How The Casino Will Influence The Cypriot Economy

Chapter 1

Introduction

Melco International announced in January 2018 an opening of the resort in the Republic of Cyprus by early 2021. The resort will have a casino that will work temporarily in the selected location of Limassol, a Southern Coastal city on the Mediterranean Island. Later, the casino will be shifted to Melco International, and the partners’ projected permanent property will be named “City of Dreams Mediterranean.” The consortium has a partnership of 75 and 25, with Melco International as a leading firm headed by Lawrence Ho Yau Lung, a casino investor. The other partner in the consortium is Zakaki i.e Cyprus Phasouri Ltd. a conglomerate based in Cyprus. Initially, there was an American casino investor company, Hard Rock International Incorporation, involved in the consortium when it obtained a casino license valid for 30 years from the government of The Republic of Cyprus in June 2017.

The winner of the license is exclusively accredited and will enjoy the monopoly for fifteen years. After that, the other companies will be allowed to obtain licenses to compete for the consortium in the Cyprus casino industry. The exclusivity of the license allows the winner to have a satellite casino in the country along with three slot parlors. The partners’ joint press release announced that the consortium would have a number of four satellite casinos operating in Cyprus locations of Larnaca, Nicosia, free Paphos and Famagusta by 2018. Ministry of Tourism and Industry, commerce and Country Energy’s organized event presented the finalized plan of the Limassol casino resort by Melco International and partner Phasouri Cyprus, respectively. The press release included “nation’s first – the casino resort, is the biggest program for the development of tourism industry in the country of Cyprus involving an investment of total EUR 550 million” stated by the consortium partners. The casino resort which will be a joint property of consortium partners is documented, labelled as “Europe’s biggest integrated casino resort”.

The features of the casino in the design were also revealed in the press release. The promoters said that the resort would incorporate one hundred and thirty-six tables and twelve hundred gaming devices, a motel comprised of villas and five hundred hotel rooms, eleven restaurants and cafes. One sports center, one health center, a retail store, and swimming pools. A space of ninety-six hundred square meters will be allocated for convention and meeting settings and halls.

The Head of Melco International said that they would like their projects in the Philippines and Macau to invest with the local industries for the interiors and designs of the resort and top-class infrastructure to come up with the most sophisticated entertainment facilities embedded with state-of-the-art technological applications in every business operation at the resort.

The consortium projected the resort would attract an estimated additional 300,000 tourists to the country per annum. The documented estimations told that the effect of the casino on the local economy will be an approximate yearly Euro 700 million, and by the end of the second year of the casino’s business operations would be equivalent to four percent of the current gross domestic product generated by Cyprus as far as the employment opportunities expected to be generated by the installation of a casino in the country are projected as 4,000 job vacancies in the construction period and 2500 at the time of the full operational phase of the casino.

Melco International acquired all of the shares of Hard Rock Incorporation in the project and, resultantly, is leading the consortium with an approximate 75 percent shareholding. The acquisition took place after the approval of the government of The Republic of Cyprus. Melco International claims to be the biggest economic contributor to the local economy in the near future of the country by complying with the aspirations of the government for a world-class casino in the country.

Melco International

Melco International Development Limited was established in 1910 and became public in 1927 by listing on the Hong Kong Stock Exchange in 1927 with an EX code 200. The company was among the one hundred companies that first started business operations in Hong Kong. Today, Melco International is a world-class firm functioning under the control of Lawrence Ho in the leisure and entertainment industry with a leadership position in China, Russia and the Philippines. In Asia, the company has a leadership position for developing, establishing and operating the casino business with resort facilities having a major stake in Melco Resort & Entertainment Limited, listed on NASDAQ as MLCO.

Being the first to secure a Cypriot license for establishing one of the biggest casino resorts in Europe, Melco International will be entering the European market with a credible and worthwhile image. The exclusivity of the license for fifteen years will allow the company to earn a long-term monopolistic advantage of operations in the country that will contribute a huge amount to the revenue. Melco won the “Corporate Governance Asia Annual Recognition Award” in 2016, awarded by Corporate Governance Magazine, and also the ” Hong Kong Corporate Governance Excellence Award” by Hong Kong Baptist University’s Centre for Corporate Governance and Financial Policy and Chamber of Hong Kong Listed Companies.

