Pagcor license renewal critical (Philippines)

(source: The Observer Sunday September 10, 2006)

Vegas giants think Britain is a sure bet

The Americans are raising the stakes in the race to carve up what now looks like the most liberalised market in the world, writes Nick Mathiason

Sunday September 10, 2006
The Observer

It’s the last throw of the dice for the Las Vegas casino giants. Laden with billions of dollars, the world’s biggest gambling firms are in the midst of an unprecedented international expansion drive.
Macau, Singapore, Slovenia and Spain have become key territories for firms such as Las Vegas Sands, Harrah’s and MGM Mirage. Now, after one hugely embarrassing false start, a new battle for Britain has begun.

Four years ago, the world’s biggest casino giants aggressively lobbied Tony Blair, and the schmoozing paid off. The Prime Minister gave US gambling chiefs the green light to build dozens of supercasinos full of slot machines in Britain.

Two years ago, the same companies were forced to leave with their tails between their legs after the government backtracked on its casino liberalisation plans. Now the Yanks are back in town.

This time the gameplan has changed. Before, US giants such as MGM and Las Vegas Sands boasted loudly about the billions of pounds they were prepared to invest in Britain. It was a big mistake. Instead of impressing MPs that thousands of jobs were about to be created, it scared enough of them to force the government to water down its reform.

So a rethink has led to a new strategy: buying British gambling companies. The strategy is now being activated.

Harrah’s, the world’s biggest casino firm, is set to snap up London Clubs International (LCI) for £280m – loose change for the $12bn company. And there is little doubt that Harrah’s won’t stop at LCI, which owns a string of upmarket London casinos, three key venues out of the capital and, crucially, has several more in the development pipeline. Those familiar with the company suggest LCI will be the first but certainly not the last UK acquisition.

Industry insiders believe that MGM Mirage, the giant US entertainment combine, will move to buy a UK firm. It is unlikely to counterbid for LCI, but analysts believe it could pounce on the Rank Group, the one-time conglomerate that owns 35 UK casinos and is the second biggest bingo operator through its Mecca brand.

Las Vegas Sands – the most successful American company at winning licences overseas – may also look to break into the UK. It already has plans to open casinos at several British football clubs.

‘The Americans have to come here,’ says the boss of one major British gambling firm. ‘Harrah’s and MGM have to buy. MGM initially wanted to do it on their own, but they need local management. The banks will definitely lend them money. They’re all looking at what Las Vegas Sands has achieved. It is half the size in Vegas of its rivals, but is trading at multiples of three times its earnings because it won licences in Singapore and Macau. The bigger rivals are thinking: “I want a piece of that”.’

Another senior industry insider says: ‘The reason we’re seeing this now is because the UK is looking like the most liberalised market in the world with a low tax rate and 80-odd new casinos coming to market in the next 15 months. This is like no other market in the world. They came here wanting supercasinos. They have got European headquarters. They’ve spent the money. They didn’t get supercasinos but they’re now moving to buy casino companies. They can buy them because most of them are listed. It’s pretty easy and they’re pretty cheap.’

The Americans look set to be joined in the stampede for British gambling firms by Malaysian giant Genting, which owns 29 per cent of LCI and 10 per cent of Stanley. Genting is believed to have made an offer for Stanley, and this could flush out a rival bid, pushing up the value of its investment to swell as Stanley’s shareprice takes off. There is also the possibility that hard-nosed South African tycoon Sol Kerzner could enter the fray.

However, it’s not just casino companies that are in the spotlight. Virtually every major UK gambling firm is a possible bid target now. This means Ladbrokes, Gala Coral, Rank, William Hill and the Tote could all be taken over.

A confluence of factors has brought Britain’s gambling sector to the brink of a consolidation frenzy. The Gambling Act will come fully into operation next year. This will allow casino firms to advertise on television, leading inevitably, the industry believes, to a surge in visitor numbers.

