 billion and was looking at forking over another $737.9 million for debt service before the year What CZR proposes for Caesars Entertainment Operating Co. is was out. Arrayed against these obligations was possibly $1.8 billion almost identical. or so in property EBITDA for the entire year. Of course, real estate investment trusts are nothing new, and CZR is looking at more than $2.4 billion in interest payments in there are several types of them. Basically, to qualify, a company must 2015, with CEOC, its largest subsidiary, in negative operating cash incorporate as a REIT, must hold at least 75% of its assets in real flow to the tune of $548 million. In 2016, some $1.28 billion of debt estate, must derive at least 75% of its gross income from real estate is scheduled to mature, $1.22 billion of it belonging to CEOC. This and must return 90% of its income to shareholders in the form of balloons to $7.3 billion in 2017, 99% of it CEOC’s. In 2018, $5.24 dividends. In exchange, the REIT pays no tax on its profits. billion comes due. GLPI defines its strategy as one of “aggressively pursuing opportunities to acquire additional gaming facilities to lease to PLAYING FOR KEEPS gaming operators, which may include Penn, and also anticipates Analyst Chad Beynon of Macquarie Securities, speaking recently to diversifying its portfolio over time, including by acquiring properties The Press of Atlantic City, called the CEOC restructuring the most outside the gaming industry to lease to third parties”. complex “that has ever gone on in the gaming world”. After a year in operation, the company has a market cap nearly Actually, the model was laid out more than a year ago by Penn three times as large as its parent and trades at more than twice National Gaming, a listed regional operator (Nasdaq: PENN) with 19 PENN’s multiple on an EV/EBITDA basis. casinos in 12 US states. In November 2013, PENN announced it was “Overall, we see the GLPI spin-off as a positive for the industry,” spinning off its considerable landholdings as a separate company, says Fitch Ratings Service. Gaming & Leisure Properties Inc., which would trade on Nasdaq as Not surprisingly, others are exploring the possibilities, among a real estate investment trust. With the completion of the deal early them, Boyd Gaming Corp. (NYSE: BYD), which operates 21 casinos in in 2014, GLPI became the landlord for PENN’s casinos, their fixed eight states, and Pinnacle Entertainment (NYSE: PNK), which recently rents serving as the principal source of GLPI’s income. PENN was announced plans to separately list the land under its 14 casinos. out of the property business, which allows it to focus on maximizing “As with PENN’s strategic rationale, PNK sees the separation operating revenues, and the acquisition, financing and disposition of as a means to a lower weighted average cost of capital, a platform all that property was vested in a highly liquid subsidiary that can do to engage in M&A/consolidation of a maturing industry and other so at much higher profit margins and generally with cheaper access industries, and return its free cash flow to equity holders in a tax- to capital. efficient way,” says J.P. Morgan.

January 2015 inside asian gaming 29 Feature

Fitch, which is in the business of valuing corporate debt, sees to a close, and late in December, the corporate brain trust proposed a lot of synergies: “The entrance of REITs into the gaming sector yet another controversial transfer of assets—this one will see Caesars will potentially drive up trading EV/EBITDA multiples, provide Acquisition re-merge with CZR in an all-stock deal that ends the new sources of capital (e.g. sales and lease-backs), create better former’s existence as an independently traded company and returns transparency on the value of physical casino assets and the gaming its six casinos, including the newest Las Vegas Strip properties and licenses and possibly increase tolerance for higher leverage.” Caesars Interactive, to the corporate fold. But this looked almost They could be “especially enticing,” the firm suggests, for “highly certain to be contested in the courts as it requires CACQ shareholders leveraged gaming companies looking to de-lever and/or raise to swap their holdings at a significant discount to the stock’s current liquidity”—which obviously explains the attraction of the model for price and, more pointedly, to its projected future value. Caesars and, it hopes, to the many people to whom it owes money. Holders of the company’s subsidiary debt haven’t been included By Caesars’ calculation, breaking up CEOC would slash the unit’s in the REIT talks, and they’re far from happy with all the financial annual interest expense by approximately 75%, from $1.7 billion to legerdemain that created CEOC in the first place—“looting” is what around $450 million. The key, of course, is selling senior lenders some of them call it, and they want it reversed. Their claims are on the future value of CEOC’s massive property holdings, most of included in a lawsuit filed in the US state of Delaware by a trustee of which they will likely own under a structure that is potentially more second-lien bondholders owed more than $3 billion. It’s one of two profitable—certainly more liquid, as the Penn National de-merger suits challenging the 2012-2014 asset transfers. would appear to show—than the thousands of slot machines and The trustee’s action accuses the company of engineering a “good blackjack tables that sit on them. Caesars” with lower debt and valuable assets and the “bad Caesars” The snag, of course, is the debt, and to sweeten the deal, in addition destined for Chapter 11. to offering up Caesars Palace, CZR will kick in $1.45 billion, roughly The second case was filed by senior bondholders led by hedge the total of its current cash and cash equivalents, and will guarantee fund giant Elliott Management Corp. The creditors in that case want CEOC’s lease payments to the new REIT. It also will provide first-lien a judge to appoint a receiver for CEOC. noteholders with additional equity in the REIT through a secondary Caesars denies any wrongdoing and claims the transfers were rights offering that pays them a fee if they agree to underwrite it. allowed under its debt contracts. The company, moreover, accuses its Whether this would be enough remained to be seen as 2014 drew adversaries of maneuvering to improve their bargaining positions and

