In 2009, Russia declared gambling illegal except in four (later expanded to five) integrated entertainment zones, including one near Vladivostok.
Six years later, the Primorye gaming zone saw its first integrated casino resort, Tigre de Cristal, open its doors in October in the Russian Far East after several delays.
The venture, which is backed by Lawrence Ho’s Summit Ascent Holdings, has been described by the local government as “Russia’s largest and best-equipped casino”.
Meanwhile, some Russian media have begun referring to Vladivostok as “Northern Macau”, signaling hopes that the Russian gambling zone could some day replicate the success of the southern Chinese special administrative region.
The big question now is whether the Vladivostok area can become a highly profitable gambling hub.
“Vladivostok is arguably the most European city in Northeast Asia. As the Russian government is now very keen to boost tourism and diversify its economy, we are optimistic about the future,” says Eric Landheer, director of corporate finance & strategy at Summit Ascent.
Strong government support, under-penetrated gaming market in North Asia and a weak currency will underpin the growth of the gaming industry in the Russian Far East, he said.
To attract investors, the Russian government has offered a low gaming tax rate – around 1-2 percent – compared with 39 percent in Macau and 12 to 22 percent in Singapore.
As of now, NagaCorp Ltd., Royal Time Primorye and Diamond Fortune Holdings Prim have confirmed their investment plans in Vladivostok’s integrated entertainment zone (IEZ).
While competition will arise in the future, Tigre de Cristal will enjoy a monopoly until the next casino property is scheduled to open in the region in 2018, Landheer said.
Global Market Advisors, a US-based research firm, has estimated that the gambling zone near Vladivostok could generate as much as US$5.2 billion by 2022.
Steven Gallaway, managing partner of Global Market Advisors, highlighted the zone’s proximity to Northern China, South Korea and Japan as the major advantage, with around 400 million people living within a three-hour flight radius.
But he cautioned that much would depend on Russia’s visa policies.
The country has in the past faced criticism over its visa regime. The situation has improved in recent years, but the government needs to do much more, say industry observers.
“Proximity is very important, but only if people can cross the border,” Gallaway noted.
“The ease at which Chinese gamers will be allowed to enter Primorsky Krai is what will determine the success of the zone.”
Vladivostok is the administrative center of the Primorsky Krai region.
At present, South Korean citizens can get visa-free entry into Russia for 60 days, while Hong Kong citizens can avail such facility up to 14 days.
Vladivostok’s new “Free Port” status will enable mainland Chinese to visit the area for 8 days visa-free from January 1, 2016, reports have cited local and federal government officials as saying.
Despite a slowdown in Chinese VIP gamblers in Macau, Summit’s Landheer said Tigre de Cristal and the Vladivostok zone as a whole are in a unique position.
As visitors from Northeast China account for only about 1.5-2.5 percent of the visitors to Macau, there is huge potential for Vladivostok to attract visitors from that region, he said.
He also pointed out that Tigre de Cristal is one of only a few integrated resorts in Northeast Asia that allow local and foreign players, and that it is the largest such resort in the Russian Federation.
Most casinos in the Korean peninsula, for example, do not allow locals to enter but there is no such restriction in Vladivostok, Landheer noted.
However, challenges remain as the Russian economy is going through a bad patch now and its currency has lost half of its value against the US dollar since the start of 2014.
Given the poor domestic economy, there are doubts as to how much revenue the casinos in Russia can generate from local visitors.
Ivan Zuenko, a Vladivostok-based researcher with the Russian Academy of Sciences (Far East branch), sees the upside of Russia’s current situation.
“Vladivostok has long been a popular tourist destination especially among the Chinese from northeast provinces. The current fall of ruble makes traveling to Russia much more affordable than before,” he says.
“I would expect that would draw more tourists, both from China and other countries.”
In the first six months this year, 135,894 tourists visited the Primorsky Krai region. The figure represents an 13.6 percent increase compared to the same period last year.
What might be a drawback for Vladivostok is the lack of skilled workforce in the gaming sector, such as dealers.
Landheer acknowledged that training of dealers and service staff is “one of the major challenges” that Tigre de Cristal has faced, but said the company still opts to employ locals rather than importing foreign workers.
He added that Tigre de Cristal has established a dealer and service training school where staff are taught the job skills they require.
“We want to show the local community that we create employment opportunities. Meanwhile, it also makes better sense financially to hire locals, especially given the weak ruble,” Landheer said.
“Importing dealers from Macau is not the answer.”
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