Then there is the prospect of a surge in the number of venues. Although the Gambling Act capped the number of new-style licences to 17, including one supercasino, the industry has been busy applying for casino licences under the old act. So by 2008, there could be 230 casinos in Britain – an increase of 90 in five years. It will mean the £55bn currently wagered by Britons in all forms of gambling will move towards £60bn by 2010.

The UK gambling industry is witnessing not just consolidation but convergence, according to one leading City analyst. ‘We are seeing a new gambling industry paradigm,’ he says.

Essentially, the UK industry has two bingo companies, four major bookmakers and four dominant casino firms. But there is an increasing trend for gambling firms to offer all these options and to have a strong online presence.

Gala Coral, currently owned by a consortium of venture capital firms, has gone further than any UK firm to offer all forms of gambling. It is the country’s biggest bingo firm, the second largest casino operator and the third biggest bookmaker. It is favourite to buy the Tote, which would see it rivalling William Hill and Ladbrokes as the country’s biggest bookie. But the Tote – the state-owned pooled betting business about to be sold off – could be a bridgehead for an American company. The racing industry has until later this month to launch a bid for the Tote, which owns 500 high street shops. If it cannot meet the £400m asking price, the private sector will scramble for its ownership.

A new front in the battle for Britain’s gambling industry is about to open.

Online woes

No one can say they weren’t warned. Two months ago US District Attorney Catherine Hanaway, of Missouri, arrested David Carruthers, chief executive of online gambling firm, BetonSports. She said: ‘This indictment is one step in a series of actions designed to punish and seize the profits of individuals who disregard federal and state laws.’

Last week we found out that Hanaway was not joking after the chairman of online gambling firm Sportingbet, Peter Dicks was arrested in the US – the second gambling British executive nabbed by US authorities in two months. More are set to follow under the 1961 Wire Act, which says that taking sport bets on the telephone is illegal. So, by implication, is taking money on the web.

The $12bn industry is reeling from the US clampdown on internet sport betting. Firms that take money from Americans playing casino and poker games on the net could now be dragged into the investigation. If so, it would spell disaster for Partygaming and 888.com – two firms listed in London.

America bets half of all wagers online. The arrests of Dicks and Carruthers represent the most serious threat to what has until now been a stellar sector.

Five big players ready to throw the dice

Gary Loveman
Harrah’s

An ex-Harvard academic is the driving forced behind the world’s biggest casino firm. An expert at customer loyalty, he is now set to buy into Britain with a £280m purchase of London Clubs. This could be the beginning of a major European expansion drive with more acquisitions in Britain on the cards.

John Kelly
Gala Coral

The driven boss of Britain’s biggest bingo chain, Kelly has turned Gala into a high street giant that now owns the country’s third largest bookie and dozens of casinos, and is slated to float within 18 months, worth £5.5bn. Kelly is keen to consolidate, but a US giant could pounce on the business.

Chris Bell
Ladbrokes

Bell is under pressure to convince the City that he has a growth plan to fend off strong interest from venture capitalists. Ladbrokes sold its casinos to Gala four years ago and was slow to build an internet business. But it’s a trusted brand and well placed to break into gambling’s final, lucrative frontier: China.

Lloyd Nathan
MGM Mirage

Nathan badly needs to pull off a deal in Britain after arriving in a blaze of publicity four years ago as MGM’s European chief. He blithely touted his company’s £1bn investment plans to build dozens of new casinos in the UK, but this tactic alarmed Labour MPs and was a red rag to the press, which successfully campaigned to have the government’s casino liberalisation plans considerably watered down.

Sheldon G Adelson
Las Vegas Sands

Hard-talking tough nut Adelson is a legendary Vegas figure. The octogenarian owns the glitzy Venetian and has engineered a stunning coup: he is the dominant player in Macau’s thriving casino strip and earlier this year won the licence to build Singapore’s only casino, which will be the world’s biggest. He is keen to break into the UK.

Date Posted: 09-Sep-2006