Caesars in Asia: The Empire

Resets Rendering of the proposed Caesars Incheon Resort

You have to think Caesars Entertainment CEO When the next opportunity came around, this time in Singapore, Gary Loveman spares more than the occasional thought imagining Harrah’s did pull the trigger but failed to make the cut in the intense what a different company he’d be running with a destination-scale competition that ensued for one of the two IRs that eventually went casino in one or more of East Asia’s key gaming markets. to Las Vegas Sands and Genting Group. Of course, these days he’s doing a lot more than daydreaming So to be chosen as the first Western operator to develop in about it, and as the company looks ahead to breaking ground in South Korea is clearly a coup. Not that it’s been a smooth ride either. South Korea this year on its first Asian IR, it’s clear that no matter Caesars was welcomed initially as an asset to the government’s how events unfold for the debt-laden giant in US Bankruptcy Court, tourism-growth goals, only to be rejected for reasons that were the region is seen as integral to its future. never publicized, although concerns about its industry-leading $25 After famously declining to bid for a Macau concession in its billion of debt doubtless factored into it. Then at the end of 2013 the former life as Harrah’s Entertainment, Loveman & Co. later tried company was invited to apply again, and in March of last year won to get in through the back door and burnt US$577 million on a golf approval to include a foreigners-only casino as part of a megaresort course on Cotai in hopes a gaming license would be forthcoming. complex on Yeongjong island.

30 inside asian gaming January 2015 Feature

says that derivatives held by some of them will pay “handsomely” if their claims force CEOC into default. Caesars has filed its own action in a New York court seeking validation of the transfers and a ruling that would prevent bondholders from filing notices of default. In its case the company singles out Elliott for possessing the derivatives— credit default swaps, as they’re called—which create “a blatant conflict of interest” and incentivize the fund, so Caesars claims, to trigger a default. “Elliott’s scheme is all the more troubling,” Caesars says in its filing, because the fund sits on the International Swaps & Derivatives Association committee that determines whether a company has indeed defaulted. Elliott could be the key to what happens in the weeks ahead because as the owner of 30% of a class of senior Caesars bonds it holds what is known as a “blocking position” in regard to any deal. As for the swaps, Elliott bought them before entering negotiations Holders of the company’s subsidiary with Caesars in September and has continued to purchase them, according to Bloomberg sources. The firm denies Caesars’ allegations, debt haven’t been included in the REIT calling them a “red herring,” and has filed its own motion to dismiss. negotiations, and they’re far from Credit default swaps, famously criticized by Warren Buffett during happy with all the financial legerdemain the global financial crisis as “weapons of mass destruction,” are valued by bondholders as protection against losses or as a way to double that created CEOC in the first place— down on a company’s creditworthiness. The contracts pay the buyer “looting” is what some of them call it, face value if a borrower fails to meet its obligations, less the value of the defaulted debt, resulting in some instances in creditors profiting more and they want it reversed. from a swaps payout than an issuer actually meeting its obligations.

Yeongjong, which lies about 50 kilometers west of Seoul, Caesars wants to have the first phase of its comprises the heart of a special economic zone the government has fashioned around Incheon International Airport for the express Incheon megaresort open in time for the purpose of cashing in on China’s outbound travel boom. A second country’s hosting of the 2018 Winter Olympics resort on a similar scale is also going up there, co-developed by and plans call for an initial expenditure of Paradise Group, the leader of the country’s foreigners-only casino around $800 million—the whole is priced at $2 market, and Japanese machine gaming giant Sega Sammy. The Caesars project, a joint venture with Indonesian conglomerate billion at full build-out—for 500 or more hotel Lippo and Singapore property developer OUE, covers 4.3 hectares rooms together with entertainment venues, encompassing 150,000 square meters of developable floor space. a shopping mall, a stand-alone convention The partners want to have the first phase open in time for the country’s hosting of the 2018 Winter Olympics and plans call for an center and a casino with 100 table games and initial expenditure of around $800 million—the whole is priced at $2 150 machine games. billion at full build-out—for 500 or more hotel rooms together with entertainment venues, a shopping mall, a stand-alone convention center and a casino with 100 table games and 150 machine games. or a safer one politically—of waiting to assess the impacts of the The company has even more ambitious plans for the Philippines. four IRs already approved for a special tourism zone on Manila Bay, It’s a market that US-regulated operators have yet to come around two of which are up and running, the remaining two slated to open to trusting, and perhaps because of that Caesars spies a lucrative in 2016 and 2018. opportunity in an environment where the government is also looking Caesars doesn’t want to build there, however. It has selected a site to resort gaming for an economic lift and, as in South Korea, might next to Manila’s Ninoy Aquino International Airport and has upped be open to accommodation for the sake of burnishing its efforts with the ante by bringing in experts to advise on a redesign and expansion a globally recognized Western brand. of the country’s main international gateway in concert with its plans. That hasn’t panned out so far. President Benigno Aquino Its offer to invest $1 billion or more in the combined projects, together leaves office in 2016, and the industry regulator, the Philippines with the promise of 20,000 jobs, has piqued enough interest to gain Amusement and Gaming Corp. (PAGCOR), which operates as a Mr Loveman and company executives an audience with President direct arm of the executive, says it prefers a more prudent stance— Aquino and meetings with PAGCOR officials.

January 2015 inside asian gaming 31 Feature

“In situations where credit-default swaps play a meaningful part of the case, you don’t realize the strange impact they have on the process,” said David Kurtz, global head of restructuring at Lazard, speaking at a recent debt conference in New York. “What you find is that you don’t really know the motivation of the holder of the debt.” But then Apollo is known for playing its own brand of hard ball, and it appears there is no love lost between the two firms. As Bloomberg described it in its Christmas Eve coverage, citing anonymous sources, “So great was the ill will between them that when Apollo held a pivotal negotiating session at its office in Manhattan, it didn’t invite Elliott.” “We will aggressively go out and protect our investments using all the tools available to us to be able to do so,” a partner in Apollo’s Apollo is known for playing its own buyout unit said. brand of hard ball, and lenders who Bloomberg says it’s why lenders that help Apollo finance corporate takeovers have begun asking for extra returns on their money—an help Apollo finance corporate takeovers “Apollo premium,” they call it—because of the likelihood the deals will result in costly litigation. have begun asking for extra returns on “This is how they operate,” a senior executive with AllianceBernstein, a New York-based asset management firm, told their money—an “Apollo premium,” the news agency. Most buyout houses “don’t want to be perceived they call it—because of the likelihood as having an adversarial relationship with bondholders,” he said. “Whereas with Apollo, that’s kind of their modus operandi.” the deals will result in costly litigation.

