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Bringing Home the Bacon - Inside Asian Gaming

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					                                                    August 2010 • MOP 30 • ISSN 2070-7681




                   Bringing Home
                      the Bacon
             Slots chase table growth in Macau




        Direct Play: Singapore VIP Sector In Focus
Macau Policy: School of Hard Knocks | A Tale of Two Cities: Taipa vs. the Peninsula
    Lending a Hand: Junket Funding | Carrots and Sticks: Macau Regulation
         CONTENTS
               August 2010

         Bringing Home
            the Bacon
     6 A Growing Game

     12 Direct Play

     16 Rejuvenating EGT

     20 The Original “G”

     22 Referee!

     26 School of Hard Knocks

     30 Carrots and Sticks

     36 A Tale of Two Cities

     40 Lending a Hand

     44 Regional Briefs

     46 International Briefs

     48 Event Calendar




20

                             30
2
3
Editorial



                                          Don’t Forget Joe Wong
                                               The United States has Black Friday—the traditional start of the Christmas shopping
                                          season. Macau has Big Wednesday.
                                               This was the famous moment when, back in 2006, a player at Wynn Macau pumped
                                          the equivalent of several thousand US dollars into a slot machine. It must have seemed a
                                          double blessing to the management given that Wednesdays generally tend to be about
                                          as popular with players (and therefore casino managements) as Friday the 13th is with air
                                          travellers.
                                               How times have changed. Just four years later, a number of Macau slot players (an
                                          admittedly small number) are dropping the equivalent of hundreds of thousands of US dollars
                                          per session as we report in our main story, ‘A Growing Game’. That’s been one of the factors in
                                          a near 30% increase year on year in the slot gross in Macau in the first half of 2010.
                Publisher                      No operator could or should ignore any whale, whether they’re at the tables or the slots.
              Kareem Jalal                But the rise of the slot VIP does hint at the distorting effect that high volume VIP play can
                                          have on the Macau gaming market. In a bull run, the casinos must chase the VIP growth
              Director
                                          because of its sheer volumes, albeit (in the case of table play) small margins.
        João Costeira Varela
                                               What that currently means is that the Macau properties that are weaker in the VIP table
                Editor                    segment—namely MGM Macau and City of Dreams—are having a clear out of Western
            Michael Grimes                marketing people and bringing in Chinese marketing executives to bring in the high end
                                          punters. Many will think it should have been done earlier.
  Business Development Manager                 It’s clear that the number of high net worth people in China is growing rapidly. According
        Domingos Abecasis                 to the World Wealth Report, compiled by financial management company Merrill Lynch
                                          and management consultancy Capgemini, China overtook the United Kingdom in 2009
              Contributors                for its number of US dollar millionaires. China had 364,000 at the time of the survey, and
     Desmond Lam, Steve Karoul
                                          probably has a lot more now.
   I. Nelson Rose, Richard Marcus
      Shenée Tuck, James J. Hodl               A new Chinese millionaire can’t, however, be turned into a Macau high roller overnight.
         Andrew MacDonald                 Sources familiar with the junket trade tell us it can take six months from personal
         William R. Eadington             introduction of a would-be player to them being granted credit. What that means for the
                                          operators is that high rollers are a precious resource to be courted assiduously.
           Graphic Designer                    Like beauty queens at a village fair, the VIPs know their own worth and are driving
             Brenda Chao                  an increasingly hard bargain with the junkets and with the casinos (when coming in as
                                          direct players).
              Photography
                                               Las Vegas Sands Corp Chairman and Chief Executive Sheldon Adelson said as much
                  Ike
                                          during his company’s second quarter earnings call. Mr Adelson indicated that a side effect
                                          of that was for LVS to rethink its strategy of boosting direct play as a component of its VIP
        Inside Asian Gaming
                                          business in Macau. Between the lines, the message was: ‘The Macau direct play margins are
            is published by
    Must Read Publications Ltd
                                          getting so squeezed, we might as well let the junkets take the strain and let them worry
       8J Ed. Comercial Si Toi            about collecting on credit’.
   619 Avenida da Praia Grande                 Instead, he wants to ship as many direct players as possible out to Singapore. He may not
                Macau                     get the quantity of VIPs by that route, but he will arguably get the quality. Such is Singapore’s
         Tel: (853) 2832 9980             reputation for running a robust legal system that every VIP coming to Marina Bay Sands so
                                          far has paid his tab on time, said Rob Goldstein, Executive Vice President of LVS. The company
      For subscription enquiries,         can also afford—thanks to Singapore’s lower tax rates—to give more back to the VIP players
            please email
                                          than can the junket agents or the casinos to their VIP players in Macau.
          subs@asgam.com
                                               So where does this leave Asia’s mass-market players in the minds of casino managements?
      For advertising enquiries,          By no means neglected. The massive amount spent in Macau and Singapore on equipping
            please email                  main floors with slots and multiplayers as well as live tables is testimony to that.
          ads@asgam.com                        It’s important that operators don’t take their eyes off the mass market. The VIP segment
       or call: (853) 6646 0795           is roaring ahead, driving much of the 67.5% year on year growth in the Macau gross. As
                                          such, it’s likely to attract the best and brightest executive talent to manage and build it—
        www.asgam.com                     winning the plaudits that go with that. But the mass market isn’t a casino career backwater.
                                          It has plenty of extra value still to be released. The campaign to build the growth of carded
        Inside Asian Gaming               slot play in Macau is a case in point. The mass-market managements need the attention
       is an official media partner of:   and support of their bosses just as much as the VIP marketing team. Let’s hope they get it.



                                                                                                                                  Michael Grimes
                                                                        We crave your feedback. Please email your comments to michael@asgam.com
    http://www.gamingstandards.com
4 INSIDE ASIAN GAMING | August 2010
Cover Story




                                                                         A Growing
                                                                           Game
                                                                   Harvesting value from Macau’s rising slot sector
                                                                             depends on player sign ups




S
       lot machines’ share of Macau gross         lay out the red carpet for a slot aficionado   some of those senior slot executives give
       gaming revenue slipped back in the         spending US$5,000 in one go.                   their take on this developing segment.
       first half of 2010 compared to the first        Away from the headlines created by            A Growing Game: Slot Operators’
half of 2009. But that probably says more         Macau’s small number of slot ‘whales’, much    Roundtable, was moderated by Marcus
about the explosive growth in table play          of the effort of slot managers is going into   Prater, Executive Director of the industry’s
this year than it does about slots’ ongoing       unlocking the full economic value of more      leading trade body, the Association of
appeal.                                           modest players. That focuses initially on      Gaming Equipment Manufacturers. The
     In the first half of 2010, 4.6% of Macau’s   getting as many of them signed up for carded   speakers were: Darrin Carlson, Slot Manager–
gaming gross came from slots (3.98 billion        slot play as possible so that they can start   Operations, at Sands China’s The Plaza
patacas out of 85.9 billion patacas for all       earning benefits on their entertainment.       Macao; Matt Hurst, Vice President, Gaming
games of fortune) according to figures            Increasing carded play should also help        Machines, at Melco Crown Entertainment’s
released at the beginning of August by            create word of mouth publicity as people see   City of Dreams; Peter Johns, Director of Slot
the Gaming Inspection and Coordination            what benefits and prizes their friends and     Operations, MGM Macau (formerly MGM
Bureau, Macau’s gaming regulator. In the first    neighbours have been able to get from their    Grand Macau); and Lindsay Stewart, Vice
six months of 2009, slots’ overall contribution   visits. Carded play also allows operators to   President, Electronic Gaming, Sociedade de
was nearly 6% (3.1 billion patacas out of 51.4    market major events to players such as new     Jogos de Macau (SJM).
billion patacas).                                 jackpots. At the end of July, City of Dreams
     In cash terms, however, the slot take for    launched what it describes as ‘Macau’s             Marcus Prater: What’s happening with
the first half of 2010 was up 29.6% on the        Biggest Floorwide Jackpot’, with the top       carded play in Macau?
equivalent period in 2009. Yet during that        prize starting at HK$3 million (US$386,314).       Darrin Carlson: Generally speaking, the
period, the number of slot machines went               The stereotype of Chinese slot players    higher net worth individuals are going more
up by only 8.5% (from 13,509 at the end of        as relatively unsophisticated consumers shy    towards cards and are extremely card loyal.
the second quarter of 2009 to 14,659 units at     of signing up for anything that might mark     The lower end mass has not picked that up
the end of the second quarter of 2010).           them down as a gambler lags well behind        quite as much.
     Some of that jump in the gross may be        what’s actually happening on many gaming           Peter Johns: We’ve seen an amazing pick
accounted for by a small number of VIP slot       floors in Macau, say the experts.              up on carded play. Most operators are used to
players who now drop the equivalent of a               At this year’s G2E Asia organised by      30% to 50% take up. We’re seeing a lot higher
million US dollars or more in a single session.   Reed Exhibitions and the American Gaming       than that. Our players’ club [membership];
Five years ago, the managements would             Association, delegates had a chance to hear    our rated play, is extremely high. We see a
6 INSIDE ASIAN GAMING | August 2010
                                                                                                                              Cover Story




                                                get information on them, so we can segment     in terms of being competitive with these
                                                them in the market. We’re able to get some     big guys.
                                                great information on our player profiles,           Once we have a critical mass of machines,
                                                which helps us in our product selection.       we hope to introduce wide area jackpots
                                                    The players’ club works really well at     and prizes to bring SJM to the forefront
                                                MGM. Being able to segment players is          of the industry here. We need to put the
                                                vitally important in this market. I think      groundwork in place before we can focus on
                                                more so than other jurisdictions. That’s       those specific strategies.
                                                because our player base is so diverse.              We’re doing the normal stuff. Embracing
                                                Our customers understand the players’          the members we have, metering the visitors
                                                club concept; they know how to use it. It      we get, trying to increase their stays and
                                                may take them a little while to get savvy      getting their friends and families in too.
                                                to it when they first come on board, but            MP: Tell us a story illustrating how slots
                                                from what I see of the players we get they     have grown in prominence.
                                                generally sign up within the first couple of        LS: From 0.8% of [Macau] casino GGR
                                                hours of coming onto our property.             [gross gaming revenue] in 2003 to 5.4% of
                                                    Lindsay Stewart: We’ve had some            GGR in 2009 is a significant growth phase
Peter Johns—amazing pick up in carded play
                                                technology issues that have got in the way     [for slots] when you consider the [overall]
lot of people use them [cards]. Most people     in the last few years. We haven’t been able    GGR has grown so exponentially—314%
consider the Asian player an uneducated         to take advantage of our size—our critical     in fact. The players are out there, and we
slot player. But we see the opposite. They’re   mass—as a marketing component.                 haven’t really seen the biggest proportion of
quite a savvy player. They know they’re             Not all our slots are systemised yet.      take up yet either, I don’t think.
getting tracked and the reasons. They know      Once that happens, we hope within 12 to             China is the fastest growing electronically
we give them loyalty cards so that we can       18 months we will have far more firepower      literate country in the world, with 48%




                                                                                                             August 2010 | INSIDE ASIAN GAMING   7
                                                     Cover Story

      Most people consider the Asian player an
               uneducated slot player.
    But we see the opposite. They’re quite a savvy
              player. They know they’re              growth in Internet access year on year. That’s
                                                     going to breed a new generation of players
          getting tracked and the reasons.           who are exposed to electronic games, like
                                                     them, and are going to take that to the next
                                                     step and play electronic games in casinos
                                                     and slot clubs—the same way their parents
                                                     and grandparents grew up playing one on
                                                     one table games or mahjong and currently
                                                     bring that experience to the casino in order
                                                     to challenge the dealer.
                                                          It’s very early in the evolutionary
                                                     process, but I think that signs are there and
                                                     that we will continue to build the market
                                                     and make inroads into it. In our property
                                                     specifically [Grand Lisboa], we have seen
                                                     an increase of probably 50% since we
                                                     opened three years ago.
                                                          We’re still struggling with rated play,
                                                     providing the right incentives to players to
                                                     help them understand there’s something in
                                                     it for them if they embrace our marketing
                                                     plans and strategies, and we’re still looking
                                                     for better ways to present that and at how
                                                     best to capture loyalty through that.
                                                          Matt Hurst: Back in 2004 [at Sands
                                                     Macao], we had a couple of players who
                                                     would come in and drop HK$40,000 and we
                                                     were blown away. Those people were big
                                                     players that we bent over backwards to take
                                                     care of. Two years later, at Wynn, we had a
                                                     guy drop a couple of thousand US [dollars]
                                                     into a machine.




                                                     Matt Hurst
                                                        We called that ‘Big Wednesday’. It
                                                     was a massive day. We were truly blown
                                                     away. Now we have players in the Macau
                                                     market who can drop over a million US
                                                     [dollars] in a day. From HK$40,000—i.e.
                                                     US$5,000—to a million US in five years is
                                                     pretty remarkable growth.
                                                        PJ: We constantly get slots at around 20%
Slots at MGM Macau                                   now of the mass floor revenue. It has been as
8 INSIDE ASIAN GAMING | August 2010
August 2010 | INSIDE ASIAN GAMING   9
  Cover Story




                                                                                                  side of the market?
                                                                                                      PJ: At my last count there were 23
                                                                                                  vendors selling machines in Macau. Probably
                                                                                                  not all of them are fit for this market.
                                                                                                  Certainly most people [operators] stick to
                                                                                                  the top six [manufacturing] names. But
                                                                                                  there are some newcomers that bring some
                                                                                                  innovative products. And I think some of
                                                                                                  that innovative, different looking product is
                                                                                                  what is getting the new players in. Call them
                                                                                                  fads, call them gimmicks, whatever you want
                                                                                                  to call it—if they [the new products] have a
                                                                                                  different look and presence on the floor,
                                                                                                  then people will try them because they’re




  Treasure Hunt slot lounge at Grand Lisboa

  high as 30% in some months, depending on       are over 13,000 in the Macau market. And
  different factors.                             their share of revenue continues to grow
      Now that operators are starting to offer   and grow.
  the returns on the high end machines,               The [age] 40 to 60 crowd of gamblers
  we’re getting the crossover of some            grew up on movies like The God of Gamblers.
  table players who realise they can get a       If you talk to any Chinese person out there,
  reasonably good return. They can spend         they know that movie. Now we’re talking
  HK$6,000 and win HK$6 million. If you          about the Wii generation.
  want to win HK$6 million at a table, you’ll         Slots will progress just like they did in
  generally have to put up six million. So       Las Vegas. Slots used to be off to the side
  we are getting table players who see the       for the wives when their husbands came
  machines as a good gambling device.            in to play blackjack. Now it’s 80% of the
      DC: When Sands opened I believe they       [gaming] revenue.
  started with 450 slot machines. Now there           MP: How competitive is the supplier         Slots at Hard Rock Casino



                     Now we have players in the Macau market who can drop over
                 a million US [dollars] in a day. From HK$40,000 to a million US in five years
                                          is pretty remarkable growth.