The company is operating in two major areas of business around the world, principally, the Leisure and entertainment gaming industry and services provision for leisure and entertainment and lottery schemes alongside the manufacturing business of electronic gaming machines and their distribution, especially plaques and chips. Besides, Melco International operates I property investment and sales business, too. The company is expected to enter the travel and tourism business in the future.

The Republic of Cyprus

The Republic of Cyprus presently is populated with 725,000 people, out of whom the Greek Cypriot population counts 580,500, and the Turkish community contributes 13,800, 81.6% and 18.4%, respectively. Greek community speaks the Greek language and follows commonly Orthodox Church of Cyprus. The 1960’s constitution reveals that the Armenian, Latin and Maronites willingly opted to belong to the Greek Cyprus Community. However, the Turkish community adheres to the religion of Islam and speaks Turkish.

Historical view

Just off the Limassol-Nicosia road, the remains of an ancient human settlement in Cypriote regions of Southern and Northern coasts are dated back to 5000 B.C. The history of Cyprus is divided into different periods of time according to realms of reigns and civilizations. 3900-2500 B.C. era is named the Chalcolithic period after the earliest civilizations in the region when the Island is thought to be first explored. The era of 2500-1050 B.C. is known as the Bronze Age when the natural wealth of the Cypriote region was exploited and made pottery and items with and traded to Egypt, east and Aegean.

1050-750 B.C. era is called the Geometric Age, when Phoenicians first built a kingdom at Kition. That period is renowned for major developments and prosperity in the region. 750-325 B.C Archaic/classical period when the foreigners invaded the kingdom that was conquered by Egypt, Persia and Assyria. 333-332 B.C. Alexander’s era was when he defeated Persia and took the region into control. Hellenistic era, 325-58 B.C., during which Egypt’s Hellenistic state defeated Alexander’s generals and took over the reign. 8 B.C. 330 AD is called the Roman Era, 330-1191 AD BYZANTINE period named after the Eastern Roman Empire.

Afterwards, the Cyprus region went through many geographical and political phases during the Frankish, Venetian, Ottoman period and British colonialism periods.

On 16^th August 1960, Cyprus became an independent state named The Republic of Cyprus after the event of the Zurich-London Treaty. Currently, she is a member of The United Nations, Commonwealth and the Council of Europe and Non-Aligned Movement. The British have two independent bases in the Cypriote region, Akroti-Episkopi and Dhekelia.

Constitution

The constitution passed in 1960 was found to be non-functioning in many provisions and was amended in 1963 upon the recommendations proposed by the President of the Republic in order to make the law more functioning for state affairs and public regulations. The amendments were opposed by the Turkish community, and Turkish Ministers in the cabinet walked out of the house. Since 1974, after severe opposition from the Turkish community, the Cypriot region was divided into two parts, one under the Turkish government and the other under the Greek command.

Presently, Cyprus has the advantage of being associated with the European Union under the third countries’ rule. The negotiations with the European Community started in 1971 after encouragement from the United Kingdom, which signed an Association Agreement enforcing the completion of ten years and two stages. Due to conflict with Turkish community, the economic progress of Cyprus reduced and delayed, however, after the completion of the first stage though, with consecutive extensions, the Association Agreement was signed for the second stage in 1987 that paved the way for Cypriote economic progression. The Customs Union between the European Union and Cyprus requires the elimination of all the quantitative restrictions and tariffs on agricultural and manufactured products. Simultaneously, The Republic of Cyprus will enable itself to align its tariffs with the European Union by progressively adopting the external CET tariff.

Three financial protocols have been signed between Cyprus and the European Economic Community since 1977 that allow financial aid to Cyprus of 136 million by the European Union, including special financial loans, grants, and general category loans.

Economy

The post-independence era of the Cypriote economy has depicted rapid growth, performing successfully with a full employment rate and stability in progression. The economy suppressed and underdeveloped before 1960 transformed into a progressive and growing modern economy through development in each sector, whether industrial or agricultural, with dynamic services advances in technological and physical infrastructure. The country is considered in the upper-middle class of income economies. The progression is even striking, considering the downfall caused by the conflict with the Turkish community and partition.

The Cypriote community is found to be entrepreneurial and dynamic that has resulted in the economic success of the country, besides, there is a well-educated workforce working for the businesses and an economic system with a characteristic of strong market- orientation and solid official eco-political policies and regulatory reforms.