32 inside asian gaming January 2015 Feature

Northern EXPOSURE

In the US, more casinos to keep gambling dollars from crossing their borders to these new properties. Despite all this activity, there still remains one large are coming to the crowded pocket of untapped casino growth potential in the Northeast—New York City, with a metropolitan-area population of 20 million and Northeast—and there may be millions of visiting tourists. too many already “I think there is still latent demand for casinos and casino gaming in the New York metropolitan area including Long Island, Suffolk and By Paul Doocey Queens,” says Steve Rittvo, chairman of The Innovation Group, a Colorado-based gaming consultancy and management firm. “There is a chance for real market growth there.” However, outside of New York City, gaming observers warn that growth through new casino development may be close to its peak in the Northeast. “Areas with unmet casino demand are few and far between in hen you think of a hot spot for casino gaming the US these days,” says Bill Lerner, a principal with Union Gaming within the United States, chances are the Northeast Group, a Las Vegas-based investment brokerage. “New York City, is not the first area that springs to mind. Texas, Georgia, maybe parts of Florida, and that is it. Adding forms But the region from Pennsylvania to Maine of wagering like table games to some established markets may lead has actually been the nexus of much casino to short-term growth, but otherwise the development of a new casino development activity of late, thanks in large part to the voter approval does not lead to overall market growth; it is taking dollars away from ofW land-based resort development in Massachusetts, the decision by an existing in-state market or contiguous state.” the New York Legislature to add four upstate casinos—three of which It’s long been accepted that with nearly 1,000 commercial and won approval in December—the recent approval of a second casino tribal casinos in 39 states, the days are long gone when gambling for Philadelphia and counter-moves in neighboring jurisdictions was a novelty for Americans, an indulgence once limited to Las

January 2015 inside asian gaming 33 Feature

Vegas and Atlantic City. In the Northeast, the nation’s most resort in the Catskills, a long-faded holiday destination for city competitive market, dozens of casinos or slot parlors operate dwellers in the more economically needy county of Sullivan directly or are opening, in Delaware, Maryland, Pennsylvania and Rhode to the north. Several major developers, including a US subsidiary Island—and soon Massachusetts—as well as Atlantic City, where of Malaysia-based casino giant Genting Group, along with Caesars four of the city’s 12 casinos have closed this year and it is feared Entertainment, Hard Rock and Mohegan Sun, were shut out. In that a fifth will soon be turning out the lights. Connecticut’s two all, 16 applicants vied for licenses. The other two approvals were tribal casinos, Mohegan Sun and Foxwoods, have also fallen on granted to projects near the state capital of Albany in the upper hard times, stricken in the years since the Great Recession by Hudson River Valley and in the center of the state in a region known overexpansion and layoffs. as the Finger Lakes. “New York City aside, after all the current casino development “For 50 years, the Sullivan County Catskills have sought gaming commitments are met in [the Northeast], I think we will be close to as a way to grow our tourism-based economy,” said state Sen. John J. a zero-sum game,” Mr Rittvo says. “Any gaming expansion beyond Bonacic, a Republican whose district includes much of the Catskills. these projects in the region will lead to a market share shift, not real “And now that moment is here.” growth.” Genting, however, may have been the biggest winner after all. The resort conglomerate controls four publicly traded companies, three NEW YORK STATE OF MIND of them with gaming portfolios stretching from Southeast Asia to the Concerns about saturation have figured prominently in the thinking UK. Plans also call for a multibillion-dollar resort on the Las Vegas of the Gaming Facility Location Board charged with recommending Strip. A US subsidiary operates the sole gambling hall in New York where to site the four new Las Vegas-scale casinos authorized by New York’s Legislature and backed by Gov. Andrew M. Cuomo as an economic development tool. The resorts, which would include boutique hotels, spas, luxury restaurants, golf courses and other The other casino development hotbed amenities, are expected to provide thousands of jobs in distressed in the Northeast is Massachusetts, but parts of the state and, according to one estimate, generate more than $300 million in new tax revenues. unlike New York, the gaming development New York is already home to five tribal casinos upstate and players in this market have been largely nine slot parlors at racetracks, and last month, the board chose settled. The Massachusetts Gaming to recommend only three of the four projects to give those chosen a better chance of success. It rejected six applications in Orange Commission has already awarded two of County, the region closest to New York City, in favor of a single its three allowed licenses.

An artist rendering of the completed MGM Resorts casino project in the western Massachusetts city of Springfield

34 inside asian gaming January 2015 Feature

January 2015 inside asian gaming 35 Feature

City, the Resorts World racino at Aqueduct racetrack in Queens, the highest-grossing slot floor in the United States. The project approved for the Catskills, Montreign, as it’s called, is being developed by publicly traded Empire Resorts, in which the family of Genting Chairman Lim Kok Thay holds a controlling stake. Empire also operates a racino at the nearby Monticello racetrack. Montreign envisions a $630 million resort next to the old Concord resort hotel, once the heart of the “Borscht Belt,” as it was known to New York City vacationers. Plans call for a 391-room hotel, a golf course, restaurants and entertainment venues, and they will sit next to land where Empire partner EPR Properties plans to build the Adelaar resort, with an indoor water park, an entertainment village, hiking trails and zip lines. Of the other projects recommended by the board, one is a $300 million proposal, the Rivers Casino, on a 60-acre waterfront site in Schenectady, west of Albany, the third successful application calls for a $425 million development, Lago Resort & Casino, complete with thousands of slot machines, a 1,700-seat theater and a 207-room hotel, in the Finger Lakes town of Tyre. Yet, none of the three can be said to face a certain future. In- state competition for the gambler from New York’s established The slot floor at Genting’s tribal casino facilities and racinos is likely to be fierce. In addition, neighboring states are also in the midst of casino expansion to try Resorts World New York City is to capture a larger share of the Northeast market. Case in point: The the highest-grossing in the US. Pennsylvania Gaming Control Board recently awarded a license to