  Slots at City of Dreams
10 INSIDE ASIAN GAMING | August 2010
                                                                                                                                  Cover Story




different. Even some of the older vendors
have gone down that way and made more
entertainment-type machines. And that is
starting to drive players onto machines.
    I still believe that what makes a good
product is: a good game, good math
and good return. It’s what keeps a game
popular. The top five machines in Macau
have been the same for the past four years
and I’m guessing it’s the same for the other
properties. There are some new ones that
spike here and there, but the top ones are
consistent.
    There’s a good reason that 60% to 70%
of machines in Macau have some kind of
link on top. That’s because [as operators]
we try to be competitive. The thing that
differentiates us is how we structure those
[prize pool] links on top of the machines.
                                                   City of Dreams launched what it describes as ‘Macau’s Biggest Floorwide Jackpot’, with the top
    DC: The new vendors when they come             prize starting at HK$3 million.
in they offer new products; they bring
new, fresh ideas. Quite often with the more        that still holds sway. However, the group        us as operators a yield, is the optimum. It’s
established vendors you’re going to get a lot      behind is clustering and is significantly        what we all look for and what we would
of clones—the same game with a different           closer than it has been. And I’m really          hope for from the manufacturer—that they
wrapper or same math, different wrapper.           pleased to see that it’s happening, because      continue to strive to find that balance.
The new and up and coming developers               it gives operators more choice, the player           At the end of the day we’re in the
they push not only each other, but also            more choice and enables everybody to put         entertainment business. If a player comes
the established suppliers to go forward.           pressure on everybody [else] to build a fair     in and gets stripped of their assets, then
Two or three years ago, who would have             share of the market and a fair share of the      there’s no entertainment value and they’re
thought we would see something like the            floor. Players benefit from manufacturers        not going to come back. I used to liken it
Lava screens from WMS? Back then they              constantly striving to provide better games      to going to the movies. You go into the
[WMS] had maybe 5% market share. Now               and new concepts and benefits such as            movie, you pay your dollars and you come
they’re growing. From my perspective as an         bonuses and new game attributes to               out two hours later with a memory of the
operator, it [supplier diversity] is a wonderful   increase excitement.                             entertainment. Sometimes our business is
thing because it gives more choice, more               Certainly a game with the right              the same. If we don’t provide that ‘memory,’
competition, better pricing models.                maths model offering time [on machine],          then people are not going to go to the
    LS: There’s one manufacturer [Aristocrat]      excitement and at the end of the day giving      movies any more.




Mocha Clubs, established in 2003, was the first operation to seriously promote slots in Macau

                                                                                                                 August 2010 | INSIDE ASIAN GAMING   11
                                         Direct Play
                      LVS has clear incentives for shifting its non-junket VIPs to Singapore




  A
         sian casino gaming is growing both in        The sweet spot in terms of the Singapore       direct VIP players at Marina Bay Sands (MBS)
         terms of jurisdictional coverage and     integrated resorts attracting such players         in Singapore (1.2%).
         gross revenues. In the Macau market      may be a matter of 20 to 30 basis points               If LVS is going to convert a junket
  alone, revenue surged by 67.5% year on year     [bps] on a percentage of VIP player roll. That     player to a direct one, it would rather do
  in the seven months to July to 102.2 billion    figure is the difference between the rolling       so in Singapore, because, according to
  patacas (US$12.8 billion). Most of that was     chip commission that most Macau junkets            Sheldon Adelson, the company’s Chairman
  driven by VIP baccarat.                         can afford to rebate to their players (0.9%        and Chief Executive, the price Macau high
      There are, however, strong economic         to 1% in commission out of the maximum             rollers are demanding from his casinos for
  incentives for at least some of those VIPs      1.25% commission paid to them by the               their direct business is pushing the direct
  currently visiting Macau (not the ones from     casinos), versus the rolling chip commission       play route into being less profitable than
  mainland China) to go solo and try their luck   that Las Vegas Sands Corp, in its second           many previously assumed. Singapore’s
  as direct players in Singapore.                 quarter earnings call, said it can rebate to its   lower taxes will also leave more wiggle
12 INSIDE ASIAN GAMING | August 2010
                                                                                                                                       In Focus




room for offering incentives to players.
More on that later.

Non-negotiable
     First, here’s a brief rundown on the
rolling chip commission system in Macau
as it relates to junket play. The VIP room
contractors purchase ‘dead’ chips (non-
negotiable chips that can only be used in
play) from the casino concessionaire to be
resold to VIP player representatives (let’s
call them ‘agents,’ though sometimes their
relationship with the room operator is so
close as to be virtually part of the same
organisation). The room contractors receive
a percentage commission on the volume
of dead chips they purchased. The junket
agents then sell the non-negotiable chips to
players who use them in actual play.            Resorts World Sentosa—paying up to 1.5% rebate to VIPs?
     When players win a wager with non-
negotiable chips, they are paid off in live     VIP players (officially so far) all have a direct   1.2% commission it charges on VIP chips as
(negotiable) chips, which can be redeemed       credit relationship with the operators, the         an incentive to players. It’s likely, however,
at the casino cage for cash. In reality, they   casinos ‘push’ the rolling chip commissions         that MBS is also absorbing the cost of player
are usually bought back by junket reps in       to players as rebates to incentivise more play.     ‘comps’ in its VIP business model so that in
exchange for dead chips. This is the ‘chip      That commission ‘push’ can vary depending           effect the resort is paying slightly more
rolling’ process often referred to by casino    on the size of roll of the player, but LVS says     than 1.2% to the player.
executives and industry analysts. Theoretical   it typically expects to pay 1.2%.                        In Macau, the rolling chip commission
casino win is calculated by dividing actual          In Macau, junkets ‘pull’ a maximum of          that an operator can pay a junket is currently
win by dead chip sales. Most VIP chips are      1.25% commission from casinos on rolling            fixed by law at 1.25%. The Macau junkets
rolled on average two-and-a-half to three       chips and pay most of it straight back              can’t give the whole of that maximum
times per session.                              to the players either in additional roll or         1.25% to the player because they need to
     In Macau, rolling chip commissions         occasionally as rebates on player losses, in        make some margin. No doubt one or two of
are operating on a ‘pull’ principal. Junkets    the end keeping between 20 to 35 bps of             the biggest high rollers have at some time
pull them from the operators as reward for      the 1.25% commission originally earned in           pushed them close to surrendering their
bringing in the VIPs and for mitigating risk    order to cover their margins. In Singapore,         margin outright. In February, we reported
on credit settlement, and then share them       because MBS isn’t dealing with junket               some Macau junkets were offering 0.2% of
with their players. In Singapore, because the   middlemen, it ‘pushes’ the whole of the             a player’s rolling turnover to third parties in
                                                                                                    order to convert Macau casino direct players
                                                                                                    into junket players. That doesn’t leave much
                                                                                                    left for junkets already working on 0.2% to
                                                                                                    0.35% net commission.
                                                                                                         Over in Singapore, anecdotal reports
                                                                                                    suggest Genting at Resorts World Sentosa
                                                                                                    (RWS) is rebating as much as 1.4% to 1.5%
                                                                                                    to VIP players, including some from Japan.
                                                                                                    IAG sources also suggest Genting’s motive
                                                                                                    in attracting direct players from Malaysia to
                                                                                                    Singapore is the high gaming tax in Malaysia
                                                                                                    (25% for VIP and for mass play) and political
                                                                                                    uncertainty regarding Genting’s Malaysian
                                                                                                    gaming licence, which is currently being
                                                                                                    renewed by the Malaysian government on
                                                                                                    a rolling basis every three months, whereas
                                                                                                    its Singapore licence is guaranteed for at
                                                                                                    least ten years.
                                                                                                         LVS’s Sheldon Adelson said in his
                                                                                                    company’s second quarter earnings call in
Push versus pull—different commission incentives in Singapore and Macau                             late July that he couldn’t personally pinpoint
                                                                                                                 August 2010 | INSIDE ASIAN GAMING   13
  In Focus




  the rationale behind Genting’s positioning
  if its reported commission levels on VIP play                                          The Macau VIP split
  in Singapore are correct. He did, though,
                                                        Theoretical house win                                2.75%           2.85%           3.00%
  allude to some of the industry speculation
  on the motive.                                        Total amount bet by player (roll)                 $100,000        $100,000        $100,000
        “There is a lot of rationale that everybody     Gross amount won by casino                           $2,750          $2,850          $3,000
  is throwing around as to why they [RWS] are           Macau govt tax @ 40%                                 $1,100          $1,140          $1,200
  giving out at least 20 bps higher than we are
  giving on any one customer category. So,              Commission paid to Macau junket                      $1,250         $1, 250          $1,250
  the biggest spread is on the last $10 million         (maximum 1.25% of roll)
  and over category,” said Mr Adelson.                  Macau casino net win (after tax                       $400            $460            $550
        But he added that such commission               and commissions)
  levels were usually more characteristic of
  middlemen being involved.                           accommodation while in the city. VIPs are by       Its where it is going to be.”
        “My inclination is to say that if [RWS’s]     definition people used to making deals on               An assumption behind the debate on
  Japan [high rollers are rebated] 1.4 to 1.5, it’s   their own behalf.                                  the level of rolling chip commission shared
  certainly an indication they may have to be              Michael Leven, President and Chief            with players in Macau versus Singapore
  working with some sort of intermediary.”            Operating Officer of LVS, said during the LVS      is that high rollers would be sufficiently
        Inside Asian Gaming would like to             earnings call that the top commission rate         motivated by a differential of as high as 60
  point out there is no suggestion that RWS           MBS was likely to pay its direct high rollers      basis points (if reports of RWS’s 1.5% rebates
  is breaking Singapore’s rules on junkets            was 1.3%.                                          are true) to try their luck in Singapore rather
  by working with unauthorised agents. It’s                “I think 1.2% is about where it’s going to    than Macau.
  theoretically possible for VIPs to solicit a        be,” stated Mr Leven.                                   A source familiar with the VIP trade
  rebate equivalent to 1.4% of rolling chip                “I haven’t seen any indication that it’s      across the Asia Pacific region says that might
  turnover from the casino and then share             going to go more than that, unless really big      not necessarily be a deciding factor. It may
  some of that with a third party that is             players that get some extra lift get in there. I   be a case of ‘the more venues the merrier’
  providing them with travel to Singapore and         would say 1.2% to 1.3%, something like that.       from the players’ perspective.




  Marina Bays Sands—may go as high as 1.3%

14 INSIDE ASIAN GAMING | August 2010
                                                                                                                                           In Focus




                                                                                                        junket-driven VIP business was not always
                                  The Singapore VIP split                                               correct in practice. He didn’t mention that it
                                                                                                        was his own company that had set up that
  Theoretical house win                                   2.75%           2.85%           3.00%
                                                                                                        expectation in the market in the first place.
  Total amount bet by player (roll)                     $100,000       $100,000        $100,000             “The idea of getting [Macau] junket play
  Gross amount won by casino                              $2,750          $2,850          $3,000        with the expectation of lower cost has not
  Singapore govt tax @ 12%                                  $330            $342            $360        been completely met amongst the various
  (5% VIP tax & 7% GST)*                                                                                strata of direct premium player. Some of
                                                                                                        them are very high, and we may bifurcate
  Commission (rebate) paid by                             $1,200          $1,200          $1,200        part of the [Macau] direct premium play,
  casino on player roll @1.2%                                                                           keep some and not keep others, because
  Singapore casino net win                               $1,220          $1,308          $1,440         the cost of this is very high. Well, in some
  (after tax and commissions)                                                                           cases, it’s high. So we are reconsidering as
  Note * (Corporate tax is also levied on casino profits in Singapore at 17%)                           to whether or not it’s going to be worth it
                                                                                                        to keep all strata of direct premium play
     The source said: “A lot of high rollers travel   promoting direct play in Macau.                   because I have seen several analyst reports
regularly around the region for business and               “We are in active discussion right now       that say, well the scuttlebutt [rumour] is that
may have a home in more than one city. For            since we terminated Steve Jacobs about the        as sales chases direct premium players, a lot
them, it may not be a choice of playing either        wisdom of accentuating the effort for direct      of the players, a lot of the junket reps are
in Macau or Melbourne, or either Macau or             premium play [in Macau],” said Mr Adelson.        bringing their business over to Wynn.”
Singapore. It may be a case of the more the                “We are certainly not going to eliminate         Mr Adelson said he was surprised by the
merrier. The more destinations they have to           it. The question is, how aggressive we are        source of some of direct players coming to
try their luck, the better.”                          going to be to try to get it? We certainly        MBS in Singapore.
     From the operators’ perspective,                 have a lot of it in, I mean all that we have in       “I looked at the top 20 players yesterday
however, it’s clearly potentially more                Singapore is direct premium play.”                and we have countries that I didn’t believe
profitable to have direct players doing most                                                            we would get them from. We even get
of their rolling in a low tax destination such                                                          customers from Macau.
as Singapore, than in a high tax destination                                                                “We have Hong Kong, China, Indonesia,
such as Macau.                                                                                          Vietnam, Taiwan, Korea, of course, Malaysia
     On $100,000 of bets placed (roll) via a                                                            and Indonesia, and Thailand.”
junket in Macau, assuming a theoretical
house win of 2.75% and less 40%                                                                         Lion City factor
government tax on the win and 1.25% of the                                                                  Rob Goldstein, Executive Vice President
roll going to the junket, the casino would be                                                           of LVS, added during the earnings call that
left with $400. LVS said in a note to investors                                                         the respect in which Singapore is held
in June 2009 that its direct VIP play in Macau                                                          regionally and internationally may also be
was 1.0 to 1.5 times more profitable than                                                               a factor in ensuring (in the first few months
junket originated play. That would suggest                                                              of operation at least) no default by VIPs on
LVS could retain from $800 to $1,000 in the                                                             direct credit.
above scenario were the bets placed under                                                                   “It [Singapore] is a very important country
direct play.                                                                                            and city state. And the customers have a lot
     In Singapore, when a direct VIP player                                                             of respect for it. I have been pleased to find
places $100,000 worth of bets, assuming a             Sheldon Adelson—reducing direct VIP play in       that people pay pretty quickly. We haven’t
                                                      Macau?
house theoretical of 2.75%, 12% tax to the                                                              had a credit issue yet,” said Mr Goldstein.
government (5% VIP gaming tax plus 7%                     One good reason for cutting back on               Mr Adelson said in some of his closing
Goods and Services Tax) and 1.2% rolling              direct VIP business in Macau is credit risk.      remarks that industry predictions suggesting
chip commission rebated to the player on              As our story ‘Carrots and Sticks’ points out      junkets may successfully register for licences
his or her ‘roll’, the casino would be left with      elsewhere in this edition, although in theory     in Singapore in the second half of the year
$1,220. Singapore also has typically lower            Macau law allows gambling debts to be             were unlikely.
dealer overheads than Macau. It’s clear,              pursued in its courts, in reality if the debt         “I am still convinced that the Macau style
therefore, that the economic benefit to a             belongs to a resident of mainland China the       junket reps will not submit to the probity
Singapore-based casino of direct VIP play             courts there may not be willing to assist in      checks and provide the information that
is considerably greater than either Macau-            the recovery process.                             the [Singapore] government will need to
based junket VIP play or even Macau-based                 Mr Adelson has further reasons for falling    put them through the investigatory wringer.
direct play.                                          out of love with direct VIP play in Macau.        And even if they do, and even if there are
     That might be why Mr Adelson said                He said during the conference call that the       some Macau style junket reps that will do
during the earnings call that his company             assumption that direct VIP business could         that, I don’t believe its going to be done this
was re-examining its strategy of heavily              be acquired in Macau at a lower cost than         year at all,” stated Mr Adelson.
                                                                                                                     August 2010 | INSIDE ASIAN GAMING   15
  EGT




