Showing posts with label gaming industry. Show all posts
Showing posts with label gaming industry. Show all posts

Sunday, July 06, 2025

The Ghost of BW Resources: The Bursting of the Philippine Gaming Stock Bubble


An inflation tends to demoralize those who gain by it as well as those who lose by it. They become used to “unearned increment.” They want to hold on to their rela­tive gains. Those who have made money from speculation prefer to continue this way of making money to the former method of working for it…The trend in an inflation is toward less work and produc­tion, more speculation and gam­bling—Henry Hazlitt

In this issue: 

The Ghost of BW Resources: The Bursting of the Philippine Gaming Stock Bubble

I. Why Our Prescient Warning? Seven Disturbing Parallels

II. One: Gaming at the Core

III. Two: Distortions: Market Dominance and Turnover

IV. Three: Post-Crisis Timing

V. Four: Inflation and the Illusion of Prosperity

VI. Five: Prohibition, the Satirical Theater of Morality and Potential Political Controversies

VII. Six: The South Sea Parallel

VIII. Seven: Bull Traps and Secular Cycles

IX. Conclusion: Bubble Cycles: The Rhyming of History 

The Ghost of BW Resources: The Bursting of the Philippine Gaming Stock Bubble 

From BW Resources to PLUS and BLOOM: The Anatomy of a Gaming Stock Market Bubble Reborn, 7 disturbing parallels

I. Why Our Prescient Warning? Seven Disturbing Parallels 

At the peak of the euphoria surrounding the Philippine gambling bubble, I issued a subtle warning via tweet (x.com post): (Figure 1)


Figure 1

"Strange fascination with gaming bubbles. Has the Philippine financial community forgotten the BW Resources bubble, w/c soared in a bear market's 'bull-trap' phase & crashed in 1999, exposing unsustainability & 'manipulation?' Learn from history—recurring bubbles in market cycles"

Certainly, 2025 is not 1999. The economy, financial architecture, and technological landscape have evolved. The composition of the Phisix—now the PSEi 30—has changed. The circumstances behind the BW scandal were unique. 

Despite the passage of time and evolution of market instruments, a troubling déjà vu grips the Philippine financial landscape. The current gaming bubble echoes the BW Resources scandal with unsettling fidelity—both in structure and in consequence. 

Below are seven disturbing parallels that merit scrutiny, not dismissal. 

II. One: Gaming at the Core 

BW Resources began as an online bingo firm with a nationwide franchise. It was, fundamentally, a gaming enterprise. 

Today’s speculative darlings—Digiplus Interactive Corporation [PSE: PLUS] and Bloomberry Resorts Corporation [PSE: BLOOM]—are likewise gaming firms, riding a digital demand boom.


Figure 2

PLUS has enjoyed a windfall: retail sales surged 181% (YOY) year-on-year in 2024, while net income growth vaulted 207%. In Q1 2025, net income soared 110% to Php 4.2 billion. (Figure 2, topmost window) 

Riding on the coattails of PLUS, BLOOM—a relative newcomer to online gaming—launched its digital platform in April, coinciding with a sharp rally in its share price. The timing fueled market excitement, further amplifying speculative fervor toward the sector. 

III. Two: Distortions: Market Dominance and Turnover 

BW Resources once commanded a disproportionate share of market turnover. (Figure 2, middle graph) 

At its peak, its market cap eclipsed stalwarts like San Miguel and Ayala Corporation (Hamlin, 2000). 

In mid-June 2025, PLUS and BLOOM’s combined turnover reached over 20% of the mainboard. (Figure 2, lowest image) 

As the bubble began to deflate, their aggregate volume still accounted for 16.9% of June’s total. 

The collapse saw a further explosion in turnover: in June, PLUS plunged 48.15%, BLOOM fell 17.2%, and their combined turnover share spiked to 22.2%. PLUS alone captured 17.8% of weekly volume—33.3% on Friday alone! Astounding. 

The stunning magnitude of PLUS's volume share—a firm which used to be on the sidelines—suggests that this represents a corporate-specific boom-bust episode driven not by savings but by leverage. 

