Another roll of the dice

Taiwan has been contemplating allowing gambling on its outlying islands, but could miss the boat if it does not act soon

By Gavin Phipps  /  STAFF REPORTER

Sun, Jan 22, 2006 - Page 17

Whether you consider gambling to be a social ill or you see no harm in putting the odd wager on a craps game, it's a fact that the legalization of gambling and the opening of casinos on one or more of the nation's outlying islands would be financially beneficial for Taiwan in terms of tax revenue, tourism and job creation.

Every year hundreds of thousands of Taiwanese nationals travel to Australia, Macau and the US in order to have a flutter and the amount of revenue casinos earn from these gamblers is phenomenal.

Fifteen-percent of the US$230 million taken by the Sands Casino in Macau in its opening year came from Taiwanese gamblers and 20 percent of the US$100million taken on the Baccarat tables of Los Vegas' MGM Grand annually comes from Taiwanese nationals.

Regardless of whether future casinos attract overseas gamers from the 350 million people who live 1.5 hours flying time from Penghu, or simply generates a locally based gambling industry, the stakes are huge.

While it is still a hypothetical situation, industry insiders estimate that a US$300 million casino could break even in a mere in six months.

"Hong Kong has a population of 6 million and of these, those who travel to Macau spend US$1 billion a year in casinos," said Larry Woolf, one-time CEO of the MGM Grand and chairman of the Los Vegas-based gaming development agency, The Navegante Group. "Taiwan has a population of 22 million people. Most of them have a decent disposable income so it doesn't take a lot of math to work out that [Taiwan] is a huge market."

The numbers speak for themselves and neighboring countries are also aware of them. Singapore has decided to legalize gambling and other Asian nations, including Japan and Thailand, are set to follow in the not so distant future. If Taiwan doesn't act soon then it could blow its chance of grabbing a piece of the lucrative gaming market.

According to news reports two weeks ago, when Singapore finalized its bidding process for the construction of a casino in preparation for the March 31 deadline, only four companies of the original 14 wanted to continue with their bids, citing problems with the destination and stringent guidelines as reasons behind their sudden lack of interest.

Also, according to the reporters, there was interest in setting up in Taiwan instead.

Several large companies -- which include the late Kerry Packer's multinational entertainment giant PBL and Macau casino magnet Stanley Ho -- have been monitoring Taiwan as an alternative to Singapore.

On the table

Several of the industry's biggest guns are in fact already preparing to put their money on Taiwan.

A report carried by a US-based online gambling industry publication said that representatives of the Las Vegas Sands Inc (LVSI), a parent company of The Venetian, have already met with President Chen Shui-bian (陳水扁) to discuss the issue.

In a statement issued by the company after the meeting, Sheldon Adelson, the chairman of the board and principal owner of LVSI was quoted as saying, "President Chen encouraged [LSVI] to invest in the tourism industry economy of Taiwan, but did not make any commitments to permit gaming ... If the government were to adopt a favorable policy toward gaming LSVI would be interested in pursuing a gaming venture in the country."

The convivial meeting was overshadowed, however, after a report in a popular Chinese-language daily reported that the then interior minister, Chang Po-ya (張博雅) had produced a statement in which she misquoted Chen by stating that, "[Chen] had agreed to permit the company to invest US$2.5 million in a proposed project."

Needless to say, the opposition party and several anti-gaming law pan-Greens were outraged by the comments and the Presidential Office was forced to issue a statement reiterating the government's prevailing ambivalent stance on the matter.

Adelson is not the only industry big gun to be keeping a close watch on the ongoing situation in Taiwan. Representatives from the MGM Grand, PBL, Stanley Ho's consortium and Steve Wynn's Wynn Resorts Ltd have all, at one time or another, met with Taiwanese officials to discuss the issue. None, however, have made any formal statements and all are, for legal as well as business reasons, keeping tight-lipped about what conclusions, if any, they drew from the meetings.

"Lots of [casino owners] have visited officials over the past several years, but they can't say very much because, firstly they don't want to tell the opposition what they are up to, and secondly they have to be very careful," said a legal expert from the Taiwan National University who spoke on condition of anonymity. "They can't be seen to interfere with the process of the law, especially those with assets in the US who have to run their businesses as transparently as possible. One slip up and their multi-million dollar licenses could be revoked."