                      Rejuvenating EGT
                  Things are looking up for Entertainment Gaming Asia, formerly known
             as Elixir Gaming Technologies, with strong growth in slot participation revenue
                             and plans for its own casino resort in Cambodia



  E
        ntertainment Gaming Asia (EGT)             under a December 2009 contract. EGT is         our jointly operated slot floor operations.
        currently has two major business           entitled to 100% of net win generated by the   With the addition of these 30 seats plus the
        lines. A gaming participation business     additional machines it is allowed to place     remaining 50 seats under our December
  where EGT earns a proportion of revenue          until it recoups the agreed commitment fee.    2009 contract, our installed machine base
  generated by slot machines it operates at            Commenting on the May announcement         at NagaWorld is expected to reach 670 seats
  partners’ venues, and Dolphin RFID chips         to add 30 additional machine seats Mr          during July of 2010 covering most of the
  and plaques.                                     Chung says: “We are pleased to work with our   currently available prime ground floor slot
      “The gaming participation business is        partner NagaWorld to continue to expand        space at NagaWorld.”
  now doing quite well. We currently have
  about 1,500 machines running, out of which
  about 900 are in the Philippines in various
  venues, and in Cambodia we have about 600
  machines running in NagaWorld,” says CEO
  Clarence Chung.




                                                   EGT’s Dreamworld at NagaWorld




  The EGT-operated Pagcor Universal Club in
  the Philippines

      The machines at NagaWorld are EGT’s
  big earners, achieving an average win
  per unit per day of over US$180 in the six
  months to May on a growing installed
  machine base. NagaWorld, which is located
  in the Cambodian capital of Phnom Penh,
  holds a monopoly licence to operate in and
  around the city until 2065. The machines
  in the Philippines earn closer to US$60 per
  unit per day. EGT’s share of revenue is 25% in
  Cambodia and averages approximately 20%
  in the Philippines.
      In May, EGT announced an agreement
  to increase the total number of machines
  it operates at NagaWorld to 670 seats, from
  the previously agreed 640. EGT will place an
  additional 30 seats in order to complement
  and expand its VIP slot area located on
  NagaWorld’s casino lobby floor, established
16 INSIDE ASIAN GAMING | August 2010
August 2010 | INSIDE ASIAN GAMING   17
  EGT




             Sales of Dolphin gaming chips (RFID and non-RFID)
                                       2007                 2008                 2009
   No. of Chips Manufactured           1,005,502            144,400              1,591,000
   Sales (US$ ‘000s)                   2,267                680                  4,516
   Gross Profit (US$ ‘000s)            453                  116                  1,965


  Dolphin safe                                                Cambodian government for the
      Dolphin Products based                                    project, dubbed Dreamworld
  in    Melbourne,     Australia,                                Casino and Resort, in Takeo
  is a wholly-owned EGT                                           Province, near the Vietnam
  subsidiary specialising in                                      border.      Dreamworld      will   Clarence Chung
  the manufacture and sale                                        include a casino and hotel
  of traditional and radio                                       on over seven acres (30,000          “is primarily geared to mass market players
  frequency identification (RFID)                               square meters) of land.               from the southern part of Vietnam and
  gaming chips and plaques. While                                “For the last 18 months we have      we will focus our marketing efforts in this
  Dolphin has already built a strong                     been diligent in our efforts to execute      region. We expect it to be the first venue of
  market presence in Macau and Australia,          on our growth plans and successful in our          this size and quality in the area—there is one
  it is working hard to expand sales in            operations in Cambodia and we believe we           operating already, which is relatively small,”
  international markets. Dolphin’s major           have proven ourselves. We have developed           points out Mr Chung.
  customers include City of Dreams, Altira         important local market relationships and the            Dreamworld will also cater to players
  and Galaxy StarWorld in Macau, and Crown,        necessary understanding of the government          with dual passports in the greater Phnom
  Burswood and StarCity in Australia.              and have established a strong brand name in        Penh region, as local Cambodians are
      Dolphin was originally founded to            the market. So, when we made our application       prohibited from gambling in their country.
  make precision automotive components,            for the licence, we got it,” reveals Mr Chung.     In addition to being located on National
  principally for sale to Australian                                                                  Highway No. 2 (the high-traffic road that
  automakers. Although the Australian                                                                 connects Phnom Penh and the major
  auto industry has declined substantially,                                                           cities in southern Vietnam), the property
  Dolphin believes it is positioned to gain                                                           is positioned near a duty free trading zone
  market share in the future.                                                                         that houses a large shopping facility and
                                                                                                      is within 30 minutes of a famous temple
                                                                                                      in Vietnam that attracts over one million
                                                                                                      visitors annually.
                                                                                                           “We’re not going to build it all in one
                                                                                                      go. We are currently planning for three
                                                                                                      phases of development,” states Mr Chung.
                                                                                                      Phase one is expected to include around
                                                   Multiplayer roulette at Dreamworld                 150 electronic gaming machine seats and
                                                                                                      20 table games housed on approximately
                                                       “The owner and operator approach               54,000 square feet (5,000 square meters) of
                                                   allows us the potential for higher long-           casino floor space. “Depending on demand,
                                                   term incremental returns on our operations         we plan to add more gaming stations and
                                                   given the ability to collect 100% of the net       hotel rooms in the subsequent phases.”
                                                   win compared to approximately 20-25%                    Capital expenditure for the first
  Changing destiny                                 as per our existing participation contracts.       phase of Dreamworld, including the land
      Until recently, the bulk of EGT’s sales      In addition, this extension of our gaming          and construction costs, is estimated to
  derived from its Dolphin subsidiary, but in      operations provides us the ability to leverage     be approximately US$8-10 million. EGT
  the second half of 2009, gaming participation    our established presence and goodwill in           anticipates it will be able to fund the project
  took over and contributed over 50% of            this market and increases our long-term            from cash on hand and projected cash flow
  revenue. “In addition to consolidating and       control of our operations.”                        from operations.
  growing our gaming participating business,           The Dreamworld site is approximately                Mr Chung summed up by saying,
  we will try to control our own destiny by        125 miles (200 kilometers) south of Phnom          “We are pleased with our progress and
  building, operating and owning our own           Penh, and is within three hours drive of           are eager to continue to serve the high-
  casino,” reveals Mr Chung.                       several major cities in southern Vietnam           potential emerging gaming markets of
      EGT announced at the end of May that         with a total estimated population of               Asia under a new name and expanded
  it had been granted a casino licence by the      approximately 17 million people. The project       gaming business model.”
18 INSIDE ASIAN GAMING | August 2010
August 2010 | INSIDE ASIAN GAMING   19
  The SLS AMG




                            The Original ‘G’
                           How a Mercedes-Benz supercar inspired Asian casino design


  G
          ullwing doors (car doors that are          floor, also as a solution to a practical problem.   too bright and the cameras ineffective, so Mr
          hinged at the roof rather than the side)   Observing gambling in Macau is “a spectator         Steelman came up with the ‘G-wings’ above
          were pioneered by Mercedes-Benz in         sport,” Mr Steelman conceived of a stadium-         the individual tables to house them. G-wings
  1952 with the 300 SL race car. The road legal      style design for the casino at Sands Macao.         are bound to become an enduring feature of
  300 SL Coupe followed in 1954 and was the          If the lights and surveillance cameras were         casino design, and are already prominent on
  fastest production car of its day.                 set in the high ceilings, the lights would be       the main floors of Macau’s Grand Lisboa and
      The 300 SL’s iconic door design actually
  sprang from engineering necessity.
  Longtime Mercedes-Benz engineering
  meister Rudi Uhlenhaut had designed
  the 300 SL’s chassis in racing car fashion,
  employing a nest of welded steel tubing
  to make it as stiff as possible. This included
  the doorsills, which Uhlenhaut extended
  so far upward that pivoting the doors in
  the conventional manner simply wouldn’t
  work. Hence the creation of Gullwings,
  which went on to be incorporated by other
  supercars, including the DeLorean featured
  in the ‘Back to the Future’ movie franchise
  and the Bricklin SV-1.
      World-leading casino architect Paul
  Steelman brought Gullwings to the gaming           The 300 SL Coupe

20 INSIDE ASIAN GAMING | August 2010
                                                                               High Roller Accessories




Singapore’s Marina Bay Sands.
                                                     G-wings on the Gaming Floor
‘G’to the Present
    The Mercedes-Benz 300 SL’s design lines
have been reinterpreted and updated in
the new SLS AMG, launched in Hong Kong
last month. The new Gullwing supercar’s
exterior communicates power and
dynamism, while the interior was inspired
by the aviation world.
    The SLS AMG boasts an unrivalled
technology package, including aluminium
spaceframe body and the AMG 6.3-litre
V8 front-mid-engine developing 420
kW/ 571 hp peak output. The SLS AMG
accelerates from 0 to 100 km/h in 3.8
seconds, before going on to a top speed
of 317 km/h (electronically limited). The
fuel consumption of 13.2 litres per 100       Grand Lisboa              Sands Macao

                                                                   kilometres (combined) puts it at the head
                                                                   of the supercar pack.
                                                                       The SLS AMG is the first car to be
                                                                   independently developed by AMG, the
                                                                   performance brand within Mercedes-Benz
                                                                   Cars. AMG was established in 1967 by
                                                                   Hans Werner Aufrecht and Erhard Melcher,
                                                                   and is considered a pioneer in the field of
                                                                   vehicle tuning for motorsports. Following
                                                                   the cooperation agreement concluded in
                                                                   1990 with Daimler-Benz AG, the company
                                                                   was gradually incorporated into what at the
                                                                   time was DaimlerChrysler AG in 1999. On 1st
                                                                   January 2005, DaimlerChrysler AG acquired
                                                                   100% of the shares. Today, Mercedes-
                                                                   AMG GmbH is a vehicle manufacturer in
                                                                   its own right, specialising in unique, high-
                                                                   performance vehicles.
                                                                       The SLS AMG is now available for
                                                                   purchase in Hong Kong and Macau.

