Ben Lee has a reputation for defying Asian gaming’s conventional wisdom. That reputation can obscure Lee’s more important standing as one of the most astute observers of the region’s casino industry. For example, Lee foresaw the “political risks” to Macau in early 2014 while everyone was laughing their way to the bank ahead of a gaming revenue crash that ran for more than two years.

Managing partner at IGamiX Management & Consulting – the name is a derivative of “intelligent gaming executives” – Lee’s experience ranges from vice president of casino marketing for Sands China precursor Venetian Macau to operating partner of leading Saipan electronic gaming parlor Club C. For this reporter, attending the ASEAN Gaming Summit in Manila and meeting with the city’s integrated resort operators indicated that the Philippine casino sector, the fastest growing in Asia last year, continues roaring ahead. Lee, who spoke at the ASEAN conference, shared his view of Philippine gaming in the interview excerpted below.

Muhammad Cohen: What’s driven growth in the Philippine casino market since the start of 2016?

Ben Lee: Growth in the VIP segments has come mainly from proxy betting, which is illegal in Macau. There is also the domestic market, which should not be ignored. Apart from organic growth, what most analysts failed to realize is that a huge component of the perceived growth came from cannibalization of Pagcor’s business. [Pagcor is the Philippine government owned casino operator that also regulates the gaming industry.]

In the early days of the IRs in Manila Bay, the majority of their GGR [gross gaming revenue] actually came from the domestic market in the form of cannibalization of Pagcor’s business, both grind and local high rollers who have not been looked after by Pagcor. Then there was the economic growth under [President Ninoy] Aquino, which also helped propel GGR. Overseas visitors were far and few in between, and what there was were the Korean market, which at one stage dominated the so-called VIP business in Manila.

Cohen: Are rising Chinese tourist arrivals having any meaningful impact on mass market gaming revenue?

Lee: Whilst the year-on-year growth of Chinese visitors may seem impressive, the actual numbers are still extremely low, and there are still the lingering safety issues associated with the Philippines. There are actually very few Chinese mass players to be seen on the gaming floors. Koreans still dominate that segment, in so far as overseas visitors are concerned.

Cohen: Macau junkets, especially Suncity Group, seem very active in Manila. Have mainland Chinese players become more comfortable visiting Manila?

Lee: No, they haven’t, certainly not to the numbers one would expect. If you were to look into the VIP rooms, you will see uniformed phone jockeys talking into their headsets to clients based overseas. Proxy betting is what is driving the current growth in junket GGR.

Cohen: To what extent does Philippine casinos’ exemption from anti-money laundering [AML] rules make them attractive for junkets and their customers?

Lee: The exemption of Philippine casinos from AML restrictions is certainly one of the major drivers of growth. Look at the Bangladesh Bank scam. [Early last year, funds stolen from that state bank’s US account wound up in Manila banks and junket accounts.] To date, no one has yet to be prosecuted, apart from one or two mid-level bank managers.

Cohen: What impact has President Duterte’s arrest warrant on Macau junket tycoon Jack Lam and closure of Lam’s Philippine gaming assets had on junkets?

Lee: It just reinforces the durable perception that foreign investors and operators will always be at the mercy of local politics.

Cohen: What will be the impact of Okada Manila, Japanese billionaire pachinko mogul Kazuo Okada’s $2 billion IR in Entertainment City?

Lee: The market will be oversaturated. We don’t believe the market is large enough to sustain four major operators, with more yet to come in the Philippines – not just in Manila. What this means is that competition will become extremely fierce to the point where profitability will be significantly impacted.

Cohen: Once Okada Manila fully opens, has Entertainment City arrived as a destination with critical mass in gaming and non-gaming that can boost tourism?

Lee: In light of our assertion that there is very little growth in physical VIPs to Manila, the growth area will be proxy betting. However, that in itself carries tremendous risks for all.

Cohen: Will Okada Manila attract new non-Chinese visitors?

Lee: Koreans will continue to dominate the local landscape. However, that market segment does not have a huge upside, remembering that there is a law that allows the South Korean government to prosecute their nationals who gamble overseas. There is not much of a Japanese or Taiwan market in the Philippines.

Cohen: What particular niche is (or will be) occupied by each of the four IRs – Solaire, controlled by billionaire Enrique Razon; City of Dreams Manila, part of Lawrence Ho’s Melco Resorts and Entertainment, with billionaire Henry Sy’s family holding a stake; Okada Manila and Resorts World Manila, owned by Travellers International Hotel Group, a joint venture of billionaire Andrew Tan’s Alliance Global Group and Genting Hong Kong?

Lee: Solaire is probably the most up-market at the moment, with Resorts World Manila at the low end and COD in the middle. We believe Okada will come in to all segments and will compete aggressively in all of them. We foresee huge campaigns as well as the highest reinvestment levels to be given back to the players, resulting in an erosion of margins for the incumbents. Okada has a long-term perspective, and he would not be constrained by the typical monthly or quarterly navel gazing that seem to dominate most casinos.

Cohen: Do you expect Travellers will build its Entertainment City IR?

Lee: Why should they invest another US$1 billion in an already crowded market? It would be prudent for them to stall as long as they can, and eventually perhaps build a small [casino] property with a large retail estate for sale, as they have done [at RW Manila].

Cohen: Will Pagcor go through with President Duterte’s plan to sell its casinos and become only a regulator?

Lee: No. Two administrations have come in with that initial viewpoint and both have backed off subsequently. There is too much vested interest by the local politicians to maintain Pagcor as the cash generating entity that it is.

In fact, the reverse to privatization is now occurring. We believe Pagcor is currently implementing a strategy to expand their casinos right around Manila, as well as in the provinces.

In Manila, there is a current trend towards small mini-casinos based in various suburbs, owned by private investors but operated by Pagcor. There is also a major casino complex that is being constructed in Quezon City by one of the four IR operators [Solarie owner Bloomberry Resorts]. In short, we see a proliferation of gaming all over the Philippines that will eventually undermine the attractiveness of investing in large scale developments there.