In a couple of decades, the Cypriote economy has become more European-oriented. Since the Customs Union Agreement came into effect in the year 1988, the biggest trade partner of Cyprus is the European Union. After the country became a member of the European Union in full, the market, social institutions, trade policies and economic regulations have clearly shown an adoption of European-oriented harmonization.

Limassol Casino Resort

“I am proud that the Cypriot government has entrusted Melco and CNS to build Cyprus’s first Integrated Resort, which will place Cyprus on the world tourism map and attract visitors, not just from the surrounding region but also from the whole of Europe and around the world. In the same way, as we delivered in Macau and the Philippines, we build with local partners, invest in extraordinary world-first architecture and design, create sophisticated entertainment experiences, and embed state-of-the-art technology into everything we do.”

Melco and Phassouri

Gambling in Cyprus

Chapter 2

Literature Review

A substantial body of research exists on Casinos and their impacts on society from different perspectives. The researchers have tried to assess gambling’s effects on society, lawmaking, the economy and gamblers’ lives. A large proportion of the research is found in 1990s era, though it might be thought as outdated literature as modern studies have investigated casinos from various new perspectives, however, these studies have delivered some of the major findings of casinos and their impact on local communities. While reviewing the literature for the present study, the researcher has tried to include the most relevant and current studies and older studies are included only in case they were definitive and could help demonstrate how the research results of studies on casinos have changed over the years. The researcher also found older literature full of optimism, dismissing the research on negative aspects and with a defensive skeptic approach on issues of the social cost charged by the casino industry. The current contemporary literature is found to be more critical and addresses the earlier rosy nature of research reports. Some of the investigators tried to cater to the social cost of casinos more vibrantly and rigorously and criticized the previous studies for not calculating the costs accurately. Different results and findings have been found in the literature that are included in this chapter to give background knowledge support to the study.

Information on casino

A casino is a venue for gambling with a complex nature of business involving specialized and skilled employees, including managers, financial executives, dealers, security personnel, supervisors and marketing staff. Casinos that operate illegally also will require them to hire extra personnel like debt collectors and guys to watch out for corps raids and cappers, and ropers to bring the people in and encourage them to make bets (Asbury, 1938, pp. 182-184).

As a matter of fact, illegal casinos are often in need of more personnel and organization levels as they depend mostly on organized crime for protection, finance and debt collection (Champlain, 2004). Gambling has a historical link with organized crime (Asbury et al., 1995).

Casinos are legalized in many forms, and understanding gambling and gambling venues operating in the market is becoming very important to formulate the policies, and this asks for greater scientific research. A number of four research journals are publishing studies conducted on the topic of gambling and associated problems; these journals are International Gambling Studies, Journal of Gambling Issues, Journal of Gambling Issues and Gambling Research.

Rorabaugh, in 1979, characterized the American nation as obsessed with salvation and money. Gambling historically has a crucial space in the subjects of crime, sin and spirit, which is because of money-infatuated cultural influence (Binde, 2001). Chance-taking games were perceived as a sin (Winship, 1939, pp. 10-11). Conventionally, people involved in gambling from the areas of Mississippi, California and the Eastern seaboard were known as cheaters in the society who, in myriad ways, tried to con their gambling customers. The gambling theme became popular in novels and stories in the late 19^th century (Oriad, 1991). According to Asbury, the trend of writing novels on gambling themes was popular till the early 20th century (Coates, 1930). The relationship between crime and gambling has also been demonstrated exaggeratedly in the movies showing the bad people in charge of gambling venues such as Casinos (Asbury et al., 1995).

Financial costs

A compilation of a review of the literature presented in 1998 by Adam Rose. The researcher conducted library research by studying thirty-six major studies on the topic of gambling and the effects of Casinos on the economy. He proposed twelve research propositions based on the results and findings of the studies. If the Casino serve as an external market or not, and if it function like a factory that brings money from the external market to the local economy? Rose draws a conclusion about the casino’s impact on the local economy by positing that “a new casino, or even limited attractiveness and placed in the market that is not saturated, will yield positive economic benefits on the net to its host economy.” Such a conclusion does not cater to the issue of the financial cost that a casino puts on society and the economy. Rose further studies the investigations on the negative impact of casinos on the net economy and found that multidimensional and substitutive effects were caused by casino businesses operating in an economy. It was found that the casinos did not have multiplying effects on the economies of medium to large-scale cities. (Rose, 1998).