                                                                   Hong Kong: HK$3,198,000
                                                                   Macau:     HK$2,537,000




                                                                                              Marina Bay Sands
                                                                               August 2010 | INSIDE ASIAN GAMING   21
  Soccer Betting




                                                 Referee!
         Taking the commercial shackles off the Hong Kong Jockey Club is the best way of
                        tackling unlicensed soccer betting in Hong Kong



  H
          ong Kong’s leading English-language    when the custodians of Hong Kong’s horse           capitalistic in the tradition of the Shanghai
          daily newspaper, South China           racing club came up with a novel way to            entrepreneurs who fled to Hong Kong after
          Morning Post, called in mid-July       raise tax in order to house a million Chinese      the communist government took power in
  for a ‘debate’ on ending the legal betting     immigrants fleeing the mainland following          China in 1949. The paper may, however, be
  monopoly enjoyed in Hong Kong by the           the victory of Mao Zedong’s communist              missing some of the bigger picture.
  Hong Kong Jockey Club (HKJC).                  party in China’s civil war.                            HKJC has actually been as proactive as the
      The paper says it’s necessary because          Focusing the debate on present needs,          government will allow it to be in expanding
  the current system regulating legal betting    the SCMP states: “Other jurisdictions have         its gaming offer in the face of dwindling
  in the city isn’t working. The SCMP cites      got around the dilemma by licensing private        interest in horse racing among the younger
  as an example the record seizures of cash      gaming franchises, bringing them under             generation. Its annual report for the year
  generated by unauthorised soccer betting       regulatory control and into the tax net. Illegal   ended 30th June 2009 shows that HKJC’s
  syndicates in Hong Kong and across the         operators are either crowded out of the            turnover from soccer betting has risen more
  border in mainland China during this year’s    market or have to accept a smaller market          than tenfold since it first introduced the
  FIFA World Cup in South Africa.                share. In a perfect world, the Jockey Club         product range in 2003. In the 2003-04 results,
      The SCMP suggests this is because the      model might well socialise all gambling. In        soccer betting generated HK$3.3 billion
  HKJC’s soccer betting offer isn’t appealing    the real world, the community should have a        (US$420 million at current exchange rates)
  enough to punters. It says the debate should   serious debate about it.”                          in pre-tax revenue for HKJC. In 2008-09, it
  include the possibility of licensing private                                                      brought in HK$35.1 billion (US$4.52 billion).
  gaming franchises within Hong Kong.            Wrong fix?                                         That’s not bad from a single betting product
  That would potentially be a revolutionary         The SCMP’s instincts in calling for an          stream targeted at a purely domestic market
  change from the system in place since 1952,    end to HKJC’s monopoly are impeccably              of around 5.5 million adults. It compares
22 INSIDE ASIAN GAMING | August 2010
                                                                                                                                Soccer Betting




                                                  ago. Yet any widespread gambling interest          burden on the legal product was drastically
                                                  among the public that is not satisfied by          reduced. And issuing new commercial
                                                  the club is bound to become a goldmine             franchises won’t of itself deal with the
                                                  for illegal bookmakers and organised crime         competitive threat posed by gambling credit
                                                  syndicates,” says the paper.                       issuance by the unlicensed product. The
                                                       The Jockey Club has been offering ‘in         chances of Hong Kong allowing credit-based
                                                   play’ and so-called ‘Asian handicap’ online       soccer betting in the manner of credit-based
                                                     betting on soccer games, including the          VIP table play in Macau, with credit issuance
                                                         major European Leagues and FIFA             by the bookmakers and any player losses
                                                          tournaments, since 2003.                   covered by those players liquidating assets if
                                                                                                     necessary, is so remote as to be barely worth
                                                       Gee up                                        considering.
                                                       Their introduction did result in new               Short of every Internet and telephone
                                                  betting business coming to HKJC. In                user in Hong Kong having to give their
                                                  financial year 2003-04, the Club’s total           identity card number every time they want
                                                  revenue from all activities showed the             to surf online or make a voice call (with all the
                                                  first upward trend since 1997. The Hong            civil liberties implications that involves), it’s
                                                  Kong government claimed in 2003 that the           difficult to see how unauthorised online and
                                                  advent of HKJC Football Betting—as the             proxy telephone betting can be stopped.
                                                  product is marketed—actually resulted in
                                                  a decline in Hong Kongers betting illegally.       Upward trend
                                                  Given that unauthorised betting is by its              Records seized by the authorities
pretty favourably with the US$15.4 billion        nature underground, one wonders how the            detailing illegal online and proxy telephone
generated by games of fortune in Macau in         government could be so sure. What we can           betting in Hong Kong during the duration of
2009 by 21.7 million visitors.                    say is tax revenues from the Club’s football       the World Cup up to the 7th July recorded
     Large amounts of revenue from horse          betting in the 2003-04 soccer season rose          HK$270 million (US$34.7 million) being
racing have been reinvested into HKJC’s           64.3% from HK$1.65 billion (US$210 million         wagered—nearly four times as much as
racing infrastructure and marketing.              at today’s exchange rates) to HK$2.71 billion      during the previous tournament four years
As a result, in 2008-09, football betting         (US$350 million).                                  ago, said the SCMP.
contributed more (HK$370 million) to                   The problem now seems to be that                  Perhaps one possible remedy to stem
community causes via the HKJC Charities           the unauthorised bookmakers have either            the illegal betting tide would be to allow the
Trust than the core horse racing product          clawed back ‘market share’ on soccer               gaming operators already in Macau—who
(HK$110 million).                                 gambling or simply created new demand.             have the longest exposure and greatest
     The Jockey Club has argued publicly          A likely reason for this is that illegal bookies   experience of free market competition in
and privately in the past that the issue is not   can offer a bigger percentage in prize money       gaming services—to offer sports betting in
whether private gambling franchises should        of the cash originally staked than HKJC,           Macau casinos and to create a parallel online
be allowed as alternatives to the HKJC, but       because they don’t have anything like the          sports betting offer that can be accessed
that the Club itself should be allowed to         same overheads. In particular, they have no        by Hong Kong residents. Every time a Hong
pursue a more aggressive commercial policy.       need to share revenue with the authorities         Kong resident used the service, the Hong
That’s in terms of reducing the tax levied on     either in tax or payment to community              Kong government could then be paid a
the bets, making larger the maximum daily         causes. Tax is levied at 50% of net stake          share of the tax revenue levied on the bet, as
dividends allowed, increasing the betting         receipts for HKJC soccer betting and the Club
products offered and in developing the            also gives some of its operational surplus on
way products are delivered to customers.          all betting operations to community causes.
All these suggested initiatives are designed      The unauthorised bookmakers—provided
to fend off the competitive threat from the       they have a sufficiently large prize pool—can
unauthorised bookmakers.                          potentially offer bigger individual dividends
     The SCMP acknowledges that aspect of         than the HK$10 million (US$1.29 million) per
the problem in its leader.                        account per betting day allowed by HKJC.
     “It [the HKJC] has struggled to compete      Illegal bookies also reportedly offer punters
or wring concessions out of the government,       credit for gambling; something which, for
such as more race days and more flexible          regulatory and ethical reasons, the HKJC
betting on major overseas horse races.            simply cannot do.
Officials appear to be more concerned                  Issuing commercial franchises for
about avoiding antagonising the anti-             gambling services within Hong Kong as
gambling lobby of church and education            suggested by the SCMP would only help
groups that campaigned unsuccessfully             legitimate operators to compete with
against legalising soccer betting seven years     illegitimate ones on prize money if the tax        HKJC Football Betting—a winning proposition

                                                                                                                   August 2010 | INSIDE ASIAN GAMING   23
  Soccer Betting




                                                                                                  able to block payments and settlement
                                                                                                  involving mainland residents, unauthorised
                                                                                                  bookmakers in China would still be able
                                                                                                  to use the prices quoted in the legitimate
                                                                                                  online product to make their own book,
                                                                                                  and collect bets by phone free of tax, as
                                                                                                  allegedly happens now with unlicensed
                                                                                                  bookies on the mainland using MacauSLOT
                                                                                                  soccer betting prices.
                                                                                                       That potential loophole, and the vested
                                                                                                  commercial interest of Macau’s current
                                                                                                  online horse racing, soccer and basketball
                                                                                                  betting monopoly MacauSLOT, majority
                                                                                                  owned by Dr Stanley Ho’s STDM, is probably
                                                                                                  why the idea of other online sports betting
                                                                                                  domiciled in Macau seems to have gone off
                                                                                                  the agenda.
                                                                                                       In September last year, Manuel Neves,
                                                                                                  Director of Macau’s gaming regulator, the
                                                                                                  Gaming Inspection and Coordination Bureau
                                                                                                  (DICJ), told Macau Business the legalisation
                                                                                                  of online gaming “was never a priority”.
                                                                                                       Times and opinions do of course change.
                                                                                                  But the main impediments to Macau-based
  Crime pays—record receipts for illegal HK bookies during World Cup 2010                         cross border online sports betting seem to
                                                                                                  be political. Chief among the objections
  happens with the so-called Australian model     Vegas casino sports book operations.            seems to be the possible piggy backing
  of inter-state online gaming.                                                                   of illegal bookies on the official product
       This was pretty much the proposal made     Parallel bookmaking                             and such parallel services then being
  back in 2007 when Jorge Oliveira, who at            One serious flaw in this plan is that       offered to mainland Chinese customers. So
  that time was the Commissioner for Legal        it would be next to impossible to block         until something changes in the political
  Affairs of the Macau Gaming Commission,         such legitimate online sports betting           landscape regarding the way these three
  said an online gaming bill could be in place    sites from mainland Chinese customers.          jurisdictions—the People’s Republic of
  in two years.                                   Some enterprising souls would in all            China, Macau SAR and Hong Kong SAR—
       Shortly     after   the     impromptu      likelihood set up proxy or ghost servers        think about cross border online sports
  announcement at a gaming industry               with innocuous http addresses to link to        betting, expect to see more police raids and
  conference, Las Vegas Sands Corp said it was    the legitimate gambling site even if China’s    enforcement action against unauthorised
  interested in running online sports books       Internet firewall blocked the official site.    bookmakers during major international
  from its properties, in the manner of Las       Even if credit card issuers within China were   football and other sports tournaments.


  Solution—legalise sports books in Macau casinos?




24 INSIDE ASIAN GAMING | August 2010
  Macau Policy




                               School of Hard
                                  Knocks
                             Forcing casino operators to use local construction workers
                                         won’t solve Macau’s labour issues



  T
        here is a commonly held belief,              five for science and the top six for something     University Grants Committee.
        expressed on occasion in this                called ‘problem solving’.                              The gap between Macau and Hong
        magazine, that Macau residents are,              One problem that the next generation           Kong is even more marked in primary and
  educationally speaking, underachievers.            of Macau’s leaders will have to solve is not       secondary education. A total of 31.7% of
      It seems that’s not strictly accurate. In      so much educational underachievement               Macau residents haven’t gone beyond
  2006, Macau was in the top eight countries         (the territory’s young people clearly do           primary level education, according to
  or regions for performance in mathematics          rather well, especially in the sciences, when      figures released in Q1 2010 by DSEC,
  among 15 year olds, according to a triennial       opportunities are available) as a lack of a        Macau’s Statistics and Census Service. One
  study by the Organisation for Economic Co-         strong tradition for ongoing education.            would hope that this figure is an historical
  operation and Development (OECD). Perhaps          In the first quarter of this year, only 9.5%       anomaly that will be reduced as social
  that’s the real reason so many Macau school        of Macau high school graduates were in             conditions improve in Macau. And yet
  leavers want to become casino dealers.             tertiary education (i.e. study beyond the age      the percentage leaving education
      This achievement wasn’t singular. In           of 17 or 18). In Hong Kong, 18.5% of 17 to 20      with only primary instruction
  the 2003 edition of the OECD study known           year olds took a first year, first-degree course   actually went up year on year in
  as PISA—the Programme for International            in higher education during the academic            Macau in the first quarter of 2010
  Student Assessment—Macau was in the top            year 2009-10, according to Hong Kong’s             compared to Q1 2009.
                                                                                                        A further 8.4% either
                          Educational attainment in Macau                                               never went to school or
                                                                    2009 2009 2009 2009 2010
                                             2007 2008 2009
                                                                     Q1 Q2 Q3 Q4 Q1
    Highest education attained (%)
    No schooling/Pre-primary education         8.9     8.3    9.1    8.5   10.5    8.7    8.5 8.4
    Primary education                         27.9    26.4   25.8   23.5   30.4   25.9   22.8 31.7      Degree of
    Junior middle education                   31.6    27.4   30.4   34.0   27.9   29.0   30.9 30.7      scepticism—Macau
                                                                                                        residents aren’t
    Senior middle education                   21.9    22.1   21.5   22.1   19.7   19.8   24.8 19.6
                                                                                                        rushing to
    Tertiary education                         9.7    15.7   13.2   11.8   11.5   16.6   13.0 9.5       upgrade their
    Source: Macao Economic Bulletin/DSEC                                                                skills.

26 INSIDE ASIAN GAMING | August 2010
                                                                                                                                         Macau Policy




                                           Non resident workers in Macau, 2007-2010
                                                                      2007      2008      2009          2009      2009        2009       2009       2010
                                                                                                         Q1        Q2          Q3         Q4         Q1
  Inflow of non-resident workers               number                62206     65905     33250           8863     9004         7702       7681      7837
                                               y on y % change         18.7       5.9      19.5           12.0     53.9         58.6       38.5      11.6
  Non-resident workers in Macao                number                85207     92161     74905          87789    83616       77239      74905      72843
                                               y on y % change         31.8       8.2      18.7            2.5     15.1        25.9       18.7       17.0
  Source: Macao Economic Bulletin/DSEC

received only pre-school instruction. Before            That said, the number of imported                      The issue is not Macau’s sovereign right
a new Labour Relations Law was enacted in          workers in Macau is well below the peak                 (or at least subsidiary sovereign right as a
2008, Macau residents could leave school           reached in 2008, when there were 92,961—                Special Administrative Region of China) to
at 14 and legally start work. The age for          equivalent to 28.8% of the employed                     do that. It’s that it would probably benefit
full time employment has now been raised           population at the time. After the global                everyone if it could be done in as rational
to 16. That policy certainly didn’t create a       financial crisis that began in September                and coherent a way as possible.
stampede for university places. In Q1 2010,        2008, the Macau government ordered casino                   Despite the skills gap in the local
30.7% of the Macau school population got           operators to reduce the number of ‘blue                 economy, most Macau residents already
no further than junior middle education            card’ holders on their books. People were               have jobs, even if not always particularly
(i.e. age 16).                                     let go almost overnight, with just ten days             interesting or glamorous ones. So when
     In other words, there is currently in Macau   to leave Macau after the termination of their           the government sets quotas for a certain
a culture of exiting education as quickly as       employment. Between the end of 2008 and                 proportion of locals in a key industry such
possible in pursuit of work. During the days       the end of 2009, the number of non-resident             as construction, the employers have to
of Stanley Ho’s gaming monopoly under              workers in Macau fell by 18.7%.                         poach workers from other sectors. The
STDM, that lack of a strong tradition in post-          At the end of Q1 2010, there were 72,843           unemployment rate among residents was
16 education wasn’t a significant impediment       non-resident workers in Macau, with the                 only 3.7% in the first quarter of this year,
to Macau’s economic progress. Up until the         inflow down 11.6% in Q1 2010 compared to                according to DSEC. That would be counted
mid-1990s, Macau was still a relatively low        the same period a year earlier.                         as statistical full employment in many
skill, low wage, industrial and commercial              It’s only by the good grace of the Macau           European Union countries.
economy with some gaming. That was at              government that foreign investors were                      Local residents need to be moved up the
a time when Hong Kong, by contrast, had            allowed into the local casino market in the             value chain in terms of skills and income so
already significantly de-industrialised and        first place. It’s perfectly reasonable, therefore,      that more of them are doing the higher level,
was starting to reinvent itself as a gateway       that Macau would want to engineer its job               well-paid jobs and the migrant workers are
for investment into China.                         market to benefit its own people, and not               mostly doing the low paid ones. That’s how
     Since the liberalisation of the Macau         those of Hong Kong or foreign countries                 the labour market increasingly works in the
casino industry in 2002 and the opening            thousands of miles away.                                United Arab Emirates, where there’s been
of the first foreign owned casino, Sands
Macao, in 2004, the locals’ culture of early
exit from education has been reinforced
by a policy decision that casino dealer jobs
should be reserved for permanent residents.
Competition between casino operators
vying to employ 18 year old school leavers
looking for their first job has helped push
the median dealer wage up to MOP13,000
in Q1 2010. That makes card dealing one of
the best-paid occupations in Macau behind
public administration and financial services.
It’s also, however, a job with a distinct glass
ceiling unless dealing staff are willing to
return to education to develop new skills to
perform other roles within the organisation.
     Modern gaming resorts are systemically
very complex and need highly skilled and
highly trained professionals to manage
them effectively. Currently, therefore, Macau
cannot avoid importing some people to
occupy that role.                                  Straight ahead—the UAE is gradually replacing expats with locals