36 inside asian gaming January 2015 Feature

The planned Mohegan Sun at Concord one to MGM Resorts International, which is developing MGM Springfield, an $800 million mixed-use project in the western casino in upstate New York (pictured Massachusetts city of the same name, and the other to Wynn above) was one of 13 losing applicants Resorts, which recently won the rights to develop a $1.6 billion for four New York licenses. A state resort in the Boston suburb of Everett. The Massachusetts Gaming Commission has also given a panel has recommended only three of license to Penn National Gaming, which is in the process of the four, in part because of fears about developing Plainridge Park Casino, a 1,250 slot/pari-mutuel facility market saturation. located at a racetrack in the city of Plainville. The commission is also in the process of determining a winning bid for a license in the southeast of the state, with special consideration to be given to Mashpee Wampanoag Indian Tribe. Stadium Casino LLP, which will permit the operation of a second The nascent Massachusetts market already has survived a casino in Philadelphia. Stadium Casino is a joint venture between referendum attempt to rescind casino legalization. Greenwood Gaming & Entertainment, which currently operates However, other threats loom on the horizon. Stringent responsible the Parx Casino in Bucks County, Pa., and the Cordish Companies, gaming policies mandated by the state could dramatically curtail which operates both the Maryland LIVE Casino near Annapolis and profits. Of more pressing concern may be proposals to expand or the Xfinity LIVE entertainment complex in Philadelphia. The license establish casino gaming in the border states of New Hampshire, clears the way for the development of a standalone casino with up to Maine and Connecticut. The expansion plans from Connecticut, 5,000 slot machines and 250 table games. which include the possibility of a rival casino near MGM’s Springfield Of more concern for potential New York gaming operators may project, appear the most realistic, given the political and economic be ongoing proposals to establish casino resorts in the Northern strength of the Mohegan Sun and Foxwoods casinos in the state and New Jersey areas of the Meadowlands Sports Complex and Liberty their reliance on gamblers from Massachusetts. State Park, both right outside the New York City. For this to happen, “I think at this point, [casino expansion plans are] all preliminary,” the state will have to pass a referendum allowing casino development Charles F. Bunnell, Mohegan chief of staff of external and outside of Atlantic City, which is not as much of a longshot as it was governmental affairs, recently told the Hartford Courant newspaper. in the past, given the seaside resort town’s crumbling fortunes. “The chairman of the Mohegan tribe, Kevin Brown, has said that he The other development hotbed in the Northeast is certainly is ready to have those discussions.” Massachusetts, but unlike New York, the players in this market have been largely settled. The Massachusetts Gaming Commission has already awarded two of its three allowed casino resort licenses: Reprinted with permission from Casino Journal

January 2015 inside asian gaming 37 Tech Talk Beyond Transactions

The rationale for JCM’s acquisition of FutureLogic mirrors the philosophy underpinning the development of its latest products: laying the foundations for enhanced capabilities and creating greater value

our months ago, JCM Global finalized its US$70.6 million acquisition of FutureLogic. The former is a major international supplier of transaction Ftechnologies for the banking, retail, kiosk and gaming industries. The latter is a leading supplier of printers and couponing solutions with a wide range of applications, including slot tickets and gaming vouchers, fuel pump receipts, medical devices, POS coupons and labels for assembly-line products. Gaming is the biggest business segment for both companies and for the combined entity. As JCM sees it, its purchase of FutureLogic has expanded its portfolio and positioned it better to serve its customers. “[The two companies] have complementary products and there are no overlaps as far as the product space is concerned,” says General Manager of New Business Development Kunal Mishra. “And the customers have been appreciative of that TheiVIZION was because JCM is obviously a dominant brand designed to be the and probably the oldest component brand “foundation of intelligent in the business. FutureLogic is obviously validation,” incorporating bundled enhancement No. 1 for printers worldwide in gaming. So tools, called Dynamic when you’ve got the two together, you have a Network Applications, formidable company. that give the iVIZION the “If you look at every facet of the business potential to expand to be more than just a highly on the supplier side, there’s consolidation advanced bill validator. going on,” he observes. “So it makes sense