Around thirteen employment opportunities were created on every one million dollars of revenue in a casino. Anderson, in 1996, conducted secondary data research on the impacts of casinos and concluded that gambling businesses indicate a larger multiplier of an economy. Rose, however, 1998 assessed Anderson’s analysis of casinos as having the largest income generation and output than any study (Rose, 1998).

In 2003, the University of Illinois assessed the effects of casino business on the economy of Illinois based on the data of the fiscal year 2000-2001. The research indicated that a number of eleven thousand people got jobs in the casino that subsequently created another forty-five thousand direct opportunities and brought eighty-seven thousand induced vacancies. The researchers found that major economic impact of a casino on the economy was caused by the taxation to the government, however, locally the effects were smaller due to limited expenses incurred by casinos for vendors and leakage (REAL). Dollars 184.8 million were the total expenses incurred by the casino industry, generating dollars 521 million additionally as output overall in the economy of Illinois state, majorly in the industries of durables and services. That impact was in the Illinois state not necessarily such a multiplier to Allen County (REAL).

A research report presented by the Connecticut Economic Resource Center concluded that the Casino multiplier created 1.3x jobs in the economy of Wichita State and earnings by 1.57x (CERC).

Casinos work as engines for the growth of the economies or not is a question researchers have been seeking an answer to. By economic growth, researchers mean the employment opportunities, economic development, and promotion of the tourism industry and more tax revenue to the government that can be spent on the health and education of people in the society. La Porte County could not grow in employment as though there was casino operating successfully in the city, the same case was reported for Detroit. The difference before and after the building of a casino needs to be investigated before inferring the factors (Morse and Goss, 2007).

The wage rate in the casino is lower in comparison with the overall wage rate average in the economy. Another question was probed by the researchers if the casinos work as cannabis for the hospitality and other entertainment industries with a substitution effect (Morse and Goss, 2007).

An investigative study in 2005 conducted by Crowe analyzed the effect of casinos on the hospitality business in the economy. The researcher assumed twenty percent of rooms in hotels as complimentary reservations and fifty percent for business tourists, whereas the rest thirty percent was assumed to cater to the travelers in the town who came to visit the casinos. The report suggested that there was eighty-five percent occupancy per annum but the breakdown was not discussed 9 (Crowe, 2005).

Grinols, in 2004, in his investigation “Gambling in America,” describes the effect of cannibalization caused by taxation charges paid by casinos in Illinois based on the tax receipt data. The researcher divided the tax receipts into ten categories. A total of 21 data quarters were gathered, and the proximity of the tax receipts with the casino business was determined. It was concluded, based on the study results, that tax receipts’ distance from casinos business and additional revenue generated from the business influenced many industries. An overall 170 dollars were contributed to the economy on every one thousand earnings of casinos. The researcher also found that in industries, the casino revenue was ten to thirty miles away, and he suggested further research along these lines of gambling effect (Grinols, 2004).

The literature has shown that the casino businesses have clear economic effects, however, a large research body has investigated the social cost caused by the casinos in the society. The next section of the literature review will compile the findings of typical and modern research on the social cost of the casino industry present in the economy.

References

Crow, V.T., 1936. Money receptacle. U.S. Patent 2,051,131.

Goss, E.P. and Morse, E.A., 2009. Governing Fortune: Casino gambling in America. University of Michigan Press.

Nichols, M.W. and Tosun, M.S., 2008. The Income Elasticity of Gross Casino Revenues: Short—Run and Long—Run Estimates. National Tax Journal, pp.635-652.

Rose, A.Z., 2001. The regional economic impacts of casino gambling. CONTRIBUTIONS TO ECONOMIC ANALYSIS, 249, pp.345-378.

Marshall, D., 2009. Gambling and organized crime–A review of the literature. Journal of Gambling Issues, (23).

Binder, P., 2009. Exploring the impact of gambling advertising: An interview study of problem gamblers. International journal of mental health and addiction, 7(4), p.541.

Humphreys, A., 2010. Semiotic structure and the legitimation of consumption practices: The case of casino gambling. Journal of Consumer Research, 37(3), pp.490-510.