Remember that the banking system's credit portfolio stands at an all-time high, mostly powered by consumer credit. 

The spike in volume as PLUS shares collapsed may indicate ‘margin calls’ or the selling of other PSE-listed shares to bolster collateral backing leveraged PLUS positions. This could explain the PSEi 30's 1.13% drop last Friday. 

IV. Three: Post-Crisis Timing


Figure 3

BW Resources peaked and imploded in 1999, two years after the Asian Financial Crisis (AFC), when GDP contracted by 0.51% in 1998. (Figure 3, upper chart) 

The current bubble climaxed four years after the pandemic-induced recession of 2020, when GDP shrank by 9.6%. 

V. Four: Inflation and the Illusion of Prosperity 

The BW Scandal was a product of easy money-fueled inflation. 

Since peaking at 12.5% in 1994, the CPI headed downhill until the 9.4% spike in 1998, belatedly brought about by the AFC. The CPI dropped significantly to 6.1% in 1999 as the BW scandal unfolded. 

Similarly, CPI rose from 3.9% in 2021 to 6% in 2023, then plummeted to 3.2% in 2024. 

As the great economist Henry Hazlitt noted, 

"A vital function of the free market is to penalize inefficiency and misjudgment and to reward efficiency and good judgment. By distorting economic calculations and creating illusory profits, inflation will destroy this function. Because nearly everybody will seem to prosper, there will be all sorts of maladjustments and investments in the wrong lines. Honest work and sound production will tend to give way to speculation and gambling. There will be a deterioration in the quality of goods and services and in the real standard of living" (Hazlitt, 1969). [bold added] 

As Hazlitt warned, inflation distorts economic calculation, rewards speculation over production, and erodes real living standards. Despite disinflation, the purchasing power of the common tao continues to decline. 

Elevated self-rated poverty and hunger suggest a deteriorating standard of living. (Figure 3, middle and lowest panes) 

As a side note—and quite ironically—despite the falling rate of CPI, sentiment metrics such as self-rated poverty and hunger continue to trend upward, even in the face of recent declines. Consider this: the current environment operates under an easy money regime that has buoyed all-time highs in fiscal stimulus, near-record employment, unprecedented public debt, expanding bank credit, and systemic leverage. But what happens if this constellation of highs begins to unravel? 

Many turn to gambling not for leisure, but as a desperate attempt to bridge income gaps, service debt, and or as a coping mechanism—a form of psychological escapism from personal financial straits. 

In this prism, rising gaming revenues hardly represent economic progress, but rather a transfer from the vulnerable public to the house casino. 

VI. Five: Prohibition, the Satirical Theater of Morality and Potential Political Controversies 

The implosion of the BW Resources stock market bubble effectively opened a Pandora’s Box of political ramifications. It exposed systemic corruption, egregious stock market manipulation, and other conflicts of interest with connections reaching the highest echelons of power (Pascual and Lim, 2022). 

Following the contemporary political assault on Philippine Offshore Gaming Operators (POGO), political evangelists have opportunistically piggybacked on this sentiment, advocating for increasingly vocal and deeper prohibitions anchored on the supposed social sanctity or righteousness of a total ban on digital gambling. 

Yet the crackdown on POGOs appears entangled in deeper geopolitical currents—linked to Chinese interests under the previous administration and potentially reflecting the broader US–China hegemonic rivalry, made manifest through diverging diplomatic relations between alternating political regimes in the Philippines. 

Crucially, in a populist climate framed by social-democratic ideals, the magnitude of state intervention often becomes a currency of political capital—the larger the crackdown, the louder its resonance among voters. 

History repeats: the public once clamored to ban jueteng, which helped trigger People Power II and the ouster of President Joseph E. Estrada. Eventually, the state legalized it through STL under PCSO. 

Wikipedia notes: "One of the suggested reasons for legalization was to eliminate repeated corruption scandals... It has been compared to the tribulations in the United States regarding their prohibition of alcohol." 

Or rather, legalization signified the ‘nationalization’ of what was once a fragmented, decentralized, and implicitly local government (LGU) controlled shadow economy—effectively converting informal vice into formal state enterprise. 

