The interesting mixed use Integrated Resort (IR) development model provides various accommodation experiences, sports and entertainment activities, security as well as a ‘lifestyle living experience’, it also provides the developers and investors a bright opportunity to attract different consumers for its highest return. This paper seeks to identify the blend of macro and micro supply and demand factors that go into the building and operation of an Integrated Resort through the real case study of Solaire Resort and Casino which is the first IR to open within Entertainment City Manila.
For this paper, I will be adopting the conceptual framework of PESTEL (Political, Economic, Socio-cultural, Technological, Environment and Legal) to provide an integrated approach to determine the extent to which the macro environment sets the conditions to achieve the corporate aims of the company and SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis to understand real operational issues on the ground in planning, building and executing business plans for the IR.
Solaire Resort and Casino, is the first integrated resort to open in the government sponsored economic development zone known as Entertainment City. The resort was opened by President Benigno Aquino in March 2013, it includes 1,200 slot machines and 18,500 square meter gaming area with 300 tables , a five-star hotel and seven restaurants .The under constructed expansion includes more VIP gaming venues, a theatre with 1,800 seats for Broadway shows and 60,000 square meters of shopping areas. Another US$400 million has already been set aside for an expansion that will be completed by the third quarter of 2014. (Opening of Solaire casino launches Manila’s new gambling hub, 2013)
Solaire Resort and Casino is the most successful and exceptional brand of its parent company, Bloomberry Resorts Corporation (PSE: BLOOM). Bloomberry Resorts Corporation is a public-listed corporation on the Philippine Stock Exchange and its core business is to develop the world-class resorts which are facilitated with fantastic hotels, casinos, entertainment and food chains etc. Solaire Resort & Casino will be managed under a five-year contract by American firm Global Gaming Asset Management (Bloomberry Taps GGAM For Casino, 2013), which owns a 9 percent stake in the project (Global Gaming acquires 8.7% of Bloomberry).Solaire Resort & Casino was designed by architect and designer Paul Steelman of Las Vegas based Steelman Partners. (Steelman Partners Announces the Creation of Several New Companies, 2013)
It has been many years the Philippines gaming market was the Philippines Amusement and Gaming Corporation, the state-owned corporation for operating and regulating, who are thirteen Casino Filipino-branded casinos and another 23 slot clubs comprise today a little over 7,100 slots and 650 table games. 3 other private gaming companies have since joined the market.
Panama-based Thunderbird Resorts owns two similarly casinos under its Fiesta brand in San Fernando City. They are located about 65 kilometers to the north of Manila and in Rizal, just east of the city. Another company called Jimei Group from Macau, which has its major business in facilitating corporate tours, casino cruises and travel and tour groups through the Philippines, is operating Fontana Hot Spring Leisure Park in San Fernando City, providing services in casino, golf course and family leisure.(Effect of a new casino on problem gambling in treatment-seeking substance abusers，2003)
In 2009, Resorts World Manila opened across from Terminal 3 of Ninoy Aquino International Airport, and it changes everything. For as the property have 300 tables and 1,800 slots and three hotels contains of 1,574 rooms and suites and a huge shopping mall with theaters and a great number of restaurants, bars and food franchises, Philippines gaming revenue doubled to around $2 billion.
Within its first full 18 months, from 1Q2010 to 3Q2011, the average daily visitation went up from 5,966 to 16,140, according to research provided by CLSA Asia-Pacific Markets and it shows that its quarterly EBITDA went up tremendously from $17.9 million to $59.6 million. This phenomenon has opened the investors’ eyes and those of the industry to the existence of a domestic market that is way more substantial both in numbers and in revenue than almost anyone was prepared to believe. (Casinos in Asia: The Philippines ,2013) According to a report provided by Credit Suisse, the Philippines have a potentially larger domestic market in the high-margin mass segment compared to any other Asian gaming hubs. (Casinos in Asia: The Philippines ,2013)
Analysts also pointed out that the gaming pie in the Philippines and Asia is large enough to be shared by various players. It has been modeled and forecasted by Credit Suisse that this gaming market in Asia will experience a growth rate in revenue at up to 28% annually through 2018. This number is almost doubled comparing to most of the Macau scenarios out there.
