Rush for Russia

Gaming operator Melco Crown Entertainment Ltd may be gearing up to invest in Russia. The company, led by Lawrence Ho Yau Lung, has shown interest in investing in a new gaming and entertainment zone near Vladivostok.
Marina Lomakina, the general director of Nash Dom Primorye, a state-owned company that will manage the Vladivostok entertainment zone, confirmed Melco Crown’s interest to Macau Business. Melco Crown clinched a deal recently to enter the Philippine gaming market – its first venture outside of Macau.
Malaysia’s Genting Group has also shown interest in the development, says Ms Lomakina. Genting operates casinos in Malaysia and Singapore and recently bought a stake in Australian casino operator Echo Entertainment Group Ltd.
Nash Dom Primorye issued a request for concepts recently, which invites gaming companies to submit ideas for the first phase of the development of the zone. The deadline for submission of proposals was September 21. Discussions with interested parties begin late October.
Ms Lomakina says prospective investors from Macau, Russia, Hong Kong and Singapore have shown interest in getting a foothold. Nash Dom Primorye has appointed Las Vegas’s Galaviz & Co as lead strategic adviser for the project.
One of the attractions of the project for gaming companies is that, unlike in Macau and Singapore, in the Vladivostok entertainment zone no tax will be levied on gross gaming revenue. Ms Lomakina says casino operators “will pay the usual taxes, as any other business in Russia”. They must also pay a fixed monthly tax of US$3,500 (MOP28,000) per gaming table and US$225 per gaming machine. “Even when you combine these tax requirements, the integrated entertainment zone is still a favourable market to invest in,” Ms Lomakina says.

No limits
Consulting firm Union Gaming Group says the authorities in Vladivostok are offering casino operators a good proposition. “The region seems to be gaming-friendly from a development standpoint, and we expect operators to give it a look, given the low tax rate and proximity to [sic] Asia,” Union Gaming Group analyst Bill Lerner says in a research report.
Macau taxes casino gross gaming revenue at a rate of 39 percent. Singapore taxes VIP revenue at a rate of 5 percent and mass-market revenue at a rate of 15 percent, and levies a goods and services tax on both at a rate of 7 percent.
Nash Dom Primorye will set no limit on the maximum area of a casino or arcade devoted to gaming but will set a minimum area. “Gaming premises in casinos shall be not less than 800 square metres. Gaming premises in amusement arcades shall be not less than 100 square metres,” the request for concepts says.
Ms Lomakina says there will be no limit on capital expenditure by investors. Casino operators will be allowed to compete in offering credit to gamblers.
Nash Dom Primorye is asking prospective investors to suggest how junket operators should be regulated. Russia has no law on junkets.
The company envisages up to 12 casinos in the entertainment zone. It will give gaming companies control of the land at least until 2025, and the grant can be extended.
Nash Dom Primorye wants the zone developed in three stages. It wants the first phase, entailing investment of about US$2 billion, completed by 2016, when the first casino should open. It wants the second phase completed by 2019 and the third by 2022.
A report by Gaming Market Advisors, a casino market research firm, says the entertainment zone could rake in annual revenue of between US$2 billion and US$7 billion once fully developed.

Leading centre
Nash Dom Primorye suggests that prospective investors include non-gaming recreational amenities in their plans. “While casino gaming is legal in the zone, we are looking for concepts that focus on tourism development,” says Ms Lomakina. The aim is to have non-gaming revenue make up a large slice of the pie.
Corruption and political instability in Russia may make prospective investors think twice. “Every effort is being made to ensure that global investors are confident in the business environment,” Ms Lomakina says.
The entertainment zone, first announced in 2010, will be 50 kilometres north of Vladivostok and about 20 kilometres from the city’s new international airport. It is a mountainous region bordering the mainland and North Korea.
Nash Dom Primorye is aiming to attract tourists from the mainland, South Korea, Japan and the United States. Vladivostok is about two hours flying time from Seoul and Tokyo.
Russians should also contribute to gaming revenue.