                                                                                                                          August 2010 | INSIDE ASIAN GAMING   27
  Macau Policy




                                       Macau unemployed population (permanent residents)
                                                                        2007       2008      2009       2009   2009        2009    2009      2010
                                                                                                        Q1   Q2   Q3        Q4     Q1       (%)
    Unemployed population                        thousand                  9.5      10.0       11.7     12.8      11.9      12.3      9.9      9.5
                                                 y on y % change          -9.1       6.1       16.3     32.9      30.2      17.5    -10.3    -25.8
    Age group (%)
      16-24                                                               28.9      27.9       27.6     28.8      27.8      30.0     22.7    23.5
      25-34                                                               16.4      13.6       14.1     15.2      11.9      16.4     12.2    12.5
      35-44                                                               19.0      20.8       17.4     17.8      19.4      15.9     16.3    18.7
      45-54                                                               25.7      29.1       28.9     28.0      27.1      28.3     33.2    31.9
      55-64                                                               10.0       8.5       12.0     10.2      13.8       9.4     15.6    13.4
      ≥65                                                                    -         -          -        -         -         -        -       -
    Source: Macao Economic Bulletin/DSEC

  a policy of localisation of labour, known as       isn’t going to help if the local people don’t      to create administrative and practical
  ‘Emiratisation,’ for the past 12 years.            have the necessary skills and perhaps even         bottlenecks in the execution of two of the
       The UEA’s Council of Ministers issued a       the motivation to do those jobs.                   biggest gaming real estate projects in the
  directive as long ago as 1998 requiring all             According to the Macao Economic               territory. Those projects are the US$1.8
  banks to increase their intake of UAE nationals    Bulletin for the first quarter of 2010 published   billion Galaxy Macau, the Cotai resort from
  at the rate of 4% per year. In 2004, the cabinet   by the government, there were only 9,500           Galaxy Entertainment Group, and the US$2.4
  issued another resolution approving a set of       residents registered as unemployed in the          billion Cotai 5 and 6 from Sands China.
  measures for boosting Emiratisation of jobs        territory. Sands China has said previously              The casino operators and their
  in the private commercial sector.                  it needs 10,500 workers for its Cotai 5 and        contractors and sub contractors will
       Inside Asian Gaming understands from          6 project. It doesn’t need all of them all at      eventually jump through the necessary legal
  gaming industry sources that Macau,                once, but it needs them nonetheless across         and commercial hoops and employ more
  aside from reserving casino dealer jobs for        the life of the project, which could take up to    locals. That may mean throwing more money
  permanent residents, also has a policy of          three years to complete.                           at the problem and raising construction
  incremental localisation for pit supervisor             The net result of the government’s one-       sector wages to attract locals from other
  and pit manager jobs. Insiders say the crucial     for-one policy on construction workers             sectors. Something similar happened in the
  difference in Macau is that this objective has     seems to have been not to produce greater          casino dealer segment at the time of the ‘Big
  not been formalised and written down as a          opportunity for the people of Macau, but           Bang’ of new casino openings on the Macau
  directive or government policy. As a result,
  casino operators can’t be sure that the
  policy is being instituted evenly across the
  local industry, nor can they be sure that their
  cooperation will pay the political dividends
  they might reasonably expect in terms of
  building goodwill with the locals and the
  government.
       Arguably, the advantage of the
  UAE approach to localisation is that it is
  transparent, managed incrementally and
  backed by policies to improve the take up
  of higher education and professional skills
  among locals. The latter element means
  that in the medium to long term, employers
  don’t suffer a fall in efficiency by taking on
  local people, because there’s a managed
  programme to improve and develop the
  skills of those local staff.
       A similar process of localisation will take
  time in Macau, and needs the help of strong
  and clear policies backed by a higher take
  up of further education to make it work
  effectively. Simply announcing overnight
  that one local should be hired for every
  outsider brought in, as happened recently
  with the construction industry in Macau,           Galaxy and Sands will overcome the labour headaches

28 INSIDE ASIAN GAMING | August 2010
                                                                                                                                 Macau Policy




peninsula in 2006 and 2007. But such an
approach simply shifts Macau’s structural
labour problems down the line to other
sectors that find it hard to compete with
casino and construction wages. Between
2007 and 2008, median wages in Macau’s
construction sector rose 17.6%. In the same
period, hotel and restaurant median wages
grew by only 10.9%.
     In Q1 this year the median monthly
income in the hotel and restaurant trade was
MOP7,000. In the same period, the median
construction salary was MOP9,300. The
median monthly salary for a casino dealer
was MOP13,000.
     Hiking construction wages this time
around could mean a flight of local people
from jobs in the restaurant trade, leading to
more establishments closing. The surviving
                                                  Back to the drawing board—educational policy rethink for Macau
restaurant businesses may then be forced
to pay better wages to compete with               added that those casino workers under 21          A condition of the support grants could
construction, thus helping to drive up the        at the time a new law was enacted would           be that the students must return to Macau
cost of restaurant meals and further fuelling     be allowed to stay on. He was backed at the       after graduation—possibly to take up
an upward inflationary spiral in the local cost   time by Dr Stanley Ho. Nobody could accuse        placements with casino operators and other
of living that affects everyone.                  Dr Ho of being a ‘here today gone tomorrow’       key employers, and thus preventing a brain
     In 2008, inflation in Macau peaked at        kind of capitalist.                               drain out of Macau by its brightest and best.
8.6% according to DSEC, but fell back to              Locals can join the police at the age of18,        Educational support grants may be the
1.2% in 2009. It is currently creeping up,        so some fretted that could create a bizarre       only answer in the short term. With two new
reaching 1.5% in Q1 2010, compared to             situation whereby police wouldn’t be able to      casino resorts due to open on Cotai between
1.2% a year earlier.                              enter a casino on official duty. That’s clearly   2011 and 2012-13 requiring a possible
     Inflation has certainly been cited by        a red herring. Dispensations could be made        22,000 new workers, according to some
Macau residents quoted in local media as a        for public security personnel on official duty.   estimates, there’s virtually no chance of the
cause for concern. In some cases, residents       Getting more people into tertiary and higher      casino entry age being raised before then for
have put the blame on expatriates and their       education is a question of political will, not    fear of creating a chronic shortage of already
generally above local average salaries for        technicalities.                                   scarce local staff.
pushing up the cost of living.                        The Monetary Authority of Macao                    The time may have come, however,
     Perhaps a more relevant point is that        announced it had foreign exchange reserves        when Macau’s lawmakers need to rethink
the arrival of a new wave of expatriates is       of MOP163.7 billion (US$20.42 billion) at         the policy of reserving casino dealing jobs
a function of economic development. Such          the end of June 2010. If Macau can afford to      for locals. In theory, it’s a good idea to allow
development often produces inflationary           spend US$1 billion on a light rail system to      the locals to benefit from the casino boom by
pressures as a side effect, as has also been      move tourists around, it can certainly afford     reserving for them some of the highest paid
seen on the Chinese mainland.                     to pay its young people educational support       entry-level jobs. In practice, it’s in danger of
     So how should Macau tackle its               grants. That would allow students to stay in      institutionalising the economic rationale for
underlying labour market weaknesses?              education beyond 18 without their choice          leaving education early. That risks leaving
Macau’s first chief executive, Edmund Ho,         having a short-term negative impact on their      Macau permanent residents permanently at
suggested during his second term the idea         family’s income. And if there aren’t enough       the bottom of the educational achievement
of raising the casino entry age to 21, thus       places at local educational institutions,         ladder, giving highly complex businesses
creating an immediate incentive for locals        then they should be paid to attend courses        such as casino resorts little choice but to ask
to attend tertiary or higher education. He        on the Chinese mainland or Hong Kong.             to import more highly skilled staff.




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                                                                                                                  August 2010 | INSIDE ASIAN GAMING   29
  Regulation




      Carrots and
        Sticks
               Lawyer Bruno Nunes
   on Macau’s efforts to regulate its long standing
          tradition of gambling credit




  I
     n July, we looked at the rules governing      payments to any company with which the
     Macau junket operations. This month, we       concession itself has a relationship.
     consider how junket regulation meshes              The commission cap was determined by
  with other aspects of Macau gaming law and       the Dispatch of the Secretary for Economy
  how the whole system is enforced.                and Finance No. 83/2009, which came into
      Two gaming regulations have an               effect on 22nd September 2009.
  impact specifically on the commercial                 Article 1 says commissions or any other
  incentives that drive the gambling agent         type of compensation to a junket cannot be
  system in the VIP rooms of Macau casinos.        higher than 1.25% of the total wager (net
  They relate to the commission cap and            rolling), regardless of the basis used for its
  the provision of gambling credit by the          calculation.
  gaming operators in Macau.                            By making the legal provisions so
                                                   broad when defining junket commission or
  Commission cap                                   compensation, it seems the Government
      As mentioned in our previous article,        has taken into consideration the highly
  Administrative Regulation No. 6/2002,            imaginative forms of payment and perks
  amended by Administrative Regulation             that were being granted to and from some
  No. 27/2009, is the main legal document          junkets following the establishment of
  regulating junket activity. The latter           the junket regulatory framework in 2002.
  regulation, published on 10th August 2009,       As a further safeguard, casino operators
  is the one the Macau government relies           must file with the Gaming Inspection
  upon for enforcement of the much discussed       and Coordination Bureau (DICJ) a copy
  commission cap.                                  of any agreements entered into with the
      The cap was achieved by amending             junket operators. The casinos must also
  an article in another Administrative             submit any complementary agreements
  Regulation—No. 6/2002. This confirms that        or other documents involving obligations
  Macau’s Secretary for Economy and Finance        or payments equal to or higher than one
  has the power to establish, by legal dispatch,   million patacas (US$120,000).
  a maximum cap on the commissions and                  In an attempt to ensure the enforcement
  other types of payments that can be made         of the commission cap, the Government
  to junkets by the casino operators. The          went ahead with a minor change on one of
  second part of the same provision goes on to     the duties of the casino operators set forth
  clarify that any bonuses, gratuities, services   in Article 30, Paragraph 1 of Administrative
  or other pecuniary advantages that can be        Regulation no. 6/2002. This change imposes
  subject to pecuniary determination, will be      an active responsibility on the casino
  considered as retribution. The cap, while in     operators to submit all the information
  force, applies whether such payments are         needed for the DICJ to verify calculation of
  made in Macau or abroad. It also applies         junket incentive payments.
  to the following: payments made directly;             As stated in the previous article,
  payments made through a company in               infringement of these limits or reporting        Back door closed—no way round the
  which the concessionaire has a stake; and        obligations can lead to sanctions, including     commission cap?

30 INSIDE ASIAN GAMING | August 2010
  Regulation




                                                      The carrot—junkets can be authorised credit                               The stick—every
                                                      providers in Macau                                                        government department
                                                                                                                                  mobilised to root out
                                                                                                                                     loan sharking
  fines, under Article 32-A and 32-B of               -   between a casino operator (provider)
  Administrative Regulation no. 6/2002.                   and a junket operator.
                                                          Credit provision agreements
  Provision of gaming credit                          between a casino operator
        Provision of gaming credit is one of the      and a junket operator and any
  key elements of the success in the Macau            complementary documents or
  gaming industry. VIP high rollers account for       changes must be approved by
  approximately two thirds of the total volume        the DICJ, in writing and with notarised
  of gaming revenues in Macau. Many of those          signatures. A copy of the agreement
  high rollers are mainland Chinese and can           must be submitted to the DICJ within
  only legally bring a maximum of RMB20,000           15 days of the agreement coming into
  (US$2,950) across the border. The provision         effect (as per Article 8).
  of legal gaming credit, especially through              Interest may be charged by the
  junket operators, provides alternative forms        provider under the agreement if the
  of funding.                                         debtor does not repay the credit within
        Gaming credit is regulated under Law no.      an agreed time. Article 1073 of the Civil
  5/2004, in force since 1st July 2004 as part of     Code determines that such interest
  the territory’s Legal Regime of Provision of        cannot exceed three times the maximum
  Credit for Games of Fortune and Chance.             annual percentage rateii of 9.75%.
        Article 2, No. 1 states gaming credit             Article 4 of Law No. 5/2004 makes
  issuance occurs when a credit provider              it clear that the provision of properly
  transmits to a third party the ownership            authorised gaming credit creates a civil
  of casino chips for games of fortune and            liability on the part of the borrower that
  chance without the immediate payment of             can be pursued by the creditor through the
  money i.                                            Macau courts.
        Under Article 3, only casino operators are
  legally authorised to provide gaming credit.
  It adds that junket operators can also be an
  authorised gaming credit provider if they
  enter into “credit provision agreements” with
  casino operators.
        The Law specifically forbids, in Article 5,
  the provision of credit through third parties
  (i.e. anyone other than the authorised casino
  operator or the authorised junket operator),
  and would nullify any such contract or act
  under Macau law.