In particular, the company likes the country’s “favorable demographics”— the sizable population (12th largest in the world) and the youth of the country (27 is the average age, versus 28-41 years old elsewhere in the other countries in the region); and in addition, the fact that it’s growing to working age faster than any other Asian rising economies.
It is also attracting increasing number of large global corporations to setup regional service center or even hubs from worldwide because of the country’s friendliness and its service orientation, its high degree of adult literacy (96%), and the large component of it that speaks English. (Game on, 2013)
In this year, reports has shown that the economy of the country will grow at a rate of around 6.5%, which is especially meaningful for the gambling industry because its growth that is driven majorly by private consumption, which accounts for 70% of GDP. (In China, by way of contrast, this part accounts for less than a half.) Remittances from overseas by Filipinos working abroad will account for a significant portion of the GDP. They contributed over 9% of the total economy and last year they hit a record US$23.8 billion, which is increased by 6.4% year on year. In this year, they are expected to grow up to another 5%.
In its analysis of how this trickles down to businesses, like casinos, CLSA pointed out that the number of Philippine families that will be categorized as middle-class, which is defined as households that have annual disposable incomes of more than US$5,000, is growing the fastest among all income brackets, and as per capita GDP has risen (by about 30% in the 10 years through 2011), thus also, has discretionary leisure expenditure as a percentage of total consumer spend— has grown from 5.9% in 2001 to 6.7% in 2011. PAGCOR’s target for the total revenue is as large as $6 billion by 2015, —a “blue-sky scenario,” CLSA calls it. (The Asian Games, 2013)
After two decades of autocratic rule, the Philippines have returned to democracy in 1986. President Benigno Aquino III launched investigations into abuses of power by prior administrations in 2010. The old government wasn’t able to liberalize the nation’s economy set back efforts to attract much-needed investment from overseas in the country’s infrastructure and fundamental industries, and then the nation’s economy continued its long-time drop from being one of Asia’s richest countries to one of the poorest.
The remittances from overseas Philippine people equals to up to 10 percent of the nation’s GDP. Under the new development strategy, the Philippine government is putting efforts to developing fair, transparent, simple, and predictable administrative rules and regulations that rationalizes investment incentives and reducing the expenditure of doing business in the country by decreasing corruption. “Weathering the current global economic slowdown with a high degree of resilience, the economy of the country has been on a steady growth of economic expansion, growing at an average annual rate more than 4.5 percent in the past 5 years,” the Heritage Foundation said in the 2013 Index of Economic Freedom. (The Philippines,2013)
Recent developments make it more favorable to the country’s tourism sector. From 2010-2012, the Philippines has jumped 12 spots—from 94th to 82nd—in the World Economic Forum Travel and Tourism Index. The World Economic Forum’s 2013 report ranks the Philippines first in the world in government spending on tourism as a percentage of gross domestic products (GDP), demonstrating the government’s determination to enhance the tourism industry.
In 2011, the country recorded 37.5 million domestic travelers, exceeding two million than 2016 target. The government targets to achieve 10 million tourist arrivals by 2016. Because of the consistent increase in the incoming tourists, the Department of Tourism has modified its aim for domestic tourism in 2016 to 56.1 million. Moreover, the country recorded 4.3 million international visitors in 2012 the first time it breached the 4 million mark. (Aquino inaugurates Solaire Resort and Casino in Paranaque City
Entertainment City Manila, of which Solaire Resort and Casino, is an integral part of, is seen as the key to the government’s ambitious bid to attract 10 million tourists a year and create more jobs in a country where a fourth of the workforce is unemployed or underemployed. When all four are open, Entertainment City is expected to boost the poverty-ridden country’s annual gaming revenues up to $10 billion and add 40,000 jobs. With a significant amount of US$2.5 billion annual revenues now, the Philippines is keeping its position up as the third-largest casino market in the region, and in the coming 5 years or so would see it competing with Singapore for second place as resort development at the government-owned Entertainment City complex in Manila. (Philippines on Track for $2.5B in 2013, 2013)
Tourism has been playing a significant role in this island nation of population of more than 100 million, consisting 10% of employment in a country where generated 55% of annual GDP and the jobless rate is always around 7%, which is the highest in the Southeast Asia and it has more than doubled the average for the region (Game on, 2013). 4.2 million tourists have visited it in 2012.
