Any casino operator or supplier who's serious in reaching the global gaming market has no doubt looked toward Asia. The Asian casino industry can be viewed very much as a developing market in terms of facilities and legislation. However, the region itself provides significant revenues to casinos located in markets such as Australia and North America.
At present Asian casino expenditure is estimated at US$8 billion and is likely to triple to US$24 billion by 2010.
Due to various factors the region will undergo significant change over the coming decade. That has implications for the number and extent of facilities operating within the region - and accordingly the flow of casino expenditure into international markets.
And "increasing competition will ultimately affect the U.S. market as well," says Sean Monaghan of the Australian brokerage firm of Burdett Buckeridge Young Ltd.
According to an in-depth gaming report from BBY, a number of key structural changes will provide casino operators with significant opportunities.
"We're anticipating a decade of great change for the Asian casino market. Key changes will occur in Macau, the Philippines, Japan, Taiwan and even Cambodia and this has enormous implications from the premium player perspective," says Monaghan, the Sydney-based analyst responsible for researching the 72-page industry report.
Monaghan has spent some five years investigating the Asian gaming market, including while he was working for Asian casino companies. The report includes information garnered from his experience and contacts within the region, in addition to recent visits to the major properties.
"There are enormous opportunities for foreign investors prepared to invest the time and effort. The 1997-98 financial crisis is now being felt in a new way, creating a window of opportunity with respect to new licenses, asset sales and privatization. Companies have to move fast before this window once again closes," says Monaghan.
Investors have previously been unable or unwilling to invest within the region. In general, they remain concerned about the long-term impact of the Asian economic crisis, and the issues regarding political corruption, cronyism and organized crime. Many Asian countries are also suffering from an unstable economy due to the all-time low U.S. dollar and/or issues relating to political instability.
Equally important is the risk in investing in an unknown territory. One of the fundamental reasons for casino companies not diversifying offshore is the lack of knowledge of the Asian market. "Many Western companies have focused on their domestic markets and have viewed Asia as being in the too-hard basket, but this will very quickly change," says Monaghan.
"Asia will stabilize and the outlook for economic growth is extensive," Monaghan adds. "The emergence of a middle class in countries such as China represents huge long-term opportunities."

Asia's Decade of Change
Asia can be broadly characterized as home to some of the world's most prolific gamblers, although the region has a general lack of quality, land-based legal casino facilities.
In its report Burdett Buckeridge Young defines "Asia" in terms of Japan, South Korea, China, Taiwan, Hong Kong, Macau, the Philippines, Vietnam, Malaysia, Brunei, Indonesia, Thailand and Cambodia.
The lack of available facilities has resulted in a significant illegal casino market, a high degree of inter- and intra-regional travel to legal casinos, an emerging cruise-ship industry with onboard casinos, and the creation of casino resorts in remote locations.
BBY's research states that Hong Kong is the largest "net" exporter of casino expenditure, and that Macau is the largest single recipient of regional expenditure.
Of the $8 billion in total regional casino expenditure, 89 percent occurs in casinos situated within the region, while 11 percent flows outside the region into markets such as North America and Australia.
"Understanding structure is key to understanding the emerging opportunities," says Monaghan. "People must realize that in excess of 80 percent of casino expenditure occurs within 4 hours flying time of the patron's place of residence, and that is where the growth will occur in the future."

Implications for Casinos
Six key factors are critical to the long-term sustainability of casinos participating in the Asian premium-player market, according to BBY: location, cost structure, extent and quality of facilities, staff, incentives and management.
BBY's report of course focuses on ramifications for Australian casinos, and points out that Australia faces a weakness in location offset to some degree by quality facilities and local attractions. Australia currently has an estimated market share of 5 percent of regional revenues (around US$400 million per year) and has experienced strong revenue growth from Asia over the last decade. However, none of the major casinos is situated close enough to participate in the emerging weekend recreation market.
Burdett Buckeridge Young believes that Australia's market share will decline over the coming decade, reflecting the anticipated increase in regional competition. "The composition of revenue flowing to Australia will likely change with a greater proportion of tourist players," states the firm's report. "The future for Australia's casinos will likely be mixed, although heavily dependent on management ability."
In the case of Crown, the Melbourne casino that is Australia's largest, further geographic expansion is likely to be required to capitalize on the Crown brand and underwrite online gaming success. "Crown has the advantages of a great brand, great facilities and a very proactive and capable management. However, Crown has a lousy location."
Due to Australia's potential declining share of regional revenues the future may involve intensifying competition between domestic casinos and accordingly BBY sees the risk of increasing earnings volatility for Australian casinos in the future.
According to the report, "To increase market share, management can implement highly aggressive policies such as increasing maximum betting limits or widening table differentials, reducing the players' minimum turnover, relaxing credit policy, and modifying player incentive programs."
Nevertheless, BBY says, markets such as Australia will continue to receive a significant portion of tourist and recreational players until facilities of comparable quality are available closer to the primary source markets of Hong Kong, Singapore, mainland China and Japan.

