Singapore Style

Taiwan reportedly admires the Lion City’s approach to casino development

According to Simon Liu of Jumbo Technology, the Taiwan government has gone on record indicating it admires the way Singapore went about setting up a casino gaming market. That approval relates both to the limited number of licences issued by Singapore, and the way the Lion City initiated an internationally competitive tender process.

“Taiwan wants to follow the tendering model of Singapore because they think this is very efficient and fair to all investors looking at involvement in Taiwan,” explains Mr Liu.

Taiwan’s approach has some superficial parallels with Singapore—such as the fact that only two licences will be granted, and that Taiwan has said it wants to invite bids from internationally proven operators. The two markets are also likely to have a similar annual turnover. Singapore is reportedly working on the assumption of a US$2 billion market annually.

Taiwan’s Council for Economic Planning and Development said earlier this year it thought a domestic casino industry could generate annual revenues of NTD100 billion (US$3 billion) though this is considered extremely optimistic by industry analysts.

Mr Liu says local analysts think domestic demand for casinos could generate similar revenues to Singapore.

Demand

“With Taiwan’s [state] lottery, the average net revenue is about US$1 billion per year, and the sports lottery is about US$1.06 billion to US$1.1 billion. We also have electronic arcades. There are about 3,000 gaming arcades in Taiwan. It’s a grey area, like the pachinko business [in Japan]. Taken together it means the yearly revenues from existing gaming in Taiwan already stand at about US$3.7 billion,” says Mr Liu.

There are signs, though, that competing pressures created by Taiwan’s often fractious parliamentary system could lead to political interference in the Taiwan projects, which risks hobbling the schemes.

The first of these political pressures is that the locations for the resorts—outlying islands—may have been chosen not necessarily on the basis of what’s best for the industry, but in terms of what’s least offensive to the anti-gaming campaigners within the country. The second is that the level of investment required—US$1 billion per resort—has arguably been set at a level more appropriate to pre-credit crunch capital markets than to current realities. A third is that the proposed tax rate—understood to be 50% of gross gaming revenue—appears based on a belief in political circles that demand for casino gaming is so elastic that it can withstand a heavy financial assault by the government on operators and on consumers. This may be unrealistic. Two rival casino destinations—Macau and Manila—are respectively only an hour and an hour and 15 minutes away by plane. A fourth potential stumbling block is that the licences will last for only ten years—a short operational life for such a massive investment.

Terms & conditions

“The government insists that each property should have US$1 billion capital investment, and each should provide 1,000 hotel rooms. Tax will be 50% on gross gaming revenues,” says Mr Liu.

“The gaming floor should only be 5% of the resort’s total floor area. The rest should be for hotels, shopping malls, convention centres,” he adds.

“The Ministry of Transportation and Communications will issue two casino licences of ten years’ duration each,” says Mr Liu.

“The government says it expects two resorts will bring in up to five million visitors per year. Currently Penghu has only 160,000 visitors annually, so this seems like a difficult goal to reach. We believe, though, the schemes can generate 10,000 jobs for locals,” says Mr Liu.