The government’s target is having ten million visitors by 2016. It will increase this industry’s share of the total employment to up to 18%. The difference will be over 3.6 million employments, according to analysis of the government. And to make it easier for the overseas customers, the government is building a skyway link to Manila airport which will be open in two years. This will allow tourists to avoid the Manila’s notorious traffic system and help them to reach Entertainment City in just five minutes from the airport.
All this has been further predicated on friendly gaming revenue tax rates of 17% on VIP and an effective 27% on mass play, higher than Singapore’s blended 16% but substantially lower than Macau’s 40%. (Making a Play for Philippines as a Gambling Mecca, 2013) As it stands now, the Entertainment City has already boosted demand for residential units in the cities of Manila and Pasay, according to researchers report released after the opening of the new Solaire Casino and Resort. The international real estate consultancy firm said demand is coming mainly from expatriates who are moving to Manila to work at Pagcor’s Entertainment City.
Solaire Resort together with the other three IRs in the Entertainment City Project is expected to solve the high unemployment problem in the country and stem the overseas brain drain of highly qualified Filipino citizens. Solaire has already created 4,500 of those jobs. Over 400 of these people come back to their own country and directly joined the management because of their skills and experience in this industry in Macau, Singapore, Southeast Asia and the Arabian Peninsula.
For instance, Solaire’s senior VP for gaming operations is a returning Filipino who has worked for hotels in the Singapore and chinese city, one of the director for hotel services also comes from Macau operator Galaxy Entertainment Group Ltd. Its vice president for table games is a Filipina coming home after years of overseas. (Bloomberry Poaches Filipinos in Macau for Casino: Southeast Asia)
Philippines claims that it has a labor force that is relatively low cost and most of the labor forces are possesses strong English language skills. The Philippine Constitution also has ensured the right of workers in the country to form and become part of the trade unions. The mainstream trade union movement ensures that the members’ benefits are tied to the productivity of the economy and competitiveness of companies. Mainstream union federations typically enjoy good working relationships with employers. This certainly provides an attractive environment for foreign investors. Gambling is almost in the nation’s DNA. There are horse racing tracks in every city and fighting cockpit (and an illegal numbers game) in every town, and a great number of various popular card games. This is the reason why majority of the Casino Filipino (CF, the PAGCOR brand for all its venues) branches are built in the very center of Metro Manila and other big cities.
4 others are located in up market resorts that only need one to two hours’ drive from Manila, thus experiencing criticism that the casinos will make the very poorest Filipinos bankrupted. The government has also continuously rejected allegations from the Catholic Church that the country is becoming a ‘sin city’ that would promote gambling, which is a big immorality, via the development of the Entertainment City by the government-owned Philippine Amusement Gaming Corp., (PAGCOR). However, it can be foreseen that the socio-cultural issue of morality of gambling versus national development will continue to come up all the time. And for sure this will be one of the key that will influence future government planning decisions.
Besides creating employment, Solaire will be at the leading technology edge by adopting and bringing in world-class technologies into the country. The Leading Filipino telecoms company PLDT, by investing in its corporate enterprise arm PLDT ALPHA Enterprise, is going to develop integrated ICT systems in addressing the issues that management and operations of the new infrastructure of the Solaire Resort and Casino will face.(PLDT brings integrated ICT to Solaire’s gaming operations,2013)
“Due to that Solaire’s magnitude and operations, equipping with the advanced technology will be a key to the success of the business. In addition to ensuring that it could constantly give excellent customer experience across all Solaire outlets, IT need also be integrated for various revenue streams from these same diverse outlets,” The Vice President of Solaire said. The front to back ICT systems empowered by PLDT gives seamless integration of its growing operations with exclusive high bandwidth i-Gate, IP-Virtual Private Network, undiluted Wi-Fi and PABX in the building’s exclusive spaces.