Penghu, which is leading the pack as a possible location for Taiwan's future casinos, may have voted in favor of the legalization of gambling in a referendum held in December 2003, but lawmakers from both sides of the pan-Green/pan-Blue divide have remained at loggerheads on the issue for a decade.

Originally known as the Draft Governing the Establishment of Casino Resorts, the Gaming Bill was first introduced at the Legislative Yuan in 1996. The bill's first reading took place in September 1996, but since it was considered to be "a [very] serious matter" lawmakers opted to not to continue with the bill until the Executive Yuan had taken a stance on the matter.

"It's a hot political potato [that] no one wants to be associated with or take a position on," said Ashley Hines, whose company Amazing Holdings has recently purchased an 11-hectare site on Penghu, where subject to the legalization of gambling it hopes to build one of the nation's first casinos. "It's as if [lawmakers] are all saying, `I don't want to be the one who goes down in history as the guy who legalized gambling [in Taiwan].'"

In November 1997 the bill was incorporated into the Outlying Islands Development Act and passed an initial reading. Three years later, in March of 2000, the Outlying Islands

Development Act was once again brought to the attention of the Legislative Yuan.

The gaming clause, however, was considered too controversial an issue and lawmakers were, after heated debate, forced to delete the clauses that would lead to the legalization of gambling.

In January 2002 the Gaming Bill was once again submitted to the Legislative Yuan for reading and once again lawmakers dismissed it. In May last year the Legislative Yuan held a committee meeting, the aim of which was to ratify a slightly less controversial Gaming Bill. The review was completed on May 31, but with the legislative session already at an end, time constraints meant the bill was unable to be reviewed.

Setting the standards

Fast forward to last week and the Gaming Bill, which is now an integral part of the Outlying Islands Development Act, was once again put forward for discussion. The Non-Partisan Solidarity Union (NPSU) revoked the bill at the last minute, however, due to the ruling party's decision to cease cooperation with the NPSU over the issue. The next reading of the bill is expected to take place sometime during the next legislative session, which begins in late February.

"We obviously can't set a time frame, but hopefully the government will take a logical and rational approach," said Woolf, who, over the past three years has discussed the issue with numerous lawmakers and politicians. "I hope they'll move forward in a positive way and have knowledge and understanding of the process [in order] to make informed decisions."

The deliberations in the Legislative Yuan might be at a standstill, but according to a lawyer who is currently representing a locally-based consortium, this might not be such a bad thing. Outstanding issues surrounding tax and a law that is vetted by industry professionals are matters of concern for future casino operators in Taiwan.

"There are many examples of well-intentioned laws that have been passed but the end result is that no industry can develop," said a lawyer for a legal firm currently lobbying for the legalization of gambling. The lawyer asked not to be named.

"One example is the Duty Free Shopping bill for Penghu, which didn't have any regulatory regime able to implement the idea. In order for Taiwan to compete effectively it needs a strong body of laws that ensures that investors, regulators and consumers are protected."

The need to ensure that any casino in Taiwan adheres to international standards is vital. Prior to amendments in Macau's gaming law no big-name Nevada gaming groups would invest in the territory. Such a situation in Taiwan could spell disaster for gaming, as in order to attract investment standardized international regulatory regimes need to be in place.

The other sticky issued is tax. According to Hines, the most recent proposal saw lawmakers and lobbyists toying with a figure in the range of 40 percent. This is, according to Woolf, far too high. The current tax rate in Nevada stands at 7 percent; the Philippines' stands at 30 percent and Australia has recently lowered it tax on winnings to 10 percent for non-Australian nationals.

"If the tax is too low then the casinos will have to rely on high-end gamers, but if it's too high then it will have to depend on grind players," said Woolf. "While I certainly wouldn't want to discount the grind players, the ideal tax bracket would be somewhere in the region of 10 percent to 15 percent."

Tax generated through gambling on the offshore islands will, in accordance with the Outlying Islands Development Act, be pumped back into the economies of Kinmen, Matsu and Penghu. And, if one uses the US as a guideline, one job in a casino creates 13 other jobs in support industries like catering and laundry services.

With so many international casino chains -- who aren't known for their patience -- waiting to pour capital into Taiwan, a decision on the issue would be better made sooner rather than later.