Speck in the Ocean

Taiwan has taken an important step towards the opening of its first legal casino after a referendum in Matsu recently approved the establishment of gambling facilities. But any casino on the tiny archipelago will be so restricted by geography and lack of transport infrastructure that it is unlikely to deprive Macau’s casinos of much business, experts say.
Residents of Matsu, an island group in the Taiwan Strait controlled by Taipei, voted 57 percent to 43 percent in favour of casino gambling. In 2009, Taiwan’s legislature passed a law allowing casinos on islands in the Strait, if residents approved them in referendums. The aim was for gaming to spark development.
But later that year the residents of Penghu, another island group, voted against having a casino. Their verdict is binding for three years, after which another referendum may be held. The three years expired this summer.
While Penghu has good infrastructure and a healthy tourism industry, Matsu, with a population of about 10,000, is being hit much harder by the gradual drawdown of troops in the Taiwan Strait. The garrison there numbered 50,000 in the Cold War but it is now down to just 3,000 troops – reflecting, in part, better relations between Taipei and Beijing.
Matsu’s government says a casino would attract investors and tourists, bringing in funds much needed to improve the economy and infrastructure.
Any casino there is expected to cater mainly to mainland Chinese, like Macau’s casinos. Matsu is only half an hour by ferry from Fujian province. “People that are looking to build casinos anywhere in Taiwan are eyeing Chinese tourists,” says Anita Chen, the managing director in Taipei of United States lobbying firm Park Strategies, and an expert on the gaming industry.
Macquarie Equities Research wrote in a note to investors by analysts Gary Pinge and Elaine Lai: “Matsu is an example of regional competition as jurisdictions with Macau-style proximity to the mainland try to compete for Chinese gamblers.
“This may bring a risk to long-term returns on future Cotai projects.”

Best defence
But most analysts say the opening of a casino in Matsu would do Macau’s gaming industry little harm. Union Gaming Research forecasts it would be unlikely to have much effect here.
“Macau’s exposure might be no more than a few gross gaming revenue basis points,” it says in a research note by analysts Grant Govertsen and Felicity Chiang.
Union Gaming Research explains that Beijing holds the key to the success of any casino in Matsu. It says success depends on how easy it is for residents of Fujian to get there.
The consulting firm expects one or perhaps two casino resorts in Matsu. “Without a concentration of casinos, which give customers numerous gaming options, we would think this will limit some appeal.”
Investment house Nomura also believes that gaming in Matsu will have little effect on Macau, given the poor accessibility of the island and Beijing’s restrictions on the number of mainland visitors it allows to Taiwan.
Goldman Sachs has a similar view. In a note by analysts Simon Cheung and Janet Lu, Goldman Sachs says, in the long run, the legalisation of casinos in Taiwan may even mean opportunities for Macau operators to expand.
Union Gaming Research expects Beijing to have its say about that.
“While we think the answer would ultimately be an ‘okay’, we would think any Macau operator is likely to seek Beijing’s approval,” it says.
Several Macau gaming companies have shown vague interest in investing in Taiwan if it were to legalise casinos. But none has openly expressed enthusiasm for Matsu since the referendum was held there.

Too big to care
SJM Holdings Ltd chief executive Ambrose So Shu Fai said Matsu’s position and its lack of supporting infrastructure meant it would need time to build up a gaming industry. Mr So indicated that SJM is interested in expanding in this part of the world but said it was still collecting information about Matsu and had yet to make any decision.
MGM China Holdings Ltd chief executive Grant Bowie said his company was following up recent developments in Taiwan. He said it would wait for more details before making any decision.
Secretary for the Economy and Finance Francis Tam Pak Yuen has said the government here is not worried by the prospect of casinos opening elsewhere in East Asia.
He told reporters recently that Macau could maintain its level of gross gaming revenue and sustain further development of its casino industry even with more competition. He recalled the government had even acted to cool the growth of the industry here by capping the number of live gaming tables.
The head of the Macau Travel Industry Council, Andy Wu Keng Kuong, says casinos in Taiwan are unlikely to poach business from Macau. The critical mass of the gaming industry here is an important advantage, he notes.
Before Taiwan can have any casinos, its government must legislate for them. Even the proponents of gaming concede that a thriving casino industry is years away.

Slow boat to Matsu
Yang Sui-sheng, head of Lienchiang County, says it will take at least until 2015 before a casino opens.
“We don’t know when the government will start issuing gambling licences,” he admits. “We hope it’ll be as soon as possible, so the entire process can be completed within a period of three to five years.”
Ms Chen of Park Strategies thinks this schedule is about right. She says Taiwan’s cabinet is still considering a gambling bill, but that it could be passed within 2013.
After that, it could take another year for the government to invite bids to run a casino and award a contract, and another three years after that to build and open the property.
Weidner Resorts president and chief executive William Weidner – a former Las Vegas Sands Corp executive – said the Taiwan government should speed up the licensing process. His company is considering investing in a casino in Matsu, having lobbied in favour of one during the referendum campaign.
For now, the Taiwan government has given the Ministry of Transportation and Communications the authority to regulate casinos.