  Article 3 No. 6 states only the following
  gaming credit relations may exist:
  - between a casino operator (provider)
     and a player;
  - between a junket operator (provider)
     and a player; or                                 Loan sharks beware—an outsider’s view of Macau prison


  i  No. 2 of Article 2 clarifies, in very broad terms, the understanding of “money” in this context, providing a long list of examples, which include:
     cash, travellers cheques, certified cheques, cashier’s orders or cashier’s checks, money orders, electronic fund transfers through electronic
     means of payment (credit or debit cards or prepaid cards).
  ii Legal interest is currently determined by Executive Order no. 29/2006.

32 INSIDE ASIAN GAMING | August 2010
  Regulation




      This civil liability has not yet been         organisation of providing unauthorised            DICJ’s workers and its service providers.
  tested in the Macau courts with regard            credit, it can demand clarification and               Loan sharking continues to be an
  to debts contracted by high rollers from          inspect the location in which the alleged         issue in Macau. A total of 153 cases were
  mainland China. Any such judicial ruling in       activity has taken place. If evidence is          registered between June 2009 and May
  Macau against a passport holder from the          gathered to support the allegation, the           2010. The fact the figure actually represents
  People’s Republic of China would probably         DICJ will prepare a report and submit it,         a decrease of 15.47% on the equivalent
  need to be confirmed and executed                 as quickly as practicable, to the Public          period a year earlieriii suggests that Macau’s
  upon by a court in China. That’s because          Prosecution Office.                               legal and administrative efforts to regulate
  the respondent’s assets are likely to be              Article 16 of Law No. 5/2004 protects         the gambling credit market are workingiv.
  domiciled there. Given that gambling              legally authorised credit providers from          Ultimately, the aim must be to make the
  debts are not recognised under PRC law            being classified as ‘loan sharks’. Under          legal gambling credit system so efficient and
  as enforceable contracts, a PRC court             Macau’s criminal law, loan sharking is            so equitable for the parties involved and the
  may seek to invoke a statute of limitation        punishable with up to three years in prison       enforcement against unauthorised lending
  of liability. That right comes from an            or up to five years if an aggravated offence.     so exacting that the commercial demand for
  agreement between mainland China                                                                    loan sharking falls away. It happened in Las
  and Macau concerning the reciprocal               Penalties                                         Vegas, so it can also happen in Macau.
  confirmation and execution of judicial                Further aggravating factors, such as
  decisions in civil and commercial matters.        where illegal gaming credit providers keep
      Law No. 5/2004 requires all of Macau’s        hold of the identification document of the
  government departments to cooperate               person to whom they have granted credit,
  with the DICJ in its task of supervising          can result in a prison sentence of up to eight
  the gambling credit system. The practical         years. In all three scenarios, the court can
  effect of that is to create extra safeguards      ban the offenders from entering any Macau
  against the establishment of unauthorised,        casino gaming rooms for at least two years
  ‘underground’ credit networks.                    and up to 10 years.
      If an authorised gaming credit provider           Other provisions of Law No. 5/2004,
  seriously infringes any legal or regulatory       namely Articles 9, 10 and 11, impose a duty
  provision, or acts incompetently, the             on gaming credit providers and their workers
  government has the right to suspend that          to act in a prudent manner, complying with
  provider’s credit activity or impose conditions   any laws, regulations and internal company
  upon the provider. That’s notwithstanding         rules of professional conduct. They also have     Bruno Nunes is a lawyer based in Macau with
  any criminal and administrative procedures        a duty of confidentiality regarding financial     a practice focused on gaming, corporate
  that may be launched.                             information relating to credit provision. That    and intellectual property law. bnunes@
      If the DICJ suspects a person or              duty of confidentiality also applies to the       bnlawmacau.com


  iii & iv Speech of the Judiciary Police Director, Wong Sio Chak, made on the Judiciary Police Day Prize Delivery Ceremony held on July 15




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34 INSIDE ASIAN GAMING | August 2010
August 2010 | INSIDE ASIAN GAMING   35
  SJM




                 A Tale of Two Cities
                      Taipa’s SJM-licensed casinos are underused, but SJM doesn’t mind


  I
     n the red hot gaming market of Macau, the mass-segment live
     tables in SJM-licensed casinos in the ‘midtown’ zone, Taipa, appear
     to be significantly underperforming in revenue terms.
      Some VIP players may find sufficient motivation to trek to Taipa,
  but mass-market customers are thin on the ground. In gaming terms,
  Taipa is something of a dormitory settlement no man’s land across
  the water from the Macau peninsula and on the way to Cotai.
      The SJM-licensed Taipa casinos—Greek Mythology (New
  Century), Macau Jockey Club Casino and Grandview—between
  them have about 200 tables. That’s only just over 4% of Macau’s
  live table inventory, but nearly as many as there are in SJM’s
  directly managed flagship property, Grand Lisboa. Those tables
  could go a considerable way to boosting SJM’s profitability if at
  least some of the mass tables were reassigned to busier floors on
  the peninsula.
      Taipa’s table inventory is an important resource, because the
  number of live tables in Macau has (in theory at least) been capped
  by the government at 5,500 until the end of 2012. There were already
  4,828 of them out there in the market at the end of the second
  quarter of this year, according to Macau’s gaming regulator, the DICJ.
  What slim quota is left will be fought over by Galaxy and Sands China
  for their new Cotai resorts. Both those operators seem to be under
  the impression they have each been given an allowance of 400 new
  tables for the first phase of their Cotai projects. If phase one of Sands’
  Cotai 5 and 6 opens before the end of 2012 as the company seems              Sands China’s Cotai 5 and 6

36 INSIDE ASIAN GAMING | August 2010
  The mass market prospects of Greek
      Mythology have essentially been
   overlooked by Ho family interests in
    order to ensure the success of next
      door Altira Macau, run by Melco
Crown Entertainment (Nasdaq: MPEL),
 a company co-chaired by Dr Stanley
                   Ho’s son Lawrence.
                                                                                                                                                   SJM




to think, it will create, to put it mildly, an interesting situation re: the       SJM could help out Greek Mythology’s shareholders by
enforcement of the table cap.                                                  marketing the property to mass segment customers more
                                                                               intensively—or even a little. But it hardly does that even for the
Shuffle time                                                                   legacy casinos on Macau peninsula, with its more developed
    Sands has already indicated it may shuffle some of its existing            tourism transport links, so why would it do so on Taipa?
table inventory around in order to populate Cotai 5 and 6. That
highlights the fact table utilisation is patchy even in the most popular       VIP focus
casino destinations. Variables affecting utilisation include day and               In overlooking the mass market potential of Greek Mythology
time of day, the weather and seasonal factors such as public holidays.         in favour of chasing VIP table dollars, SJM and its associates have
In Asia, table utilisation also depends on whether players feel that a         been absolutely true to the traditions and spirit of Dr Ho’s gaming
particular dealer will be lucky for them.                                      operations. In that context, the mass market focus of the Grand
    In the end, however, audited results don’t generally lie. If a casino      Lisboa over on the Macau peninsula is actually an aberration and a
spends too much time with too many tables underused, it will show              break with SJM tradition.
up on the balance sheet—especially in the Macau market, with its                   In any case, Amax is getting compensated for the
fearsome overheads. The annual government licensing fee on a mass              underperformance of the mass market tables at Greek Mythology
market live table in Macau is MOP100,000 (around USD12,500) and                by its involvement in a junket consolidation business feeding VIP
a lot more for a VIP table. A dealer salary is around MOP13,000 per            players to Altira Macau.
month (USD19,500 per year). And with nearly 40% coming off the top                 The commercial incentive for SJM to involve itself in the details
in government tax, you really need to make your Macau table assets             of running satellite casinos such as Greek Mythology isn’t strong,
sweat to make profits—especially in the game of choice, baccarat,              because it doesn’t own the full economic benefit of the revenues.
with its narrow house advantage and volatile hold.                             Instead, SJM gets a share (traditionally 20%) of a satellite’s revenue
    The evidence to support the proposition that SJM-licensed mass             in return for access to its gaming licence and in some cases for
market tables on Taipa are under-utilised comes from a brief study of          supplying floor staff.
the Greek Mythology property.                                                      Nonetheless, there are reasonable arguments in a table-capped
    The mass market prospects of Greek Mythology have                          market in favour of shifting tables from underperforming districts
essentially been overlooked by Ho family interests in order to                 or venues and putting them in places with greater profit potential
ensure the success of next door Altira Macau, run by Melco                     (such as the Macau peninsula). A publicly-listed Las Vegas gaming
Crown Entertainment (Nasdaq: MPEL), a company co-chaired by                    company would have its shareholders howling at the moon if it
Dr Stanley Ho’s son Lawrence. Altira not only has MPEL’s own in-               allowed too many precious Macau tables to lie empty and unloved
house marketing machine behind it, but also benefited back in                  for any length of time. In reality SJM would be unlikely to make such
2007 from an injection of much needed junket roll from new VIP                 a demand on its affiliates.
players. This was possible because MPEL was able to enlist the
help of one of Greek Mythology’s shareholders that also has an                 The Chinese way
interest in junket activity.                                                        Even leaving aside contractual niceties, it’s not the Chinese
    Amax Holdings, a Hong Kong-listed company, is a 49.9%                      way. The Chinese way—especially among medium- to large-sized
shareholder in Greek Mythology, and from 2007 onwards earned,                  companies such as SJM—is to share business interests with a network
via its junket consolidator subsidiary, commission from Altira’s high          of collaborators. Although this carries the downside of having to
roller business.                                                               share profits with others, it has a number of structural advantages.
                                                                               It can spread regulatory and financial risk, and create an exponential
David versus Goliath                                                           growth in the network of people available for business collaboration
     The 16 VIP tables at Greek Mythology actually overperform                 and favour-asking.
relative to next door Altira Macau, but the 100 mass-market tables at               A great example of the spread of this SJM spider’s web of mutual
Greek Mythology bring the average down with a bump.                            interest is the rise of Ted Chan. Mr Chan went from Mocha Clubs
     In its interim report issued in December last year, Hong Kong-            (originally a Melco business under Dr Ho, passed on to Lawrence
listed Amax Holdings, a 49.9% shareholder in Greek Mythology,                  Ho when he took over at Melco and now part of MPEL) to become
reported that in the six months to 30th September its portion of               chairman of Amax, then to Altira as President and now as co-Chief
net win from the 16 VIP tables in the casino was HK$14.5 million.              Operating Officer of Gaming for the whole of MPEL.
That’s equivalent to HK$906,000 per table for Amax’s share or HK$1.8                The presence of those 200 or so SJM tables in Taipa also gives SJM
million per table for all the shareholders. Pro rata, that’s better than       and its friends coverage in the southern part of the Macau market. The
Altira’s performance. Altira managed HK$658 million net win across             Macau government’s position so far has been to restrict any further
210 VIP tables in the full year to 31st December 2009. That works out          expansion of gaming in suburban areas. So the strategic benefit of
to HK$1.6 million per table.                                                   SJM’s Taipa coverage is probably to provide a support network for
     But Amax’s share of Greek Mythology’s final profits for the               marketing purposes should SJM finally take the plunge and sign up
six months to 30th September was only HK$1.97 million. That’s a                for its own resort on Cotai. The arrival of Macao Dragon’s ferry service
relatively miserly (by Macau’s inflated standards) US$250,000 from             into Taipa as a competitor to LVS’s CotaiJet could also provide SJM
116 tables. One of the drags on Greek Mythology’s performance is               fresh marketing options for the mass tables. In any case SJM’s attitude
likely to be the 100 mass-market tables. In IAG’s experience, they are         toward Taipa is essentially that as the incumbent concessionaire it
often empty.                                                                   can afford to sit and wait. How very SJM. How very Chinese.
                                                                                                                      August 2010 | INSIDE ASIAN GAMING   39
  Feature




                           Lending a Hand
                   Some investors find Macau junkets an attractive alternative to parking
                              their money in a bank, says CLSA Asia-Pacific




  A
          possible side effect of the inter-bank   3% per month. This is higher than keeping          counter party risk since September 2008
          lending crisis and its depressive        money in banks or even some mutual funds,”         may be creating opportunities for private
          effect on bank deposit interest rates    adds the CLSA research paper by analyst            investment in junkets.
  may have been to channel cash to Macau           Huei Suen Ng, Regional Head of Consumer                Parking your money in a junket for
  junkets.                                         and Gaming Research Aaron Fischer and              a month here or there, with none of the
       Secret Macau, a new 80-page report          research associate Mariana Kou.                    punitively high charges for early withdrawal
  by the consumer and gaming research                   Macau junket capitalisation is thought        or punitively low interest rates associated
  team at CLSA, an independent brokerage           of typically by people inside and outside          with short term bank deposits, must
  and investment group, covers all aspects         the local casino industry as a specialist field.   seem like an attractive option for those
  of Macau’s casino gaming business. One           It’s not generally seen as a mainstream            local entrepreneurs with a sophisticated
  development reported by CLSA following           investment opportunity for recognised              understanding of the junket system.
  its research is that Macau junkets are willing   financial institutions.                                As an illustration, in the first week of
  in some cases to pay private investors up             CLSA points out, however, there is a          August, the Hong Kong Interbank Offered
  to 3% interest per month on injections           precedent for using mainstream capital             Rate for one month was 0.23000%. During
  of working capital equal to HK$5 million         markets to raise junket working cash.              that week, time deposit rates for Hang Seng
  (US$640,000) or more.                            Several companies with interests in Macau          customers on deposits of HK$1 million and
       “Friends/shareholders       of     junket   junket operations have listed in Hong              above stood at 0.0100%. The junkets can
  companies may channel private funds into         Kong in order to raise junket capital. Given       afford to pay significantly more interest
  their working capital through lending (for a     the current volatility of equity markets,          to capital providers because of the spread
  certain fee) or gambling these amounts as        though, share issuance is a less attractive        created by borrowing on monthly terms and
  chips,” says the CLSA report.                    way to capitalise junkets than it was in           lending out to VIPs who then repay on 10-
       “Investing in junkets is also possible in   the bull market of 2007. But the shrinkage         day terms, according to CLSA.
  Macau. What we hear from sources on the          of bank retail interest rates linked to a              “Casinos extend credit (marked chips) to
  ground is a minimum of HK$5 million is           corresponding fall in inter-bank lending           junkets to be settled within a month. Given
  accepted for interest payments of 1.5% to        rates that happened as a response to               the improving economy, these amounts
40 INSIDE ASIAN GAMING | August 2010
  Feature