In the same vein, one might ask: what became of the Philippine drug war, "Operation Tokhang"? 

Aside from the escalating calls for prohibition, will other political controversies emerge from this bubble bust? 

If history is a reliable compass, financial distortions often leave behind trails of corruption, regulatory compromise, and partisan leverage. The unraveling may reveal ties between speculative fervor and institutional patronage—suggesting that what began as financial exuberance could metastasize into yet another political saga. When markets deflate, the silence seldom lasts. 

Echoing the BW scandal, will malfeasance reemerge? As economic historian Charles Kindleberger once warned: "The propensity to swindle grows parallel with the propensity to speculate during a boom; the implosion of an asset price bubble always leads to the discovery of frauds and swindles" (Kindleberger & Aliber 2005) 

VII. Six: The South Sea Parallel

Figure 4 

While intense volume spikes amid a share collapse are associated with 'capitulation' or a theoretical ‘bottom,’ we harbor doubt that this is the case. 

From our humble perspective, whether a bounce occurs or not, the Philippine gaming bubble may have likely been pricked. 

PLUS’ chart, born of BSP’s easing cycle, evokes the South Sea Bubble of 1720—a spectacle of leverage, speculation, and political complicity. (Figure 4, upper and lower graphs) 

The South Sea Bubble was a major financial crisis that shook Britain in 1720, driven by wild speculation in the South Sea Company. The company had been granted a monopoly on trade with Spanish South America and took on a central role in managing the national debt by converting the King’s personal debt into the nation’s debt. Investors were drawn in by promises of immense profits. The company fueled the frenzy by allowing shareholders to borrow against their own South Sea stock as collateral, encouraging dangerous levels of leverage. The bubble was also part of a broader shift toward modern finance, including the creation of paper money and the rise of institutions like the Bank of England, which was established in 1694 to help manage government borrowing and stabilize the financial system. When confidence collapsed, share prices crashed, collateral became worthless, and forced liquidations deepened the ruin. The episode exposed corruption at the highest levels of government and business, leading to political fallout and reforms in financial regulation.  (Cwik, 2012) 

Isaac Newton, emblematic of intellectual prowess, became entangled in the bubble. After initially profiting, he reinvested heavily—and ultimately went broke. It’s often said the experience prompted him to declare: "I can calculate the motions of the heavenly bodies, but not the madness of people." (chart from Dr. Marc Faber) 

Ironically, Newton’s third law of motion—"for every action, there is an equal and opposite reaction"—finds metaphorical resonance here: South Sea shares returned to their starting point, as did the illusions of prosperity they once inspired. 

VIII. Seven: Bull Traps and Secular Cycles


Figure 5 

The BW scandal unfolded and climaxed in 1999 during a "bull trap" in a secular bear market. Once exposed, the market plunged until its 2002 trough—where the next bull cycle began. (Figure 5, upper chart) 

Today, the bear market persists. A “bull trap” rally is being engineered through easy money, fiscal stimulus, market interventions, and statistical optics—all framed within a carefully curated Overton Window, reminiscent of the ‘easing cycle’ powered "bull trap" of Q3 2024, as exhibited by prevailing media headlines. (links here, here and here) (Figure 5, lower diagram, Figure 6, media images)


Figure 6

IX. Conclusion: Bubble Cycles: The Rhyming of History 

The bursting of the Philippine gaming bubble represents more than a mere market correction—it embodies the cyclical nature of speculative excess that has plagued financial markets throughout history. 

The parallels between today's gaming bubble and the BW Resources scandal of 1999 are symptomatic of deeper structural patterns in market psychology, monetary policy and political misdeeds and imbroglios. 

As Mark Twain allegedly observed, "History doesn't repeat itself, but it often rhymes." Beneath the veneer of technological advancement and regulatory sophistication, the fundamental drivers of speculation—easy money, leverage, political interventions and human greed—remain unchanged. 

For those who understand the pattern, the current gaming bubble's burst may indeed signal the end of the artificial "bull trap" and the resumption of the secular bear market that never truly ended. 

