ity of Dreams Manila is a glimmering clutch of golden glass cubes rising from reclaimed land on Manila Bay. It is the second development to open within Entertainment City, which is now halfway to becoming a Las Vegas-style cluster of four casino-resorts.
Manila is already reaping the rewards, said Julius Guevara, country director for the Philippines at real estate consultancy Colliers. He said plans for four mega casinos have fueled a “revival” in Manila’s run-down bayside area, which has driven property values up and spurred road-building and other developments.
City of Dreams Manila, with three luxury hotels and 380 gaming tables, has already created 5,000 jobs, Melco Crown said.
The Philippine Amusement and Gaming Corp., the country’s gambling regulator and overseer of the Entertainment City plan, has said it expects the Manila strip to propel national gambling revenues to US$ 10 billion a year by the end of the decade, enabling it to surpass both Singapore and the Las Vegas Strip.
Those hubs are currently the second- and third-largest markets globally behind Macau, raking in more than US$ 6 billion in annual gambling revenue each. The Philippines netted nearly US$ 2.5 billion in 2014, including contributions from older casinos operated by the gambling regulator, known as Pagcor, ratings agency Fitch estimates.
Like other gambling developments springing up around Asia, Entertainment City was in large part inspired by phenomenal growth in Macau, which generated $44 billion in gambling revenue last year. But Manila has run into a few snags.
While a new resort near the airport and the first resort in the Entertainment City complex have drawn in more local gamblers than anticipated, they haven’t attracted as many Chinese VIPs, said Francis Hernando, vice president of Pagcor’s gaming, licensing and development department, citing “external factors.”
Mr. Hernando was referring to a diplomatic spat between Beijing and Manila over disputed maritime territories, which coincided in September with the Chinese government telling its citizens that the Philippines’ “worsened security situation” meant they should steer clear of the country.
The idea of having Manila follow in Macau’s footsteps also predated the worst-ever downturn in the world’s largest gambling market. Macau last year recorded its first annual decline in gambling revenue since data became available in 2002, as a crackdown on corruption in China led high-rollers to shy away from the baccarat tables.
Lawrence Ho, chief executive and co-chairman of Melco Crown Entertainment, at the opening of City of Dreams Manila. He said the target audience for the project is “first and foremost the domestic market.” Photo: Trefor Moss/The Wall Street Journal
Some analysts think Manila casinos are well placed to benefit from Macau’s troubles, arguing that Chinese VIPs scared to set foot in the Chinese territory will instead flock to casinos out of Beijing’s reach.
But at Monday’s lavish grand opening, Melco Crown Co-Chairman and Chief Executive Lawrence Ho played down the importance of Chinese VIPs to the casino’s prospects.
He said that the target market for City of Dreams Manila is “first and foremost the domestic market,” followed by VIPs from other Southeast Asian countries, as well as guests from South Korea.
Even so, much lower taxes on VIP gambling revenue in the Philippines—around 15% versus around 40% in Macau—make it attractive for Macau gambling “junkets” to reroute their customers to Manila, some analysts say.
Junkets, a massive network of middlemen, are what propelled Macau’s success. In exchange for commissions, they recruit wealthy gamblers in China, lend them money to bet in Macau, and later handle debt collection. Mr. Ho said Manila would become more attractive to Chinese VIPs over time, as perceptions about the city improve thanks to the Philippines’ fast-growing economy. But other analysts say the junket model is evolving differently in Manila.
“Although there are a few Macau-based junkets in the Philippines, foreign-sourced VIP business accounts for no more than 15% of the overall gambling revenue total in the Philippines,” estimates Ben Lee, managing partner at Macau-based consultancy IGamiX. In Manila, junket operators “are working hand in hand with local financiers to target local VIPs,” said Mr. Lee.
Mr. Ho said that City of Dreams Manila would, in any case, be less reliant on gambling than its Macau sister business. In Macau, the revenue split between gambling and entertainment is 90-10, but Manila’s is likely to be nearer 70-30, he said.
The success of City of Dreams Manila, and Entertainment City as a whole, can only be judged once all four resorts are operating at full tilt, said CLSA analyst Aaron Fischer, who said only then would the Manila strip “gain critical mass.”
Solaire, the first resort in the Entertainment City quartet, operated by Bloomberry Resorts Corp. , opened in early 2013 and became profitable within a year. But the third and fourth resorts have experienced delays and may not be in business until 2016 or 2017.