Portfolio of Kimberly Johans

A collection of articles created during my stint as a journalist at The Macau Daily Times

China, casinos and the one danger beyond Macau’s control

Posted by Kimberly on June 15, 2007

By Kimberly Johans
Published in The Macau Daily Times
June 15, 2007, page 4 (833 words)

Renowned gaming law expert, Professor I. Nelson Rose, was a keynote speaker at the recent G2E Asia gaming expo and spoke to the Macau Daily Times about his views on the Territory’s rapid casino expansion and its subsequent dangers.
“The biggest danger is actually completely beyond Macau’s power, which is ‘will the policies of the PRC change?’ What if they decide to just close the border? I mean everybody says it’s not going to happen. But who knows?” said Professor Rose.
He added that the current leaders understand the advantages but that the situation could never be guaranteed.
“I think it’s almost a minuscule chance but it’s still something beyond their control.”
In terms of the regulatory system, Professor Rose believes that, on paper, for the most part it was a good system.
“But the problem is you don’t know. It’s not transparent. You don’t know how well it’s really working,” he said, adding “we don’t know who they’re turning down to be junket operators, for example.”
“The other question is, did they grandfather people in? Did they allow to continue to be associated with the casino industry, people who could never get a license if they applied now?
“And if that’s so, are those the sort of people licensed operators from Nevada can’t be associated with because something bad could happen? That would be the biggest concern that I would have,” he said.
Questioning the possibility of Macau’s bubble bursting at any point soon, Professor Rose suggested a more realistic scenario would be the normal burst of a speculative bubble.
“What’s happening in Macau happened to Atlantic City, it happened to Colorado, it’s happened in fact all over the world. You’re coming out of a period of complete prohibition,” he said.
According to Professor Rose, the first casino in Atlantic City made its entire investment back within nine months.
“And the Sands here just did unbelievably well,” he said.
The 13th casino took 14 months before it went bankrupt.
“Just because a return on investment is so fantastic for the first ones doesn’t mean it will be that way for every single one and if there’s literally no limit on growth, it’s almost guaranteed there’ll be an oversupply,” he said.
The professor made a prediction during his interview; that of the 20 casinos that are going to open on the Cotai Strip, five would be bankrupt 10 years from now.
“Imagine if all those 20 casinos opened and China makes it more difficult for people to come down here. Somebody’s going to get hurt. Somebody’s going to be on marginal profitability to begin with,” he said.
Asked whether he believed there was a possibility of Singapore’s casino onslaught having an impact on Macau, Professor Rose said, “I don’t think the opening of Singapore will make much difference. It’s like a four hour flight away.
“That’s like saying the opening of Atlantic City was going to destroy Las Vegas.”
His only concern was within China itself.
“As long as China doesn’t open up casinos in Shanghai and Guangzhou and Beijing, you’ve got a billion people with very few markets,” adding that Japan’s casinos were years from fruition and Australia was too far away.
“It’s such an enormous market that I don’t Singapore is what would cause the difference. Closing the border would be the disaster,” he said.
Professor Rose was adamant that Macau must learn from the past.
“Absolutely! It’s one of those famous sayings and I don’t know who said it ‘anyone who doesn’t study the past is doomed to repeat it,’ suggesting that the allowance of sub concessions and an unlimited number of casinos within these concessions would soon pose a problem.
“They’re allowing these strange arrangements where people who don’t even have a sub concession have a share of the gambling revenue so that’s not learning from the past,” he said.
He said that oversupply was inevitable but that this also meant a lack of vigorous examination of the background of every single person involved and where the money was going and coming from.
“The problem that Macau is creating for itself by growing so fast and loosening the controls that they have put in, is they are not doing that,” he said.
Yet considering the world he works in, gambling never became a problem for the Professor.
“I’ve got a curiosity about it but I know myself. I like to win but I really hate losing,” he said.
“I really don’t have a problem with gambling. What I’ve found is that there’s so much more money on the other side of the table.
“I act now as an expert witness and consultant to the US government and the gambling industry and I can make so much more than gambling,” he said.
Despite the short visit that included teaching gaming law at the University of Macau, Professor Rose hopes to return soon as the University has extended an invitation to assist in the development of a Phd program in gaming.

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