In the end, the house always wins—not just in gaming, but in the grander casino of speculative markets where bubbles, once formed, must eventually burst. 

Yet, the silence after bubbles burst is rarely permanent. It’s often the prelude to scapegoating, reform, or reinvention—sometimes all three.  

___

References 

Henry Hazlitt, Comments on Inflation, May 1960 Fee.org 

Kevin Hamlin, Confidence Game, Institutional Investor, August 1, 2000 

CLARENCE PASCUAL AND JOSEPH LIM Corruption and Weak Markets: The BW Resources Stock Market Scam, March 2022 UP Center for Integrative and Development Studies, cids.up.edu. ph 

Henry Hazlitt, Man vs. The Welfare State p. 133 Arlington House, 1969, Mises.org 

Wikipedia, Jueteng 

Kindleberger, Charles P., and Robert Z. Aliber. Manias, Panics, and Crashes: A History of Financial Crises. 5th ed., Palgrave Macmillan, 2005. Chapter 9. 

Paul F. Cwik, The South Sea Bubble, April 3, 2012, Mises.org

  


Sunday, August 25, 2019

PSYEi 30: 2Q and 1H Revenue Growth Slack Equals Profit Boom! The Backlash On Chinese POGOs To Affect Properties



Tinkering with security valuations doesn’t create aggregate “wealth” – it simply takes future returns and embeds them into current prices. Long-term “wealth” is largely unchanged, because the actual wealth is in the future cash flows that will be delivered to investors over time, and once a security is issued, somebody has to hold it at every point in time until that security is retired. The only thing elevated investment valuations do is provide an opportunity for current holders to receive a transfer of wealth by selling out to some poor schlub who pays an excessive price for the privilege of holding the bag of low future returns over time—John P. Hussman, Ph.D.

In this issue

PSYEi 30: 2Q and 1H Revenue Growth Slack Equals Profit Boom! The Backlash On Chinese POGOs To Affect Properties
-PSYEi 30: 2Q and 1H Revenue Slack Equals Profit Boom!
-PSYEi 30 Net Income Growth Inflated by Non-Recurring Income, Subsidies and Accounting Magic
-PSYEi Firms Borrowed Php 6 For Every Peso Net Income Growth in 1H 2019!
-Backlash on POGOs To Curb Artificial Chinese Demand on Philippine Properties
-Historic Weekly Mark-The-Close Pump Designed to Save the 9-Month Trend!

PSYEi 30: 2Q and 1H Revenue Growth Slack Equals Profit Boom! The Backlash On Chinese POGOs To Affect Properties

PSYEi 30: 2Q and 1H Revenue Slack Equals Profit Boom!

Listed firms at the Philippine Stock Exchange (PSE) published their 17Qs or quarterly disclosures by August 15th.  
Figure 1

Interestingly, despite slower gross revenue growth for members of the headline composite index, the PSYEi 30, net income growth zoomed. Gross revenues grew 8.36% in 2Q to drag 1H revenue growth to 9.97%. (figure 1)

The remarkable boom in Treasury assets buoyed the banks share of revenues growth to the second spot at 21.32%. Excluding banks, gross revenue growth was only 6.82% in the 2Q, which pulled lower the 1H growth rate to 8.38%. And thanks to the indirect subsidies provided by the National Government, through mass borrowings and cash hoarding, such contributed to the meaningful inflation of revenues and net income of the four of the biggest banks during the period*.

Banks powered net income growth in the second quarter with a phenomenal 35.12% clip. In close second was the holding firm sector with equally amazing 32.53%. Property and industrials took third and fourth spot with 15.36% and 11.98%, respectively. Services and Mining lagged with 6.26% and 3.3%.

In total, the headline index’s 2Q’s net income growth of 25% levitated the 1H’s growth rate to 16.61%.


Amazing, right? But that’s only the surface.

PSYEi 30 Net Income Growth Inflated by Non-Recurring Income, Subsidies and Accounting Magic
Figure 2
Aside from NG subsidies to the banks, one-off gains likewise played a significant role in the substantial jump in the net income growth of holding firms.

