Philippines Bets Big on Casinos; Manila Wants to Be as Big as Vegas

Updated March 17, 2013, 6:27 p.m. ET

Philippines Bets Big on Casinos

New $1.2 Billion Solaire Resort Opens, Raising Asian Pressure on U.S. Gambling Industry

By KATE O’KEEFFE

MANILA—The Philippines this weekend launched its bid to become Asia’s third gambling hub with the opening of a $1.2 billion casino, as the region battles the U.S. for supremacy in the global gambling market.

In China, Macau’s $38 billion gambling industry already generates six times the revenue of the Las Vegas Strip. In Southeast Asia, Singapore’s gambling revenue matched that of the U.S. casino capital within a year of the island opening its first resorts in 2010. Now Manila is gunning for Vegas, too.

The Solaire casino in Manila drew 25,000 people to the resort’s 1,200 slot machines and nearly 300 gambling tables in the first 12 hours.

The new Solaire casino, the gambling-industry debut of international ports billionaire Enrique “Ricky” Razon Jr., is the first of four big resorts to open near the palm-tree-lined strip leading to Manila Bay. Next year a resort by Macau casino heavyweight Melco Crown EntertainmentLtd. MPEL -1.04% and the Philippines’ richest man, property developer Henry Sy, is scheduled to open down the road. A venture between Malaysian casino giant Genting Bhd. 3182.KU -0.92% and another local billionaire, Andrew Tan, is also planned. Japanese gambling magnate Kazuo Okada is building the fourth resort.

U.S. casino companies have been significant competitors in both Macau and Singapore, but no big brands are present in Manila. Lawrence Ho, Melco Crown’s chief executive, said the all-Asian lineup in Manila represents a “paradigm shift” in the industry, made possible by Asia’s booming economy and the growing strength of the region’s own casino operators.

American casino executives say privately they have avoided Manila because of fears about possible corruption and concerns that growth projections won’t be met.

The Solaire opening, which Philippines President Benigno S. Aquino III attended, drew 25,000 people to the casino’s 1,200 slot machines and nearly 300 gambling tables in the first 12 hours. The resort is more luxurious than others in the country, and in some ways flaunts those touches. A sticky bun ordered from room service arrived with gold leaf on top.

While gambling has long been legal in the Philippines, most of the country’s casinos are run by the government regulator and have none of the glitz that brings in foreign gamblers.

The new properties are aiming to attract both the wealthy Chinese high-rollers who dominate Macau and local residents who are benefiting from the country’s strong economic growth.

But some industry executives worry that the casinos might struggle to attract Chinese gamblers put off by Manila’s history of poverty, natural disasters, kidnapping and terrorism. In 2010, a former Manila police officer hijacked a bus and killed eight Hong Kong tourists. The Philippines also remains locked in a political dispute with China regarding overlapping territorial claims in the South China Sea.

Despite those worries, Citigroup C -0.42% gambling analyst Michael Beer said annual gambling revenue in the Philippines could double to more than $3 billion by the end of 2015 and potentially top the Las Vegas Strip and Singapore markets—which each post revenue of about $6 billion a year—once all four Manila projects are in full swing.

“A lot of foreign direct investment is predicated on more than 6% gross-domestic-product growth and a phenomenal domestic consumption story,” he said.

The design of the Solaire casino highlights two sets of gamblers it is seeking to attract. The casino’s first floor aims to appeal to mass-market Filipinos, whose tastes are more American than Chinese, said Solaire Chief Operating Officer Michael French. “They want babes serving cocktails, they want shiny things, they want loud music,” said Mr. French of Solaire’s local customers.

The second floor takes more inspiration from Macau and is built to cater to VIPs from China, South Korea and other important Asian markets. Many Chinese gamblers eschew entertainment and drink tea instead of cocktails, while focusing on their games. Three private jets full of high-rollers arrived for the opening, said Lorraine Koo, Solaire’s vice president of business development and VIP services.

The response from junket operators—middlemen who arrange casino trips for high-rollers—has been good, Ms. Koo said. The Solaire’s five junket rooms in operation are spoken for, while other junket operators sit on a waiting list, she said. Junket operators account for 70% of Macau’s gambling revenue.

In a midnight interview at the resort’s Finestra Italian restaurant on opening night, the 53-year-old Mr. Razon said he was pleased with the resort and that he would be interested in pursuing potential casino opportunities in South America, Japan and Macau. But he said he would keep his “day job,” gesturing across the room to his partner in a ports operation in Nigeria.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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