Casinos in Southeast Asia

Just a note: I will be off and on this week, as I celebrate Thanksgiving. Happy Turkey Day everyone!

I grew up in Louisiana, not far from the Texas border. In 1990, the state allowed floating casinos, and it really changed the city, with tons of people coming over the state border to gamble. At first it was just riverboat casinos (don’t ask me why having gambling on a boat is better than on land, morally). As the state has seen stagnating tax revenues, it has allowed these casinos to move on land (woo hoo), and is looking at sports betting. That’s because it became addicted to that sweet, easy gambling money, so much easier to raise than taxes (although with more ill effects).

Just like Louisiana, Southeast Asia has been getting into the casino game in a big way over the past few years. Obviously, the Las Vegas of Asia is Macau (or really, the Macau of America is Los Vegas). But casinos are now in Cambodia, Laos and Vietnam as well.

I am worried that for all of these countries will suffer from the same issue as Louisiana does: saturation. There are so many casinos, in so many countries, that we will likely see stagnation, just like Louisiana did with casinos/gambling in more and more states of the US. There might be an initial bump when the casinos open, but over time revenues may stagnate or even decline. Out of all of these countries, Cambodia seems the most at risk.

I starting thinking about this because Cambodia just made a deal with NagaCorp. It granted exclusive rights to continue to operate a casino to NagaCorp in Phnom Penh to 2045 in exchange for $10m upfront and future payments. The exclusivity encompasses a 200km radius from the capital, but excludes the Vietnamese border areas.

That’s important, because there are already many (10 by my count) casinos on the border with Vietnam. Most of these are tiny and not that attractive, except for a few in the town of Krong Bavet, which is on the route between HCMC and Phnom Penh.

Only foreigners can gamble in Cambodia, so these border casinos are solely to attract Vietnamese to gamble.

Vietnam has casinos though, although they had been off-limits to locals until last year. So you could have two casinos on the border between Cambodia and Vietnam with Cambodians going to Vietnam and Vietnamese going to Cambodia. What a weird system.

Anyway, Vietnam has these casinos, mostly tied to resorts. As I said last year the government started a trial allowing locals to gamble there. Vietnamese have to pay a VND1m ($43) entrance fee and show a monthly income of VND10m. Lots of Vietnamese gamble though (as seen in these arrests and these), so there is an argument that making gambling legal (but limited) will allow for this money to 1) stay in the country and 2) be better monitored in order to stop money laundering. The first part seems non-controversial, but the US Embassy disagrees about the money laundering part.

It might be looking at this Laotian casino, which the US alleges “was involved in drug, human and wildlife trafficking and child prostitution.” Or these casinos in Sihanoukville.

So maybe the US should be concerned with money laundering. But of course, the US has casinos, like in Louisiana. That shows it is possible to have casinos act legally. The Vietnamese government, which wants absolute control, should align with minimal money laundering. But they can’t stop illegal betting now.

How big a deal is money laundering? Well, the amount laundered worldwide is estimated at between 2-5% of global GDP. That equates to $800 billion to $2 trillion. (I’ve never actually seen a figure on how big global GDP is. This implies world GDP is $40 trillion. That’s a lot, but also the S&P 500 market capitalization is about $30bn.)

I don’t really have a conclusion here. Vietnam opening up gambling is probably good for tourism (Chinese tourists), plus it may allow some of the illegal gambling to move to legal venues. But the risks around money laundering appear to be real, and there is a good chance that the tax revenue will be good for a while but then stagnate, and eventually, Vietnam will have to allow more and more types of betting, in order to keep the same amount of revenue. Just another treadmill, and one that will likely increasingly take from locals, rather than solely foreigners.

Fun bonus document: Here is the US National Money Laundering Risk Assessment 2018. I especially love the real estate ones:

In 2013, in Texas, real estate agent Freddy Centeno was sentenced to prison for laundering money for a convicted drug trafficker. The real estate agent admitted helping to launder drug profits through the purchase of residential and commercial properties. He arranged the transactions to conceal the ownership of the property.1
In December 2014 Portland, Maine attorney Gary Prolman was sentenced for laundering drug proceeds.114 Prolman laundered about $177,500 of a client’s marijuana proceeds by structuring cash deposits and buying cashier’s checks. Prolman invested a portion of the proceeds in his sports agency business on behalf of the client and used the cashier’s checks to buy real estate for the client using his own name on the deed as the owner.

Lots of good reading in here.

VietEcon

Casinos in Southeast Asia

VietEcon