Ayala Corp’s marginal net income of Php 22.07 billion accounted for the largest share 39.21% of the aggregate Php 56.3 billion net income of the elite 30 in the 1H. (figure or table 2)

Yet, a significant share of Ayala Corp’s sizzling net income growth of 146.53% in the 2Q and 79.85% in the 1H came from“Equity earnings from Ayala’s business units, which include divestment gains from the merger of AC Education with iPeople and partial divestment of AC Energy’s thermal assets doubled to ₱41.7 billion in the first semester.”

At 2.03% increase, Ayala Corp’s gross revenues barely grew at all in the 2Q to weigh on its 1H’s 3.52%.

Non-recurring income gains were also responsible for puffing up JG Summit’s net income growth. According to the company’s press release, net income growth was “further boosted by mark-to-market and forex gains on the back of a favorable macroeconomic environment, as well as UIC’s Php3.0 billion gain arising from its acquisition of additional stakes in Marina Centre Holdings and Marina Mandarin Hotel.” JG Summit’s marginal net income of Php 9.2 billion accounted for the second-largest share at 16.34% of the aggregate.

If the top two contributors to the net income growth had been from non-recurring transactions, the third-largest net income contributor was BDO Unibank with Php 7.03 billion or a 12.48% share which income was bolstered by NG subsidies.

These three issues accounted for 68% share of the aggregate Php 56.3 billion during the same period.

The thing is, a substantial segment of the 2Q and 1H income growth had accrued from one-time deals, NG subsidies and or accounting gymnastics.

PSYEi Firms Borrowed Php 6 For Every Peso Net Income Growth in 1H 2019!
Figure 3

Public opinion has almost always been fixated on the benefits while ignoring the costs. For instance, there has been little appreciation that the disproportionate growth in balance sheet leverage or gearing help underwrites the degenerative trend in earnings or net income growth or even the real economy.

For the consensus, the effect of massive debt acquisition can only be beneficial, at best, or neutral at worst.  So the debt data is largely ignored or dismissed.

While aggregate net income in the 1H at Php 342.8 billion for non-banks, the marginal growth was Php 44.387 billion. In the meantime, the same companies acquired a cumulative Php 4.23 trillion worth of debt for a nominal growth of Php 273 billion!Yes, non-bank listed firms acquired Php 6.15 in debt for every peso it generated as net income! (figure or table 3)

So not only has such massive borrowings led to a surge in debt levels, but such has also magnified the diversion of resources towards debt servicing that have contributed to the crimping of corporate margins, and worst contributes to the stymieing of investments and consumption in the real economy.

That is, the cost of drawing resource utilization from the future, to enhance earnings and GDP of the present, through increased absorption of debt and misallocations has only been taking its toll through decaying earnings growth and GDP trend. And the crowding-out effect from the NG’s expansive budgets likewise compound on this.

After all, there is no such thing as a permanent free lunch.

And the ongoing slowdown in the real economy, mainly from financial tightening, would not only amplify margin compression from debt servicing, but it also risks exposing the weak links in the financial credit chain.

Backlash on POGOs To Curb Artificial Chinese Demand on Philippine Properties
Figure 4

A brief take on POGOs.

Though the GDP has been slowing, condominium prices have rocketed in the 1Q to take the world’s center stage as the best performing real estate market running at 15.15% clip (Global Property Guide).

Data from the Bank of International Settlements and the BSP real estate index has captured such a phenomenal price explosion in property prices. (figure 4 middle and lower window)

According to the Philippine national accounts data, even the real GDP of the real estate and rental sectors have been heading south!  (figure 4, upper window)

Based on PSE disclosures, the headline index’s real estate sector posted a topline growth of 9.14% and 9.71% in the 2Q and 1H.

So in spite of the GDP slowdown, moderate gains in revenues, real estate prices have boomed. The real estate sector has become an object of rampant speculation!

Many have raved about how Philippine Offshore Gaming Operators (POGO) has been juicing up demand for domestic real estate.