38 inside asian gaming January 2015 Tech Talk

“DNA is designed to be network to support the PayCheck 4 as well as JCM has already committed significant FutureLogic’s products. resources towards realizing greater value flexible to work with any The integration of FutureLogic is expected from its core products. The iVIZION, released peripheral in there. As we to proceed smoothly. “We look at this deal in 2012, was designed to be the “foundation expand the printer line as fitting perfectly. The customer base is the of intelligent validation,” incorporating to Nanoptix and also to same and we have complementary products,” bundled enhancement tools, called Dynamic says Mr Mishra. “From the Asia standpoint, Network Applications, that give the iVIZION FutureLogic, we bring in we look at the positive synergies we can the potential to expand to be more than just a lot of that functionality provide customers because our offices don’t a highly advanced bill validator. in there as well. So we can have a lot of overlap. Additionally, we bring a The company says, “DNA provides real- lot of regional support to help on both sides. time health and event monitoring of all really link up BVs, printers “For example, we’re local in Singapore peripheral components used inside EGMs, and bring additional value now because [FutureLogic] have an office on table games or inside redemption kiosks, to the customers.” in Singapore. They have a sales person utilizing either a wired or wireless connection there. And they get to take advantage of to a local server. Peripherals that DNA can our network, including offices in China monitor are practically limitless and include and Taiwan, as well as the headquarters bill validators, ticket printers, card readers, even at our level, the component level, in Tokyo and Osaka. When you look at the digital displays and coin acceptors. there is consolidation. And we’ve seen that regional offices we really are adding to “DNA passively monitors the SAS line, with some of our customers on the BV [bill what was probably already in JCM the most provides diagnostics, analytics and value- validator] side, and we’re seeing that now comprehensive support structure in Asia [for added features that can all be managed even with us.” gaming peripherals].” through DNA’s user-friendly mobile Though best-known in the gaming There could also be meaningful synergies dashboard. The dashboard was specifically world for its iVIZION bill validator, JCM on the R&D front, though those will come designed for platform flexibility and can did previously have a thermal printer in its later. “Right now, the development paths easily be used on a PC, a tablet or a mobile product range, the PayCheck 4, from printer [of JCM and FutureLogic] will continue phone. Additionally, DNA gives flexibility of manufacturer Nanoptix, which JCM has been separately, but over time there’ll be a information the user chooses to use/see for distributing as a JCM product. Following common development path,” says Mr reports, etc.” JCM’s initial investment in Nanoptix in Mishra. “Printers and BVs are totally different Mr Mishra adds, “DNA really helps bring 2011 (JCM would go on to increase its technologies, so those will continue to be out the value in the peripherals. For example, investment in Nanoptix in 2012, acquiring a separate for the time being. But linking the it can predictively and in real time tell the 49% stake), the PayCheck 4 Thermal Printer two devices has a lot of potential, and we customers, based on how many notes a BV was rebranded, marketed and sold as a really have to be able to show that we can has taken in, whether there’s any service JCM product, and sales increased thanks sell two products, and how we can bring out or maintenance required. It’s an advanced to JCM’s superior distribution network. greater value in both products by having two warning system, and also an advanced Going forward, JCM will continue through its product lines.” reporting system. But that’s just the first

January 2015 inside asian gaming 39 Tech Talk

“We really believe [the iV8] will be the de facto still capped [the government has imposed a 3% cap on the annual growth in the market- configuration for a table game over the next few years, wide number of gaming tables until the especially as you look at Macau, which is still capped, end of the decade] and Singapore [where and Singapore. The best way to get value out of these the casinos have no room to expand]. The tables is to increase productivity, which is what this best way to get value out of these tables is to increase productivity, which is what this device is there for.” device is there for.” It took three years for the iV8 to evolve generation of DNA. DNA is designed to by eliminating down time during buy-ins, the from prototype to final product. But, says Mr be flexible to work with any peripheral in iV8, he adds, “increases the entertainment Mishra, that’s because the company prefers there. And what tends to happen is, as we value for the customer as well.” to patiently evaluate and refine its new expand the printer line to Nanoptix and “We really believe that this product will creations before selling them—sacrificing also to FutureLogic, we bring in a lot of that be the de facto configuration for a table short-term gains but potentially creating functionality in there as well. So we can really game over the next few years,” he says, best-of-breed products that have longevity link up BVs, printers and bring additional “especially as you look at Macau, which is as market leaders. value to the customers.” Another new JCM product with a lot of value-boosting potential is the iV8 table ’s user-friendly game bill validator, which is currently being DNA mobile dashboard trialed in Australia. was specifically In high-volume cash markets such as designed for Macau and Singapore, manually counting and platform flexibility and can easily be validating currency during buy-ins can shut used on a PC, a tablet down play for minutes at a time. By processing or a mobile phone. eight notes per second, the iV8—“iV” stands for “intelligent validation,” the “8” for the processing speed—enables more hands to be played. “This product’s potential ROI [return on investment] is almost on the first day you use it,” claims Mr Mishra. Another benefit is that

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January 2015 inside asian gaming 41 REGIONAL BRIEFS

The casino license, one of three the government is offering Rendering of statewide, is the key to both projects, which are expected to Crown and Greenland’s transform the state’s tourism economy by creating magnets for planned development well-heeled spenders across the Asia-Pacific region. “The point was very strongly made to us by international tourist operators that this sort of integrated resort development is the emerging product in the tourism market,” Deputy Premier Jeff Seeney said. Bidding rules, however, forbid both ventures at this point from disclosing gaming plans and certain other integrated features, such as their residential components.