  have increased over time,” points out CLSA.
      “Casinos book these as casino
                                                         Casino receivables as a portion of VIP gross revenue
  receivables (a component of account                                                        Sands China
                                                   25   (%)
  receivables) in their balance sheets. They                                                 Wynn
  typically extend credit against last month’s                                               SJM
  commission to the junkets to safeguard           20                                        Melco Crown
  any potential irreclaimable debt. Some
  agreement can be made to advance up to           15
  two to three months worth of credit if the
  junkets have longstanding relationships          10
  with solid performance as well as financial
  backing,” adds the CLSA team.                     5
      If an investor chose to deposit HK$5
  million with the Hang Seng Bank at monthly
                                                    0
  interest of 0.0100% as quoted by the market
  at the beginning of August, then on a non                    2006                  2007                  2008                  2009
  compound basis the investor would earn         Source: Companies
  HK$500 (before any tax liability owed to the
  investor’s tax domicile) in one month. Were                    Liquidity requirement to fund VIP revenue
  an investor to lend HK$5 million to a Macau
  junket at 1.5% monthly interest, he or she      Net win
  would earn HK$75,000 pre-tax during the         Gaming revenue (US$bn)                                                                     10
  term of the loan.                               VIP portion                                                                                 7
                                                  Direct VIP (15% of VIP)                                                                  1,05
                                                  Junket VIP (85% of VIP)                                                                  5.95
                                                  Mass portion                                                                                3
                                                  Rolling chip/wagered amount
                                                  Junket VIP @2.85% holding rate                                                           209
                                                  Sensitivity
                                                  Ratio of player pledged amount: junket borrow (x)
                                                  Player                                            1                 1           1           1
                                                  Junket                                            1                 2           4          10
                                                  Contribution from player junket
                                                  Player pledged portion                          0.5               0.3         0.2         0.1
                                                  Junket portion                                  0.5               0.7         0.8         0.9
                                                  Player pledged portion (US$bn)                 104                70          42          19
                                                  Junket portion (US$bn)                         104               139         167         190
                                                  Total (US$bn)                                  209               209         209         209
  Were an investor to lend HK$5 million
                                                  Junket repayment days (No.)                     10                10          10          10
  to a Macau junket, he or she would earn         Junket equity needed (US$bn)                   34.8              46.4        55.7        63.3
  HK$75,000 pre-tax                              Source: CLSA Asia-Pacific Markets

      According to CLSA’s junket sources,             “To achieve gaming revenue of US$7          be willing to lend capital to that junket
  junket players generally pay back their        billion in the VIP segment, assuming             because he personally knows some of its
  borrowings to the junkets in about 10 days,    junkets extend credit based on the ratio         customers and knows their track record
  allowing junket liquidity to be sustained.     of 1:1 (US$1 of credit received in Macau         for repayment. And although mainstream
      Lending to junkets is potentially very     for every US$1 pledged by a player),             financial markets are used to dealing with
  profitable for capital providers. That in      US$35 billion of working capital is needed       intangible assets, the fact the ‘asset’ on
  turn is linked to the fact the junkets must    from the junkets (about 6x revenue from          which a junket’s capital debt is secured is
  chomp through a lot of capital to generate     junket VIP).”                                    the chip rolling of the particular junket’s VIP
  sufficient rolling to make a profit on the          Despite the theoretical profit potential    players may be a step too far in terms of a
  gambling action. CLSA says the amount of       of lending capital to junkets, it seems          lending institution’s risk appetite.
  capital needed to operate Macau junkets is     unlikely from IAG’s perspective that financial       CLSA comments: “The clear risks lie in
  around six times the revenue generated by      institutions will become involved in the         the repayment days, which will have a large
  VIP players.                                   process to any great extent. That’s because      impact on subsequent month’s working
       “Understanding the math behind junket     the risk involved is not easily understood       capital.”
  liquidity is important,” state the report      by people outside the junket system. For             But the report authors say that repayment
  authors.                                       example, a friend of a junket operator may       cycles are likely to remain stable.
42 INSIDE ASIAN GAMING | August 2010
Parking your money in a junket for a month here or
there, with none of the punitively high charges for early
withdrawal or punitively low interest rates associated with
short term bank deposits, must seem like an attractive
option for those local entrepreneurs




     “Junket sources we talked to do not see            “While the direct-VIP segment is more       same terms and commissions.
drastic changes in players’ debt-repayment         profitable, casinos have limited expertise in        “Having scale in this business is
pattern, with the credit cycle remaining at        collecting debts from mainland players.”         advantageous as the smaller-scale junkets
around 10 days with the players.”                       The authors add, however, that further      will be less able to offer decent rebates
     In current junket trading conditions with     consolidation of the Macau junket sector         to their customers over time. To achieve
huge year on year growth in VIP play, the          is likely.                                       higher commissions, junket operators need
junkets are also able to generate significant           “Consolidation of junket operators and      to increase volumes, and higher volumes
internal cash flow, suggests CLSA.                 agents is inevitable, although the process       require greater working capital to prepay
     The report states: “Internally generated      will be gradual. As more casinos rebate          casinos for chips. This will favour the bigger
funds (junkets receive 1.25% of rolling chip       junkets based on rolling-chips turnover,         junkets that have better access to capital,”
wagered) have increased as a result [of            lower-volume operators will not enjoy the        says CLSA.
VIP market growth]. Therefore, lending to
players should increase.”
     From IAG’s perspective, internal                                                  Junket Licences
cash flow could also enable junkets to
absorb some bad debt. That was much                140    (No.)                               Legal Entity          Individuals
harder during more challenging trading
conditions, such as the near two-year              120
commission price war of 2008 and 2009.
That only ended with the imposition by the         100
Macau government of a 1.25% commission
cap in September 2009.                              80
     “A junket operator’s monthly working
capital is affected if debt is not collectible,”
                                                    60
states CLSA.
     “For example, we understand that during
the Asian financial crisis [of 1997], 70% of the    40
junkets got wiped out. And during 2009, the
number of licences fell 18%.”                       20
     Despite the better margins theoretically
available to casinos when they issue credit           0
direct to VIPs, in reality the junket system is
                                                               2006             2007               2008            2009               2010
likely to be around for some time to come,
says CLSA.                                         Source: DICJ, CLSA Asia-Pacific Markets

                                                                                                                 August 2010 | INSIDE ASIAN GAMING   43
  Briefs




  Regional Briefs
                                                                          holding company STDM is a 33.03% shareholder in the airport.
                                                                              With Galaxy’s new Cotai resort Galaxy Macau due to open in
                                                                          the first half of 2011, it could be helpful for the company to have a
                                                                          friendly ferry operator serving the Taipa ferry terminal which is the
  SJM makes move for Cotai                                                maritime entry point to Cotai.
      Dr Stanley Ho’s Sociedade de Jogos de Macau (SJM) appears               The incumbent operator into Taipa, CotaiJet, is a Las Vegas
  finally to be making its move for a property on Cotai, the Las          Sands Corp entity primarily focused on delivering passengers to The
  Vegas Strip-style enclave to the south of the territory’s traditional   Venetian Macao on Cotai. LVS takes ferry services very seriously as
  gaming hub.                                                             part of its overall marketing strategy. In its first quarter results for
      SJM has started fencing off a piece of land near the Macau          2010, the company said it had US$201.7 million of long term debt
  Dome, although the Macau government hasn’t yet officially               related to ferry financing.
  assigned the land to SJM for a casino project.                              TurboJET, operated by Ho family-led shipping and property
      “We are in the process of negotiating the concession,” said Dr      conglomerate Shun Tak Holdings, makes one trip a day to and from
  Ambrose So, SJM’s Chief Executive Officer. Dr So hinted the new         Taipa to Hong Kong International Airport. But TurboJET is currently
  property may be more resort-focused than other SJM casinos, but         mainly focused on serving Macau peninsula, where the bulk of SJM’s
  didn’t give details.                                                    properties and customers are.
                                                                              New World First Ferry Services Ltd, owned by Chow Tai Fook
                                                                          Enterprises Ltd, serves Hong Kong and ports in neighbouring
  Murren cagey on MGM Macau IPO                                           Guangdong, China, via Macau Maritime Ferry Terminal.
      There’s been no official                                                Chow Tai Fook is a Hong Kong based private conglomerate with
  announcement yet on the                                                 interests in property development, hotels, casinos, transportation,
  size and pricing of MGM                                                 jewellery, port and telecommunications businesses. Its chairman Dr
  Resorts       International’s                                           Cheng Yu-tung, the chairman of New World Development Co Ltd,
  planned share offer for its                                             was one of the investors behind L’Arc, the SJM-licensed casino that
  Macau operation via the                                                 opened in Macau last September.
  Hong Kong stock market.
      The     initial   public
  offering (IPO) is expected
  to take place this year, CityCenter continues to be a drain on
  though with Asian equity MGM Resorts International
  markets still showing considerable volatility, MGM will hope the
  offer coincides with a sustained upswing.
      A figure of US$1billion for the IPO was mentioned in Hong
  Kong press reports earlier this year. Jim Murren, MGM’s chairman,
  wouldn’t be drawn on the details during the company’s second
  quarter earnings conference call. MGM Grand Paradise, the 50:50
  joint venture with Pansy Ho, recently raised US$950 million in
  debt financing to pay off existing debt and provide additional
                                                                          Macao Dragon—new ferry operator serving Taipa
  working capital.
      “The [IPO] timing is not totally in our control under the Hong
  Kong listing rules,” Mr Murren said.                                    Pagcor likely to honour foreign investor deals for Manila Bay
      He did indicate the joint venture plans to go ahead with at             The new management of the Philippine Amusement and
  least one more resort in Macau.                                         Gaming Corporation (Pagcor) hints it will honour agreements
      “We’re obviously very interested and have been very committed       made by the former national government with joint venture
  to expanding our footprint in Macau with another property over          casino partners.
  time,” stated Mr Murren.                                                    That’s    thought       to
                                                                          include      a       so-called
                                                                          ‘midnight deal’ done by
  CotaiJet competitor has Galaxy and SJM links                            former President Arroyo’s
      Macao Dragon, the new ferry operator serving the southern           administration       allowing
  part of Macau via Hong Kong, has business links to both Galaxy          Aruze Corporation title to
  Entertainment Group and SJM.                                            land at an ‘Entertainment
      One of the people behind privately owned Macao Dragon is Ng         City’ by Manila Bay. The deal,
  Fok, a Macau businessman. Mr Fok is chairman of Hotel Presidente        in contravention of normal
  Macau, a four-star Galaxy-licensed boutique casino hotel under the      government policy regarding
  City Clubs brand.                                                       overseas investment, was Philippine President Benigno Aquino
      Mr Fok also has long standing links to Dr Stanley Ho as an          brokered by former Pagcor [left] swears in new Pagcor Chairman
  executive director of Macau International Airport. Dr Ho’s investment   chairman Efraim Genuino Cristino Naguiat last month
44 INSIDE ASIAN GAMING | August 2010
                                                                                                                                        Briefs




to ensure Aruze didn’t pull out of the scheme for an Okada Resort,      and crossed the floor again to become President of Altira, before
including casino.                                                       coming to rest in his new job as “co-Chief Operating Officer of
    But incoming Pagcor Chairman Cristino Naguiat indicates he          Gaming” for the whole of MPEL.
wants Entertainment City to be heavier on general tourism than
on casinos.
    Jay Santiago, Pagcor’s new spokesman, said last month: “We          LVS hints at permanent return for Stephen Weaver
have four proponents which have made commitments to start off                Las Vegas Sands Corp hinted on that Stephen Weaver’s return
construction on the Entertainment City, which is connected to the       to Sands China’s management team in Macau could be extended
Bagong Nayong Pilipino.                                                 beyond the consultancy role announced last month following the
    “We are in the process of reviewing the contracts they’ve           departure of Steve Jacobs as CEO.
entered into, the business models that have been proposed, and               The company also indicated that whoever gets the job on a
we’re looking at the lay-out of the project. Chairman Naguiat           full time basis will need to have strong diplomacy skills to ensure
wants it to be more of a tourist attraction rather than a gambling      good relations with the Macau authorities. But the company also
destination.”                                                           said the new boss’s job would be made easier if it was being clearly
    There had been some speculation that even the already               demonstrated that Sands China continues month by month to add
built and running Resorts World Manila casino and hotel project         value to Macau’s economy.
opposite Manila International Airport would be up for discussion             “I think the combination of having a strong current operating
in the wide ranging review of gaming policy ordered by the new          situation, along with the gaming, will give the next CEO the ability
national president Benigno Aquino. Resorts World Manila is a joint      to deal in the financial, legal, government affairs area. So that’s how
venture between Genting Hong Kong (formerly Star Cruises) and           we are structuring the business,” said Michael Leven, President and
Alliance Global Group, a local conglomerate specialising in real        Chief Operating Officer of LVS during the company’s second quarter
estate development. Sources in the Philippines say although the         earnings call last month.
Resorts World deal may be looked at, it’s highly unlikely that the           Mr Weaver would be a strong candidate on the hearts and minds
government would order it to close given that it’s now an important     front. He was widely praised for his project management on The
tourist facility in the capital.                                        Venetian Macao’s construction, and he was generally seen as a less
                                                                        abrasive figure than Mr Jacobs within the Macau industry and in
                                                                        government circles.
Ted Chan appointed co-COO of Gaming at MPEL                                  Mr Jacobs was brought in during May 2009 to cut costs
     Ted Chan was promoted                                              and turn round the operational side of the business following
last month to a co-COO of                                               the global credit crisis in the autumn of 2008. Not long after, Mr
Gaming job at Melco Crown                                               Weaver’s public profile began to diminish. One of his last set piece
Entertainment (MPEL). This                                              performances as ostensible head of the business in Macau was the
follows the departure of                                                signing in late July last year of the deal to set up an association for
Greg Hawkins as President                                               the Macau concessionaires. Eventually, his role as President of Asian
of MPEL’s City of Dreams                                                Development was eclipsed by Mr Jacobs’ CEO role.
(CoD). The property has                                                      “Stephen Weaver has come back as a consultant to help us
generally lagged behind the                                             through the transition period and maybe even longer depending
underlying growth in the                                                upon his personal situation,” added Mr Leven during last month’s
VIP segment, with MPEL’s                                                conference call. Mr Leven is acting CEO for Sands China until a
second quarter EBITDA                                                   permanent replacement for Mr Jacobs is found.
of US$73 million missing
analysts’ consensus by 13%.
     Mr Chan’s ascent up                                                TransAct expands Macau office
the Macau management                                                        TransAct Technologies Incorporated, a global leader in market-
pole began as General                                                   specific printers for transaction-based industries, announced the
Manager of Mocha Clubs.                                                 expansion of its office in Macau as it increases its presence in the
Mocha, the locals-focused                                               Asia-Pacific region. The office will continue to be led by Andrew
slot chain, was started by Ted Chan                                     Hanley, TransAct’s Vice President-International Sales.
Lawrence Ho in 2003 when he took over as boss of Melco. Having              In addition to Mr Hanley, the Company has hired Sonny Su
caught Mr Ho’s eye at Mocha, Mr Chan was recruited by Hong Kong-        as Technical Sales Manager for Asia and Australia. Mr. Su will be
listed gaming operator Amax Holdings as Chief Executive. Some           responsible for sales and technical product support in the Asia-Pacific
industry analysts found the relationship between MPEL and Amax          region, particularly leading the integration process for the complete
suspiciously symbiotic. It didn’t stop Macau’s gaming regulators from   range of the Company’s “Epic” brand of gaming products, and will
approving a deal in December 2007 whereby junket consolidator           report to Mr Hanley.
AMA, a subsidiary of Amax, brought in lots of high rollers to the           Mr Su previously worked for IGT’s Macau office as a Systems
struggling MPEL property Crown Macau (now Altira) in exchange           Engineer, while at the same time lecturing part-time about
for a record 1.35% rolling chip commission deal.                        Information Systems & Management Systems Technology at the
     The symbiotic relationship continued when Mr Chan left Amax        Asian International University (Macau).
                                                                                                              August 2010 | INSIDE ASIAN GAMING   45
  Briefs




