A Betting Affair

The allure of hitting the jackpot big time is translating into an increasing demand for gaming outlets and facilities across the world. Casinos are mushrooming across Asia, with many countries racing to grant gaming licenses to the big casino operators like Las Vegas Sands and Melco PBL Entertainment . Vietnam’s gaming landscape is rapidly rising; Singapore has granted two licenses to heavyweight gaming companies Genting International and Las Vegas Sands; and Japan is looking into legalizing its gaming industry.

Gaming is a fast growing global business with more and more countries looking to reap the economic benefits it brings in terms of tourism and employment. According to research firm Datamonitor, the casino and gaming industry in 2006 generated total revenues of $86.6 billion in the U.S. alone. And that is up 5.4% from the previous year.

But more and more, big gaming operators are looking away from the U.S. towards Asia.

Players are investing in operations in the Asia-Pacific market, where gambling is growing in popularity and the number of premium gaming customers is on the rise.

The most standout example of the industry’s success in the region – Macau. Between the legalization of gaming in Macau in the 1850s, and the historical opening of Las Vegas Sands Macau in 2004, the territory’s economy is reaping the benefits of gaming and tourism in leaps and bounds. And who exactly are playing the roulette wheels and gaming tables? The Chinese. China’s booming economy (first quarter 2007 GDP growth was 11.1% year on year) has lead to rising affluence and, people with ready cash at hand. Roughly 22 million Chinese mainlanders paid a visit to Macau last year.

Is it any wonder that Macau is casting itself to be ‘Asia’s Core City’ in gaming. The tiny territory's casinos took in an unprecedented $5.7 billion in gaming revenue in 2005. That was enough to catapult Macau past Atlantic City to become the world's second-largest casino market. The outlook for the industry in Asia is very bullish with heightened interest and huge investments pouring into the region.

In Japan, the Liberal Democratic Party (LDP) is looking to pass a gaming bill. It may come sooner than expected, but may be too late to compete with the many casinos already popping up across Asia. Toru Mihara, advisor to LDP casino study group, in an interview with CNBC’s Asia Squawk Box said his country is looking at legalizing its gaming industry, making Japan a more attractive tourism destination. “Japan is the only OECD country that does not have casinos. We do not want to be left behind and the government believes that casinos will promote tourism too.”

Mark Vlassopulos, President of Eight Wonder, thinks that venturing into the gaming industry is an almost irresistible move given the high returns. He uses conservative Singapore, as an example of a country unable to resist the economic gains casinos will bring to the island state. Eight Wonder lost the bid for Singapore’s second casino resort to Genting International. Says Vlassopulos “Almost anywhere in Asia, gaming will work.”

Will it work for investors looking into gaming funds? While, there are various leisure and luxury funds available, with gaming as a component of the portfolio, there are very few specialized gaming funds around. However, we managed to track down one such fund – the Ladenburg Thalmann Gaming and Casino Fund.

The Fund

Ladenburg Thalmann Gaming & Casino Fund

Fund Size US$3.5 Million
Management Fee 0.9% per annum
Minimum Investment US$5,000
*As of 31 March 2007

Ladenburg's Gaming and Casino Fund is a no-load, multi-cap equity fund with an investment objective of long-term growth. The fund invests primarily in casinos and gaming manufacturers, plus companies in the pari-mutuel, lottery, and electronic/video game industries. It is managed by Dan S. Ahrens, president of Ahrens Advisors. The Fund is based and managed from the U.S.

The Fund's top ten holdings include operators with a major presence in Asia such as Melco and Las Vegas Sands.

Ladenburg Gaming and Casino Fund Top Ten Holdings

1 MGM Mirage
2 Penn National Gaming
3 International Game Technology
4 Las Vegas Sands
5 Melco PBL Entertainment
6 Shuffle Master
7 Activision
8 Scientific Games
9 WMS Industries
10 Century Casinos
*As of 31 March 2007

With Macau, already a huge success and Singapore’s two casinos underway as well as the expansion of the industry in Vietnam and South Korea, Ahrens feels confident that the fund will outperform the U.S. market.

Ahrens says anyone interested in the fund should look at it as a maturing investment in line with its objective of long-term growth of capital.

The Fund reported a growth of 8.1% since its inception in March 2006. Ahrens says the fund’s performance is satisfactory so far but believes in both its short and long term potential. “I think the appetite for gaming and its growth potential is the same.” He also adds that it is a very good time to buy in and believe that the industry is booming worldwide.

Asian investors interested in the fund would need to deal with a brokerage firm that could deal in U.S. funds, or have some type of U.S legal status. Ahrens adds, “I wish that anyone in the world could easily invest in the fund.”

The Affair

The Asian gaming market is rapidly growing and is looks like it is not slowing down anytime soon. Sean Monaghan, Gaming Analyst at Merill Lynch says, “The outlook for the Asian gaming market is positive.”

Monaghan thinks that as long as big casino operators are reaping in the profits from their casinos in Asia, there will be continued investments in the Asian gaming scene. “Las Vegas Sands and many Western operators profit from the growing Asian gaming scene. They get a bigger profit from their Asian casino operations than their Las Vegas ones.”

Monaghan is not the only one who is bullish about the Asian gaming landscape. Vasu Menon, Chief Editor of finatiq.com reckons that the main reason behind the widespread popularity of gaming in Asia is a result of the increasing amount of wealth in the region driven by China and India’s booming economies.

Menon points out the fact that Singapore’s conservative government is opening its doors to casinos drives home the point that the region is serious about the gaming business. “Competition among casinos in Asia will be intense but there’ll be enough (profit) to go around,” adds Menon. Perhaps the time is ripe to spin the wheel and take a gamble.