LVS’ New President Has His Hands Full Crown, Echo Unveil In the midst of what is arguably Lavish Plans for Brisbane the most challenging business Australian rivals Crown Resorts and Echo Entertainment have climate ever for Las Vegas Sands’ unveiled their competing plans for the much anticipated new super- massive investment in Macau, the resort headed for downtown Brisbane. company’s “bullish” new president The Queensland government has released the final “integrated says expansion will be a priority resort development” designs from the two consortiums fighting it under his regime. out for the casino license slated to be awarded at Queen’s Wharf in Industry veteran Robert the heart of the state’s capital city. Goldstein, 59, who took over last Melbourne-based Crown and Chinese property development month from the retiring Michael giant Greenland Group are proposing three luxury hotels, an Leven, said, “I’m focused on entertainment complex including a theater and cinema, a Neil Perry Robert Goldstein continuing to execute Sheldon’s restaurant and outdoor attractions highlighted by a water park and vision and the strategic objectives a bridge across the Brisbane River to the cultural and recreational laid out by our board and precinct known as South Bank that will feature a suspended waterfall. management team”— marching orders that include “pursuing The Destination Brisbane consortium comprised of Sydney-based new development opportunities”. Echo and Hong Kong conglomerates Chow Tai Fook Enterprises and “There is much work to do, but I couldn’t be more excited about the Far East consortium have designed a core resort shaped in an the opportunities ahead of us.” arc complete with five luxury hotels (including a Rosewood and Ritz- The Las Vegas resident has made a career of seeing new resort Carlton), an underground shopping mall and a “river arena” the size casinos rise from concept to completion, spending 15 years working of “12 football fields” outfitted with cinemas and other attractions. with new projects in the Caribbean and the United States prior to Echo says its existing Treasury Casino in the city would be joining LVS in 1995, four years before founder, chairman, CEO and turned into a boutique department store. controlling shareholder Sheldon Adelson—“one of the world’s greatest entrepreneurs,” in Mr Goldstein’s view—first made his mark on the industry with the elaborately themed Venetian on the Las Vegas Strip. As president of The Venetian and Palazzo and later as head of global operations, Mr Goldstein specialized in developing much of the non-gaming elements that make up the integrated resort strategy that has been central to LVS’ success. Notably, he is credited with expanding and refining the retail offering that has proven so lucrative for the company on the Cotai Strip in Macau and in Singapore at Marina Bay Sands. But in succeeding Mr Leven as chief operating officer he will have big shoes to fill.T he latter, a veteran hotelier, now 77, has been on the board of directors since LVS’ launch as a public company and is one of Mr Adelson’s most trusted advisors. Mr Leven took the helm in 2009 after the exit of the company’s first president, William Weidner, who left in the depths of the Great Recession, a time when credit had frozen up worldwide, the company’s share price had plummeted in the space of a year from more than $100 to under $2, and its sizable debt load engendered doubts about its viability Artist’s impression of the Destination Brisbane consortium’s proposed resort as a going concern. Mr Leven exerted a stabilizing influence, and in that capacity was instrumental in righting the ship, shepherding

42 inside asian gaming January 2015 REGIONAL BRIEFS

Marina Bay Sands and Sands Cotai Central through to completion by William Weidner, a former president of Las Vegas Sands, was and securing solid, stable management in Macau. He will continue contracted to develop and run the resort, but Bloomberry terminated as a director of the company. the relationship when Solaire stumbled out of the gate. Bloomberry Mr Goldstein steps up at a time when political and economic accused GGAM of breach of contract, alleging the company did not winds are blowing ill out of China again, the Macau market is direct sufficient attention to managing the property. GGAM has in turmoil, a new multibillion-dollar Sands resort is set to debut disputed the charge before the arbitration panel. next year on Cotai, Singapore is struggling to recapture its It’s likely the shares will continued to be tied up in litigation, momentum, and money flows are under intense government and however. In seeking the injunction, Bloomberry argued they were law enforcement scrutiny industry-wide. subject to counterclaims by some of its subsidiaries. The arbitrators Mr Goldstein’s track record is strongly in his favor, though, and didn’t address that issue, but in allowing GGAM “to freely deal his long association with Mr Adelson should provide a critical level with, including sell, the shares,” they denied GGAM’s request “to of comfort and assure him of support from the top. be declared full legal and beneficial owner of the shares free of any “Our company is in the enviable position of having the most claims, liens or encumbrances”. diverse set of assets and the strongest balance sheet in our industry, as well as being best-positioned to capitalize on future growth opportunities as they happen,” Mr Adelson said in announcing Chinese Tourism Spells Mr Goldstein’s appointment. “With Rob’s strong leadership, Good News for South Korea passion and energy, I’m fully confident we will expand our industry Chinese visitation to South Korea has grown to the point where leadership to deliver even greater achievements in the years ahead.” the country is now the third-most popular destination for mainland tourists after Macau and Hong Kong. Visitation from China surged 51.5% from 2012 to 2013 and is Weidner & Co. Best Bloomberry forecast to grow another 40.9% in 2014 to more than 6 million, in Share Dispute according to a report in English-language daily The Korea Herald. The company that opened Manila’s Solaire Resort & Casino then Including visitors from Hong Kong and Taiwan, the number of was fired amid the property’s early struggles has been freed to sell Chinese-speaking tourists is expected to surpass 7.4 million, its sizable stake in Solaire’s corporate owner. accounting for more than half of all foreign arrivals. An arbitration panel in Singapore has lifted a freeze a Philippine This is good news for a massive wave of planned investment in court leveled earlier this year on Global Gaming Asset Management’s new gaming resorts targeting South Korea’s burgeoning high-roller holding in Bloomberry Resorts (PSE: BLOOM), which represented market. a little less than 9% of the company’s equity when GGAM exercised Encouraged by more liberal policies on the part of a central an option on the stock shortly before Solaire’s US$750 million government eager to cash in on the country’s popularity, two debut in March 2013. destination-scale casinos are in development in a special economic Solaire opened to acclaim as the first of four super-resorts zone near Incheon International Airport, the main gateway for licensed at Entertainment City, a 120-hectare reclamation area on foreign arrivals, located about 30 kilometers from the capital of Manila Bay sponsored by the Philippine government to leverage Seoul. casinos to attract foreign tourism and investment. GGAM, founded The first, a joint venture between Paradise Group, the leader of the country’s foreigners-only casino market, and Japanese pachinko giant Sega Sammy is slated to open in 2017 at an initial cost of US$750 million. The second, a joint venture similarly priced William Weidner and led by US casino operator Caesars Entertainment, recently struck a $95 million deal to acquire land for a resort scheduled to break ground in the zone this year ahead of a planned opening in 2018. A trio of smaller casinos backed by affiliates of Malaysian resort conglomerate Genting are planned or in development on the tourist island of Jeju—which is visa-free for Chinese travelers and is home to eight of the country’s 16 foreigners-only casinos—and in the northeastern province hosting the 2018 Winter Olympics. “The (close) proximity is one of the great advantages that draws Chinese tourists to Korea,” an official with the state-run Korea Tourism Organization told the Herald. “We saw more people coming from inland provinces as we focus our travel promotions on inland Chinese cities. The influence of the Korean [cultural] Wave has definitely been a strong attraction for Chinese tourists.” The Herald said tourism income is expected to grow more than 21% year on year in 2015, reaching $17.6 billion, with the Chinese comprising the biggest spenders, according to the KTO.