Back in April I warned**,

And because of mass buying of overseas properties by Chinese have affected housing prices that have spilled over into domestic politics in Canada, New Zealand, and Australia, several of them have responded with a variety of curbs (Canada, New Zealand, Australia).  These experiences demonstrate the vulnerability of excessive reliance on overseas demand.


Domestic politics have now begun to cloud on the Chinese demand for properties.


Also, since China prohibits online gambling, the Chinese government requested its domestic counterparts to ban all online gambling.

And demand to impose tightened control over them has increased since POGOs and their activities have caught the public's attention. A local government has recently issued violations on POGO hubs within their locality. The gaming regulatory agency, PAGCOR, has recently imposed a moratorium on POGO applications.

And if public scrutiny on POGOs is a symptom of a growing aversion to mainland Chinese presence here, like elsewhere, this would take a sting out of the most recent artificial demand for real estate. That said, a vastly reduced demand from overseas Chinese would expose the industry’s excess capacity or malinvestments.

Historic Weekly Mark-The-Close Pump Designed to Save the 9-Month Trend!

The largest single-day mark-the-close pump occurred this month in particular on August 13.
Figure 5

In an apparent attempt to protect the 9-month trendline, index managers embarked on a massive 235.73 points pump on this holiday truncated week, the largest ever in history. The PhiSYx closed the week up 93.43 points or 1.2%, which is about 40% of the cumulative 3% end-session pumps executed in 3-days. Without these, the index would have been down big time! The trend would have broken and sent momentum on a waterfall.

Desperate times call for desperate measures?

Only in the Philippines.

For true disciples of economics, they understand that grotesque distortions of the marketplace would lead to an eventual boomerang proportionate to the scale of imbalances.

Sunday, June 04, 2017

A Predecessor To The Resorts World Manila Attack: Mexico August 2011

"Kung ISIS siya, namaril na siya doon (If he was from ISIS, he would have shot the people there)," Dela Rosa also said, explaining that a terrorist would have carried out a suicide bombing to inflict maximum casualties.”-Rappler.com,  June 2, 2017
Because of the lack of evidence of the use of firearms to shoot people down and also because the assailant “stuffed his backpack with P113 million in stolen casino chips” (Inquirer June 3, 2017), the administration declared that the attack at the Resorts World Manila was a work of a “crazy man” who “did not want to kill” (Inquirer June 4). 

And because terrorism was ruled out in the Resorts World Manila attack which unfortunately and sadly claimed 38 lives, the administration allayed concerns that martial law would be imposed nationwide (GMAJune 3). 
Martial law (Proclamation 216) was imposed over Mindanao last May 23 supposedly in response to the outbreak of violence by a rogue ragtag group of ‘terrorists’ in Marawi City. The Marawi siege and mopping up operations reportedly continues (GMA June 3)

Earlier, the administration floated the idea of a nationwide martial law “if the threat of ISIS persists” and spread elsewhere outside Mindanao (Rappler, May 24)

So in spite of the claim by ISIS that the Resorts World Manila incident was their handiwork (Rappler June 2), it’s probably better to just accept the administration’s interpretation of the current events.

Today, the Inquirer posted RWM's in-house video of the assailant’s “methodological” actions which implied premeditation or a planned set of actions.

But let me share a little secret.

What happened to Resorts World Manila would hardly seem unparalleled.

Flashback in August 2011, a group of armed men barged into a casino in Mexico.  Similar to the Manila, instead of shooting people, the group set ablaze a segment of the casino. The unfortunate incident trapped and claimed 52 lives. But in contrast to Manila, the Mexican president declared that the killing was “perpetrated by "terrorists" motivated by greed” (CNN August 26, 2011)

And unlike current events where the risks of violent actions have been targeted at religion based terrorism, the Mexican episode was blamed on drug cartels in reaction to the war on drugs implemented by the administration (CBS August 26, 2011)

Thanks to the gambling chips the scenario changed for Philippine politics - where events are all subject to the 'desired' official interpretation.

The reason why this should be kept a secret is that the alternative likely political option - nationwide martial law - would be harsh and drastic if this would be labeled as a 'terror event'. 

Ignorance is, thus, a bliss.