Apart from PLDT, MICROS OPERA Property Management is going to partnering with Solaire. MICROS OPERA Materials Control will be providing the utilities of highest quality to their employees to give an execptional customer experience. (MICROS Technology Selected For Solaire Manila & Casino, 2013)
In order to make sure that the revenues are optimized for Solaire, the company has adopted GuestREV to help them to provide optimal revenue and ensure them a fast and secured return from the investment (MICROS Technology Selected For Solaire Manila & Casino, 2013) Rainmaker’s GuestREV in an advanced profit optimizing software which gives the user the ability of forecasting and pricing the hotel rooms by considering the profitability of customer spend or Total Guest Value for the whole property. Adoption of world leading technology would help develop Solaire into a profitable travel destination and in the bigger picture of the country help to develop a skilled professional workforce with the technological effects trickling to other sectors of the country.
As one of the largest casino in Manila, Chinese people are among the targeted customer base together with the rich locals. Apart from the Chinese, South Koreans and Japanese are also among the most common foreign gamblers in the Philippines.
“Gambling is very normal in the country and it is a very important aspect of the tourism business. We shouldn’t prevent our customers from gambling if they would like to do it. For legal casinos, there should not have any problems. However, in a few cases, criminal gangs and illegal lenders will be involved.” said one of the casino brokers from mainland china. “A great number of Chinese people enjoy gambling because when they are playing, they feel excited and crazy about it. Gambling embodies human weaknesses and makes the image of Chinese worse, If any criminal issues happen in other countries, it’s hard for Chinese government to intervene and it costs a lot of money to resolve.”(Game on, 2013)
Gambling is a very exciting and attractive activity for travelers. However, it could also be a dangerous game and create lots of legal issues. Some foreign tourists have recently owed a huge amount of money from the local gambling illegal brokers, causing the loan sharks or casino workers to detain and harm them, the China’s official even sending out notice to warn that Chinese citizens should better not to gamble there.
The notice said that casinos attracted Chinese business people to the country via agents on the Chinese mainland. Brokers thus provided loans to the Chinese tourists to play in the casinos, and while huge debts were incurred, they asked them to go to their family to pay. Due to the reason that gambling in Philippines is legal, gambling debt becomes legal as well. While legal debt is available, it’s hard for some of the addicted gamblers to leave the country.
The government only protects the legal rights of foreigners and it’s not possible for the government to pay off gambling debts for them. (Contingent gambling drinking patterns and problem drinking severity moderate implicit gambling-alcohol associations in problem gamblers，2005)
The Philippines has become the second largest gaming market in Asia after Macau since casino-style gaming became legal; Real growth has been steady after three decades. Prospects in the near- and medium-term are bright. Looking at the location selection, games variety and entertainment choices, it is clear that the casino industry in this country caters mainly to locals, particularly for Chinese-Filipino residents. In the long term strategy, the country’s casino industry is targeting to become more active and international. PAGCOR has already opened up licensing and currently there are 6 casinos which are owned by other foreign players. (Casinos in Asia: The Philippines, 2013) 5.2. Market size
The Philippine government sees casinos and the new IRs in Entertainment City Manila as a tourism gateway to the Philippines. The IRS are envisioned to help the government achieve its 10m targeted tourist arrivals in 2016. （Resorts management and operation，2008） There is a steady growth of “gaming tourists” principally from mainland China, Korean and Japan; they are interested primarily in spending time at the gaming tables of 19 casinos all around the country.
Based on the above few factors, Morgan Stanley has forecast 35% annual revenue growth through 2015 to $3 billion, which would have been unthinkable even five years ago when the market consisted of 13 or so smallish casinos and a couple dozen slot clubs operated by PAGCOR (Philippines Amusement and Gaming Corporation) with contributions from two private licensees, Panama-based Thurnderbird Resorts and Macau’s Jimei Group, which operate three casinos between them. CLSA APAC Markets believes that the market has an potential size at $6 billion. Credit Suisse has also commented that they believe this market is well-positioned to go further beyond the existing Singapore market within the next 6 year. (Do casinos cause economic growth，2013)
The following list the strengths, weaknesses; opportunities and threats (SWOT) of Solaire Resort and Casino:
- 1st to Market: As the early player, the presence in the market has attracted the eyes and it has the advantage to capture the majority of the customer base.