January 2015 inside asian gaming 43 INTERNATIONAL BRIEFS

succeed,” the company said. “We are constantly improving our system and working on the reliability of our filters.” Russia has adopted a stringent policy of prohibition in regard to unauthorized Web gambling, and ongoing monitoring has resulted in the blocking of several unlicensed sites through regional ISPs and by preventing the processing of credit card payments. In July the government created a blacklist of offending sites whose names include global giants such as Sportingbet, Party Poker and Poker Stars. Russia’s national parliament, the State Duma, recently adopted a bill to impose criminal liability for organizing a gambling business in the country without official consent.T he measure spells out fines of up to 500,000 rubles (US$8,350) for organizing illegal casinos, betting offices or totes, including online. Individuals Prospects Fade for found guilty could also face penalties ranging from compulsory community service to two-year prison terms. The bill also stipulates Barcelona’s ‘EuroVegas’ administrative liability for any legal entities with fines of up to 1 Plans for a US$6 billion EuroVegas-style gaming complex in million rubles and confiscation of gambling equipment. Barcelona are looking doubtful after the lead developer declined to exercise an option on the land. Veremonte, the investment consortium behind BCN World, a proposed multi-casino and hotel destination that has attracted interest from Lawrence Ho among other industry heavyweights, has allowed its €380 million option on the 500-hectare site to expire, citing a lack of key approvals from local and regional governments. The government of Catalonia said it would shield the land from speculation so as not to endanger the project, a decision which could give Veremonte upwards of 18 months to decide how to proceed. The government has not, however, indicated when or if the consortium’s plans for the complex would be approved. A spokesperson for Veremonte said the group would soon issue a press release to clarify its position. Russia’s State Duma As an alternative to Las Vegas Sands’ aborted $10 billion EuroVegas in Madrid, BCN World envisions a cluster of six More recently, the ban has been extended to prohibit online resort-scale casinos, luxury hotels, theme parks, shopping malls, poker outside of the four designated gaming zones created in 2009 theaters, meeting and convention space, golf courses, a sports when the Duma banished casinos from the country’s major cities stadium and other attractions. Hard Rock International and at the behest of President Vladimir Putin. The bill, which similarly Caesars Entertainment have joined Mr Ho’s Melco International provides for fines and/or jail terms, has passed in the lower house Development in announcing plans to participate. of the parliament and now proceeds to the upper house, the Veremonte has said the project will create 17,000 construction Federation Council. jobs and another 6,000 jobs for each hotel, an attractive proposition for Spain’s battered economy, but it is expected that significant regulatory modifications will be needed to adapt the project to the urban planning of the area. Critical policies regarding taxation and the scope of the gambling also are not resolved. Fearing the Feds, AGA Pushes Code on Money Laundering The American Gaming Association has offered the US government a package of best practices for combating money laundering in Google, Russia Clash Over Gambling Ads casinos in a bid to head off the threat of federal demands for more The Russian Federal Anti-Monopoly Service has instructed Google detailed personal information on their biggest players. to remove all gambling advertising targeting Russians or face “For a number of years, individual properties and companies “administrative penalties” for breaching the country’s advertising within the casino industry have made anti-money laundering standards. compliance a priority, but the best practices are really the first The search engine giant has said it does not allow online time the industry came together as one to tackle this,” said Geoff gambling advertising to display on its Russian pages. FAS, however, Freeman, chief executive of the Washington, D.C.-based lobbying complains that it has found them. Google has replied by blaming group. advertisers that use cyber-bots to bypass its search filters. US casinos have long been required to report large cash “Unfortunately, in some cases questionable advertisers attempt transactions and suspicious customer activity. But in 2013 they were to find holes in our filters by various means and sometimes they told to step into line with the more comprehensive requirements