Asian casino gambling at a glance
BBY's report also identifies casino gambling conditions in the 13 nations it includes in the Asian region. Highlights:
In Brunei, there are no legal or illegal land-based casino facilities. One cruise ship operates from Brunei, targeting the local ethnic Chinese and Malaysia's state of Sabah.
Cambodia has 13 currently operating casinos, although gaming is technically illegal. The industry is known to include organized crime and corruption, with frequent crime violence affecting both casino staffs and players. Gaming legislation is expected to be passed over the next decade.
Mainland China has no legal casinos, but around 40 to 50 small and medium-sized illegal facilities. By the end of the decade, mainland China will be the single largest contributor to casinos in the region - particularly cruise ships operating out of Hong Kong, and casinos in Macau, Taiwan and the Philippines - BBY forecasts.
There are no legal land-based casinos in Hong Kong either, although five cruise ships with casino facilities offer "trips to nowhere" and short-term holiday packages.
A collapse in the economy and subsequent political instability adversely affected Indonesia as a result of the 1997 Asian crisis. Although there are no legal casinos, an illegal industry appears to be thriving. Indonesia's contribution to regional casino revenues has declined and the outlook is negative.
Japan has five known medium to large casinos operating in Tokyo, Osaka and Fukoaka, but no legal casinos. There is also a cruise-ship industry. The government is expected to allow the introduction of casinos around 2005, driven by the eradication of illegal facilities and organized crime.
Stanley Ho's Sociedade de Turismo e Diversoes de Macau owns and operates nine casinos in Macau, in a tightly controlled environment. STDM's 40-year monopoly ends this year, and four casino licenses are expected to be granted before the end of 2003. Macau will remain the single largest destination for casino expenditure for the foreseeable future. Macau will most likely get a reduction in the number of casinos, but an increase in gaming tables and machines. That is, the changes to the monopoly status will result in a couple more licenses and a reduced number of properties, but an overall increase in the size of the properties offered. BBY's Monaghan expects that four medium to large casinos will be built.
Genting Highlands is the only land-based legal casino in Malaysia, although numerous gaming ships operate out of Port Klang, and small illegal casinos operate out of Sabah. The outlook for Malaysia is positive, and the country will continue to be a major contributor to the casino industry in the region, says BBY.
In addition to 11 casinos operated by the Philippine Amusement Gaming Corp., four private licenses have been issued in Clark, Papanga, Subic Bay and Cebu. Private operators generate around 50 percent of revenues. Pagcor is expected to be privatized before the end of 2004, representing one of the most exciting opportunities for the region. Private operators would likely make the casinos more profitable, reducing staff, increasing the number of machines and maybe closing some of the marginal properties, but overall focusing Pagcor internationally to China and Taiwan.
A significant cruise-ship industry exists in Singapore, although no legal casinos operate there. Singapore will remain a major contributor to regional casino revenues and the outlook for growth will contribute above GDP.
Thirteen legal casinos attract predominantly Japanese tourists to South Korea, where the illegal market is negligible or nil. More casinos are expected in the near future, and the area will continue to be a major contributor to casinos both within and outside the region.
Despite an absence of legal casinos in Taiwan, a number of illegal facilities exist, in addition to a cruise ship operation servicing the local market. BBY expects the 1997 proposed introduction of legal casinos in remote tourist destinations to progress further and become operational in 2006 following the Japanese market opening.
No doubt due to the fact that casinos are illegal in Thailand, there is a myriad of at least 10 large facilities operating in Bangkok alone. In addition, cruise ships pull into the various ports and offer gaming facilities once they are in international waters. The Thai economy is viewed to be unstable, and another collapse is possible.

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Pie chart - Asian Casino expenditure by player type.

16% = junket players

28% = recreational players

22% = tourists

34% = local grind players ]
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"There are enormous opportunities for foreign investors prepared to invest the time and effort. Companies have to move fast before this window once again closes."
- Analyst Sean Monaghan, Burdett Buckeridge Young

"In excess of 80 percent of casino expenditure occurs within 4 hours flying time of the patron's place of residence, and that is where the growth will occur in the future."
- Sean Monaghan

"Increasing competition will ultimately affect the U.S. market as well."
- Sean Monaghan

"The emergence of a middle class in countries such as China represents huge long-term opportunities."
- Sean Monaghan