September 2007
It has been well over a year since the Las Vegas Sands Corp. won the
license to build Singapore’s first casino at the Marina Bay site in May
2006. Genting International PLC won the second license for Sentosa
Island in December 2006. Rapid construction is underway on both sites
with the Sands projecting an opening date in the second half of 2009.
Genting is looking to open in early 2010.
Rumors of unexpected
increases in construction costs for both properties were confirmed when
the Sands recently announced that total project costs will rise from
the original planned estimate of US$3.6 billion to almost US$5 billion.
See The Straits Times News, August 30, 2007, at
http://www.straitstimes.com/Latest+News/Singapore/STIStory_152635.html
Besides making the Singapore Sands the most expensive single casino
project in the world, this is an enormous 40% increase from the
original cost projections. These prior estimates were presented in
connection with the winning bid proposal to the Singapore government.
This means that the large contingent of international professional
quantity surveyors, architects, accountants, and estimators who worked
on the project costing were short by a total of US$1.4 billion dollars
in an originally estimated $3.6 billion project!!! Much of the increase
is in material cost increases like sand and rebar. There were also
substantial labor cost increases due to the two simultaneous large
casino projects and the relatively slim pool of available construction
labor and contractors in Singapore. However, like the man said, “A
billion here, a billion there, eventually it adds up to a lot of
money.” For comparison, the enormous new Venetian Macao, the world's
largest casino-resort, was completed in August 2007 for $2.4 billion
dollars.
As both licensees are facing a similar macroeconomic
environment circumstance and material shortages, it can be expected
that both will face severe cost pressures in their efforts to build
fully competitive properties. A 40% increase in project costs will
result in a substantial reduction to the Internal Rate of Return (IRR)
of both these projects. Now, more than ever, the licensees will have to
hope that SARS does not return to Singapore, and that Bird Flu does not
become more infectious. Any dampening of the overall tourism pictures
will rapidly make both these projects much more risky and less
financially attractive. It appears that Singapore’s requirement of
financial solidity for all project contestants was prudent. Both
winning companies have significant reserves and are well positioned to
withstand moderate market downturns.
The relevant casino
legislation for Singapore is THE CASINO CONTROL ACT 2006, Bill No.
3/2006. However, the specific regulations governing the operations of
the casino have not been written. The 3 authorities have indicated that
a robust and stringent regulatory regime will be developed in
Singapore. Concerning this, much has been written about the requirement
for the payment of an entry fee (entry levy) for all Singaporeans
visiting the casino. This requirement seems simple but is not expected
to be easy to administer. For example, most USA casinos are designed
for the mass market and high volumes of visitors. They do not require
entry fees or intrusive identification checks. The two Singapore casino
properties are designed to handle both the casino mass market, as well
as high end visitors. This is necessary because of the major investment
required to win the license for the most expensive casino properties in
history.
The specifics and regulations of the
entry/identification process have not been detailed and are likely to
cause many problems for the operators. Can you imagine checking 10,000
international IDs every day? Then verifying that every foreign passport
holder does not have a Singapore resident permit anywhere in the
passport? Then charging every Singapore citizen or resident S$100 to
comply with the proposed levy? Then verifying that all entrants are not
prohibited, excluded, barred, or have applicable loss limit
restrictions?
Then, once the players are inside, the operator
must ensure that all the loss limit entrants do not exceed their
permitted loss-level when in the casino. The operator must even ensure
third party loss limit orders are enforced even when the entrants
themselves do not agree with the order. These entry requirements have
been outlined and discussed in many political statements and news
articles out of Singapore. Applying these criteria will be especially
difficult because of the large volumes of expected guests and because
of standard operational concerns for the two casino license winners.
Patron loss limits have not been successfully applied at any table game
operation in the world and will not be easy to administer.
According
to government statements and press reports aggressive restrictions on
advertising will be applied in Singapore. There will also be
limitations on the extension of gaming credit. Credit is already
notoriously hard to collect in the multi-jurisdictional Southeast Asian
market. Additional restrictions will make efficient use of this tool
even more problematic.
Summary: Every large scale project
of this nature is sure to have its share of problems. High material
costs, a limited labor force, social oversight, aggressive regulation
and efficient enforcement are all likely to make the new Singapore
casinos doubly difficult to complete on time and even to administer
once open. As in New Jersey during the late 70’s and 80’s, the many
different stakeholder interests and groups will present challenges for
all players.
Michael J. Gore MBA,
J.D.
Asian Gaming Consultant
Cell – Malaysia +60-12-488-9222 primary
Cell – Singapore +65-8168-8591
Email – mikegore33@aim.com
IM - mikegore33@yahoo.com
Skype – mikegore333
City of Cranes: The Sands construction site at Marina Bay Singapore resembles a city of cranes. We counted close to 100 working cranes on the site, here shown with the financial district of Singapore in the background.