  International Briefs
  MGM reports US$883 million 2Q net loss
      MGM Resorts International announced its second quarter net
  loss was US$883 million, compared to a loss of $212 million in the
  same three-month period a year ago. MGM Resorts blamed much
  of the loss for the quarter, which ended 30th June, on a pre-tax, non-
  cash impairment charge of approximately $1.12 billion related to the
  investment in CityCenter, the US$8.5 billion Strip development that
  opened in December.
      There was a separate US$29 million non-cash charge due to an
  impairment of CityCenter’s 2,400-unit residential inventory. MGM
  Resorts owns CityCenter in a 50-50 joint venture with Dubai World,
  the investment arm of the Persian Gulf emirate.
      Despite the results, MGM Resorts Chairman and Chief Executive
  Officer Jim Murren said CityCenter is seeing improved business
  activity. Aria, the development’s centerpiece 4,004-room hotel
  casino, saw occupancy increase in the quarter and grew non-casino        The elegant lobby at Encore Macau
  revenues.                                                                and 13 of the revenues from the market,” Wynn said during a
      “The Las Vegas operating environment remains difficult, but as       conference call with analysts. “Now, we have 10% of the equipment
  we expected, we are seeing a gradual recovery,” Murren said. “Our        and 16-17% of the revenue. We are on our way to the best year in this
  adjusted (cash flows) improved compared to the first quarter, despite    company’s history, or in the history of any company I’ve ever been
  low hold percentages.”                                                   involved with.”
      Company wide net revenue grew in the quarter to $1.54 billion,            During the conference call, Wynn told listeners he had
  compared with $1.46 billion in the first quarter of 2010. CityCenter     completed preliminary designs of the company’s next hotel-casino
  reported net revenues of $401 million in the second quarter, which       in Macau, planned for a 52-acre site on the Cotai Strip. In previous
  included $218 million related to sales of condominium units at Vdara,    comments, Wynn said he didn’t expect the project to be completed
  Mandarin Oriental and Veer Towers. Part of the residential revenues      by 2014. He said he thought he might be able to share some
  included $56 million in forfeited residential deposits. CityCenter had   proposed renderings by the company’s fourth-quarter earnings
  a total operating loss of $128 million.                                  call early next year.
      One sign of improvement was the results from the MGM Grand                Wynn added that after completing preliminary designs, the
  Macau, the company’s 50% owned resort in China. MGM Grand Macau          company had 12 acres left over, which could be used for further
  earned operating income of $40 million in the quarter, including         development. “It will be a chance for us to expand or add other things
  depreciation expense of $21 million. A year ago, the resort reported     to make Macau more attractive,” Wynn said.
  an operating loss of $8 million, which included depreciation expense          Despite the focus on Macau, Wynn said the company will spend
  of $22 million.                                                          $99 million to remodel all 2,700 rooms at the now 5-year-old Wynn
                                                                           Las Vegas. The project is expected to be completed by the spring. The
                                                                           Wynn Las Vegas baccarat pit will be remodeled and two restaurants
  Wynn Resorts sees profit rise                                            will be added to the resort. “Wynn Las Vegas will be spruced up from
      Wynn Resorts reported net income of US$52.4 million, or 42           the golf course to the Strip by next spring,” Wynn said.
  cents per share, for the three month-period that ended 30th June. A
  year ago, Wynn earned $25.5 million, or 25 cents a share.
      At Wynn Macau and Encore at Wynn Macau, the two resorts              LVS narrows net loss
  collected US$723.3 million in revenues, a jump of 74% from $410.4            Las Vegas Sands Corp (LVS) said it lost US$4.7 million, or 1 cent
  million in the same quarter a year ago. Encore at Wynn Macau opened      per share, for the three months ended 30th June. A year ago, the
  on April 21 with 410 suites and a casino expansion.                      company lost $222.2 million, or 34 cents per share.
      Companywide revenues, which includes Wynn’s two Strip                    Companywide revenues grew 51% to $1.59 billion, helped by
  resorts, was $1.03 billion, up from $723.3 million in the same quarter   results from its three resorts in Macau. LVS said revenues produced
  a year ago. Wynn’s two Las Vegas Strip casinos lost $17.2 million        by the Venetian Macau, Sands Macau and Four Seasons Macau
  during the period.                                                       increased 40.7% to $1.04 billion in the quarter, compared to $738.9
      Wynn Resorts Chairman Steve Wynn said the company’s Macau            million in the second quarter of 2009.
  casinos picked up a larger piece of the Chinese gambling market              Meanwhile, the company’s US$5.7 billion Marina Bay Sands in
  after Encore opened.                                                     Singapore, which opened 27th April, generated $94.5 million in cash
      “Prior to the opening of Encore, we had 8.5% of the equipment        flow in its first 65 days. “Both gaming volumes and visitation to the
46 INSIDE ASIAN GAMING | August 2010
                                                                                                                                           Briefs




property have been robust and we are gratified by the overwhelming         program. “Despite challenges in the broader marketplace, we
reception the property has received,” LVS Chairman and Chief               continue to manage our business to increasing levels of efficiencies,”
Executive Officer Sheldon Adelson said in a statement.                     Hart said. “Our efforts have resulted in the generation of significant
    On the Vegas Strip, LVS said its net revenues declined 5.4% to         cash flow for reinvestment into the business in areas that create
$276.2 million during the second quarter. The Venetian and Palazzo         innovative and customer centric products and services.”
resorts reported increased gaming volumes, improved group                      IGT Chief Operating Officer Eric Tom said several of the company’s
booking volumes and improved hotel occupancy during the three-             newest slot machines have helped boost sales figures. Since it was
month period. However, results were negatively impacted by low             introduced earlier this year, some 1,300 slot machines themed after
table games win percentage.                                                the HBO television series “Sex and the City” have been placed in
                                                                           casinos.

EU court reaffirms Sweden’s right to ban online gambling
    The European Union Court of Justice ruled last month that EU           Bally re-enters Australia and New Zealand gaming market
countries have the right to ban online gambling.                               Bally Technologies, Inc, a leader
    The Swedish case before the court concerned newspapers                 in slots, video machines, casino-
running ads for foreign bookmakers. Sweden had prosecuted on               management and networked and server-
the basis of violating the country’s lottery laws, the individuals then    based systems for the global gaming
appealed the prosecution and the ECJ was consulted.                        industry, announced this month that
    ECJ found in favour of the right of countries to ban online            it has appointed veteran Australian
gambling being consistent with “community law”, but would                  gaming executives Michael McNee and
not allow countries, such as Sweden, to impose what it termed              Ron Jeffrey to help lead its return to the
“discriminatory penalties”.                                                Australian and New Zealand gaming
                                                                           market. McNee steps into the role of
                                                                           Managing Director of Bally Australia,
IGT profit up despite revenue dip                                          and Jeffrey assumes the position of Sales Ron Jeffrey
    Reno-based IGT said its net income for the quarter that ended          Manager for BallyAustralia. Both will be
30th June was US$94.6 million, or 32 cents per share. In the same          based out of Bally’s new regional office in
quarter a year ago, IGT reported net income of $62.2 million, or 21        Sydney, New South Wales, Australia.
cents a share. Without one-time charges, IGT would have earned 21              “We couldn’t be more pleased
cents a share during the quarter.                                          that longtime gaming industry
    Revenues fell 5.3% in the quarter to $489.7 million, compared          experts and my former colleagues
with $517.3 million a year ago. IGT said 56% of the quarterly revenues     Michael McNee and Ron Jeffrey have
came from slot machines where the company shares in profits with           agreed to help lead Bally’s advance
casino operators.                                                          into Australia and New Zealand,” said
    As for direct sales of slot machines, IGT’s revenues decreased 8%      Gavin Isaacs, Bally Technologies’ Chief
from a year ago.                                                           Operating Officer. “Michael and Ron
                                                                                                                       Michael McNee
    In North America, IGT’s slot machine sales revenues decreased          will be teaming up with Cath Burns,
16% in the quarter, mainly because there were fewer openings of            Vice President and Managing Director of Bally Asia-Pacific, who
casinos in the three-month period compared to a year ago.                  is also an Australian. This experienced team’s understanding of
    Internationally, however, sales revenues increased 8% for the          the gaming market in Australia and New Zealand ensures that we
                                     quarter, primarily due to favorable   will hit the ground running as we introduce our award-winning
                                     foreign currency exchange. IGT        portfolio of industry-leading games and systems technology
                                     said its sales were boosted by        to Australia.”
                                     the opening of Marina Bay Sands           Michael McNee recently joined Bally Technologies after serving
                                     in Singapore, in addition to          in a consulting capacity with Bally for the past year. In his new full-
                                     improved sales in Mexico.             time management role, McNee will be principally responsible for
                                          IGT sold 4,500 slot machines     the Company’s overall product and marketing strategy for the
                                     domestically during the quarter,      Australia and New Zealand gaming market. He comes to Bally after
                                     compared with 6,700 a year ago.       a very successful 18-year career with Aristocrat Technologies. Most
                                     Internationally, the company          recently, McNee was Aristocrat’s General Manager, Games and
                                     sold 5,400 machines, compared         Licensing.
                                     with 5,500 games last year.               Ron Jeffrey’s responsibilities will include overseeing sales
                                     However, the sales margins for        operations activities and customer- relationship management
                                     all slot machines were up three       throughout the Australia and New Zealand region. Jeffrey brings
                                     percentage points.                    more than a decade of sales experience within the gaming
                                          IGT CEO Patti Hart said the      industry, with a specific focus on the Asian and Australian gaming
                                     company benefited from last           markets. Most recently, Jeffrey was National Sales Manager for
                                     year’s corporate restructuring        Aruze Gaming, Australia.
                                                                                                                 August 2010 | INSIDE ASIAN GAMING   47
  Events Calendar




     Events Calendar
     A more comprehensive events listing is available on our website, www.asgam.com.


          26-28 August, 2010                                                              20 October, 2010
          GTI Asia China Expo 2010                                                        I Gaming Forum
          Poly World Trade Center, Guangzhou                                              Grand Hyatt Macau, Macau
          GTI Asia China Expo saw its successful debut in 2009 and definitely             Website:     www.tun.sg
          proved itself as an excellent platform for the industry to know
          more and better about the Chinese market.
          Website: http://www.gtiexpo.com.tw/cnen/                                        15 - 18 November, 2010
                                                                                          Global Gaming Expo
          05 - 07 October, 2010                                                           Las Vegas Convention Center, Las Vegas
                                                                                          The 10th edition of the annual gaming event “by the industry,
          Asian Casino & Gaming Congress                                                  for the industry”. The largest show floor in gaming featuring
          Marina Bay Sands, Singapore                                                     the world’s leading exhibitors showcasing the industry’s latest
          Incorporates the 3rd Annual Asian Gaming & Regulation                           products, services and technologies.
          & Investment Summit, plus focused days on Operations &                          Website: http://www.globalgamingexpo.com/
          Strategy and Marketing & CRM, giving insights into the market
          fundamentals of each of the key gaming jurisdictions and advice
          on how to manage and market a gaming operation in Asia.
          Website: http://www.beaconevents.com/2010/
                    asiangamingcongress/


          18 - 19 October, 2010
          2nd Annual Asian Casino Symposium
          Grand Hyatt Macau, Macau
          Covering investment opportunities; legal and regulatory;
          developments in emerging markets; HR and talent retention
          issues for casinos; security and surveillance; marketing and
          operations.
          Website: www.tun.sg




                      denotes events where Inside Asian Gaming will be available.   To list your event here and on our website, email dom@asgam.com.

48 INSIDE ASIAN GAMING | August 2010
May 2010 | INSIDE ASIAN GAMING   49
50 INSIDE ASIAN GAMING | May 2010

				
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