44 inside asian gaming January 2015 INTERNATIONAL BRIEFS

of the Bank Secrecy Act, the US government’s primary anti-money laundering law. Jim Chanos The Treasury Department’s Financial Crimes Enforcement Network (FinCEN), which makes and enforces anti-money laundering rules pursuant to the act, is weighing whether to require casinos to vet the sources of high rollers’ funds. Looming behind this is an increasing risk of civil or even criminal penalties from FinCEN and the Justice Department. This was driven home to the industry in 2013 when NYSE-listed Las Vegas Sands, a leading global operator in Las Vegas, Macau and Singapore, paid US$47 million to avoid prosecution in connection with a Justice Department investigation into large cash deposits its Las Vegas casinos accepted from a Chinese-Mexican high roller wanted in Mexico on drug trafficking charges. The scrutiny has reached into Macau as well, the largest source of LVS’ earnings, where the company’s Hong Kong-listed Sands China subsidiary is reported to be demanding greater disclosures from the junket operators who control the high-end trade in the Chinese casino hub. In October 2013, Las Vegas-based Caesars Entertainment (Nasdaq: CZR) disclosed that FinCEN was investigating a subsidiary “Even I got a little nervous the deeper we dug into Macau,” over alleged shortcomings in compliance with the Bank Secrecy Act. he said. “Although I was long on the US casino operators, like Mr More recently, Wynn Resorts (Nasdaq: WYNN), which also Adelson and Mr Wynn, I began to really get concerned about the operates in Macau under a Hong Kong-listed subsidiary, was risk I was taking with clients’ money under the Foreign Corrupt contacted by the Internal Revenue Service, an arm of the Treasury Practices Act.” Department, in connection with its money-laundering safeguards. Both Las Vegas Sands, headed by Sheldon Adelson (NYSE: According to a report published in November by The Wall Street LVS), and Mr Wynn’s Wynn Resorts (Nasdaq: WYNN) derive the Journal, the contact was made through an outside lawyer for the bulk of their earnings in Macau, and in September, Mr Wynn sued. company as part of a request for information about US and foreign “Chanos is now a defendant,” he proclaimed at October’s Global customers, the company’s domestic and overseas marketing offices Gaming Expo in Las Vegas. “I’m not going to let Chanos go. … If and its internal controls. you mention the Foreign Corrupt Practices Act in the same sentence The AGA recommendations delivered to FinCEN run to 17 pages as this company, you get a day in court.” and were the work of about 20 casino compliance officers and Wynn Resorts’ Macau business has been investigated at various lawyers overseen by the association’s Bank Secrecy Act compliance times by authorities in the US and Macau. The timing of a $135 unit. The document outlines money laundering risks, regulatory million pledge to the University of Macau—made at a time when requirements and compliance strategies and says casinos should the company was seeking approval from the Macau government take extra steps to determine where customers’ money originates for the new US$4 billion casino it is developing in the city’s Cotai in transactions that might be considered risky. resort district—was scrutinized in the context of the FCPA, and last The recommendations are reported to mention Macau as a year, it was reported that Macau’s Commission Against Corruption jurisdiction of concern. was looking into a $50 million payment the company made to third parties to secure the land for the Cotai project. In November, it was reported in The Wall Street Journal that the company had been contacted by two US Attorney’s offices, the Internal Revenue Wynn Comes Up Short in Tiff With Chanos Service and Drug Enforcement Administration seeking information Outspoken China bear and short-seller Jim Chanos cannot be sued on scores of high rollers in connection with an investigation into by Steve Wynn for statements he made earlier this year expressing money laundering. concerns about possible applications of US anti-bribery laws in None of these probes has resulted in charges to date, and Wynn Macau. has never been accused of wrongdoing, a point the company has Mr Wynn’s lawsuit accusing Chanos of defamation was thrown emphasized repeatedly. out last month by a federal judge in San Francisco who ruled the Judge Orrick, however, ruled that Mr Chanos’ remarks are not remarks were protected speech and not slanderous. Mr Chanos, rendered false by any definitive proof the company didn’t violate who heads the well-known US hedge fund Kynikos Associates the FCPA, according to a Bloomberg report on the ruling. “It takes (Greek for “cynic”), made the comments at an April symposium a significant inferential leap to conclude that Chanos’ general at the University of California at Berkeley, where he discussed his uncertainty about the questionable business methods in Macau investment strategy and concerns about how casino operators equates to an assertion that Wynn violated the FCPA,” he said. might run afoul of the US Foreign Corrupt Practices Act. Wynn has until 13th January to revise and refile its lawsuit, Newsweek characterized the views he aired there as “an according to Bloomberg. “We intend to take advantage of that indictment of the Chinese financial and economic system”. opportunity,” a spokesman for the company said.

January 2015 inside asian gaming 45 Events Calendar

3|5 February 2015 14|16 April 2015 ICE Totally Gaming iGaming North America Conference Excel, London, UK Planet Hollywood Resort & Casino, Las Vegas, USA

Showcasing compelling innovation and expertise, ICE Totally The 2015 iGaming North America conference marks the fifth year Gaming bills itself as the largest and most comprehensive b2b of this networking and educational event designed to introduce gaming exhibition in the world, bringing together international the land-based gaming businesses of North America to the global operators and suppliers from the betting, bingo, casino, lottery, iGaming industry. The event’s aim is to provide a cost-effective mobile, online, social and street gaming sectors over three days. networking environment that helps foster understanding regarding www.icetotallygaming.com the potential impacts of regulation of internet gambling in the US and Canada, and provides information on the players, resources, legislative framework and other relevant topics. 2|4 March 2015 www.igamingnorthamerica.com World Game Protection Conference M Resort Spa Casino, Las Vegas, USA 21|23 April 2015 The WGPC is an annual three-day international conference and Global iGaming Summit & Expo expo focused entirely on casino game protection, including Hyatt Regency, San Francisco, USA updates on the latest casino scams, surveillance technology and game protection and surveillance best practices. GiGse is focused on the future of iGaming in North America and www.worldgameprotection.com attracts over 700 delegates to examine the legislative progress, commercial strategies and partnership opportunities for all the key stakeholders to enter iGaming. The objective is to facilitate first-mover advantage into this potentially-lucrative market currently 17|19 March 2015 undergoing a significant regulatory change on a state-by-state basis. iGaming Asia Congress www.gigse.com Grand Hyatt, City of Dreams, Macau

iGA 2015 is Asia’s leading conference and expo for interactive gaming and sports betting. Drawing over 250 of Asia’s leading 19|21 May 2015 sports betting, online casino, lottery, social and mobile gaming Global Gaming Expo Asia executives, the event offers a platform to network, to form new The Venetian Macao, Macau partnerships and to learn about the region’s latest opportunities, innovations, developments and strategies in the interactive G2E Asia bills itself as the premier Asian gaming event and gaming field. The 2015 edition of iGA will be officially co-located one-stop sourcing platform for regional gaming decision makers with Mobile Gaming & Social Casino Asia, a new conference that to discover the most comprehensive array of new products and discusses the latest innovations and developments in Asia’s rapidly services, network with industry-leading manufacturers, and learn growing mobile and social gaming sector the latest trends. Held in Macau, the heart of Asian gaming, www.igamingasiacongress.com G2E Asia claims to offer attendees the best resource to gain a competitive edge in their businesses and careers. www.g2easia.com

46 inside asian gaming January 2015