- Political support: this industry is highly supported by politics, which results in better rules and regulations for business expending as well as attracting more customers
- Experienced Management Team: the management of the resort plays a crucial role in terms of internal and external management.
- Focus on High end VIP market: it brings more margins to the business and higher return is expected.
- Location: Manila is a 2.5 hour flight from Guangdong Province (China) and a 3.5 hour flight from Singapore. Prospective customers from China, Japan, Australia and the other ASEAN countries (Singapore, Malaysia, and Indonesia) would have to bypass the casinos in their own backyards. Most of these competitors also happen to have similar superior products relative to the planned Philippines IRs (as measured by invested capital).
- Intense industry competition: Intensive competition is expected from other 3 IRs when Entertainment City Manila is completed in 2016. It is not easy to have good positioning strategy and stand out.
- Perception is reality: The perception on Manila of the region is as being not safe, not clean, and poor. Although this might be an unfair stereotype of the city, we believe this could be enough to stop customers from coming to visit, especially visitors from Japan, Korea and Singapore etc.
- Language barrier: Outside of the IRs, almost no one could speak Chinese. And there are no signs in Chinese. This would definitely be a great inconvenience to the Chinese customers, which is considered that will be their primary customer.(Inside Asian Gaming,2013)
- 1 year window of competitive advantage
- Rapid growth in outbound travel from China, Korea and India.
- Government relationship between China and the Philippines: There was an incident that the Chinese tourists from Hong Kong were killed in Philippines which terribly damaged the image of tourism in Philippines among Chinese customers. In addition, there is an existing battle between the governments of China and the Philippines over disputed ownership of an island in the South China Sea. In May 2012, a great number of Chinese travel agencies temporarily closed the business of package tours to the Philippines because the boycott of Philippines in China increases. This being said, China was the number 4 inbound source of tourists to the Philippines in 2011 with 243k tourists, having grown 30% from 2010. In Singapore, 1.4m Chinese tourists have visited in 2011. It is almost 6x the amount to the Philippines.
- Increased competition from destinations in other countries due to open and low barrier of tourism market and especially its growth in Asia-Pacific region. Many countries and areas have seen this opportunity and are speeding up to facilitate themselves to become more attractive.
- Limited Talent Pool: Solaire might face difficulty in attracting skilled labor in another few years, especially when all 4 IRs are operational in 2016. This includes competitions from domestic demands as well as competitions from external demand of Philippines workforce.
The time is very favorable for positioning Solaire as the premium IR in the Philippines. To manage its risks, my recommendations are as follows:
- The IR industry is labor intensive and service oriented. This requires a skilled and dedicated workforce. To ensure consistent service quality, Solaire would do well to place great importance in training and retention of its staff; (
- MICE tourism brings in high consumption tourists and enhances the average length of stay. The promotion of the MICE industry will help to strengthen the position of Solaire’s as a premium destination in the Philippines. Solaire could take a page out of LVS strategy in Macau and Singapore by developing Solaire as a major MICE destination and procuring extended contracts with major exhibitors before the other IRs become operational;
- Instead of focusing on competition with the rest of the IRs within Entertainment City Manila, Solaire should explore joint marketing programmes with the rest of the IRs in Entertainment City. Emphasis should be placed on marketing Entertainment City as a common travel destination. The close geographical proximity and different features of the various IRs complement one another and would increase the total gaming and travel pie in the Philippines;
- Solaire should aim to develop into a comprehensive and relaxing family holiday destination, luring different kinds of tourists with large varieties of leisure activities and entertainment. (The Business of Resort Management，2008)
Solaire is entering into a new development phase, as the other IRs in Entertainment City come online in the coming years. Coupled with infrastructure improvements, as well as the halo effect of the Entertainment City as an integrated travel destination, the new tourism elements will largely enrich the tourist attractions on offer, giving Solaire a boost in arrivals. However, all these advantages could also be negated by the intense competition among the 4 IRS within Entertainment City. Looking forward, there are both opportunities and challenges. To be successful, Solaire would have to place great emphasis on enhancing its own service standards, as well as diversifying its revenue streams to have sustainable success.