Where's Macau Headed by yaohongm


									                                    November 2008 • MOP 30 • ISSN 2070-7681

                            Where’s Macau
                  Visa restrictions and recession start to pinch

Big Trouble in Little China
Robot Baccarat from Taiwan
Wynn Results: Word Spreads
Bally Blazing Ahead
The Case for Integrated Resorts
                  November 2008

              Where’s Macau
          7   Word Spreads

          13 Shut that Door
     13   23 Handbagged

          27 Reversal of Political Fortune

          28 Big Trouble in Little China

          31 Rise of the Machines

          34 Blazing Ahead

          37 The Case for Integrated

          44 Regional Briefs

          46 International Briefs

          48 Events Calendar

               November 2008 | INSIDE ASIAN GAMING
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November 2008 | INSIDE ASIAN GAMING   3

                                        Easy Come, Easy Go
                                             Last year, Sheldon Adelson ranked third on Forbes magazine’s US Rich List. According to last
                                        month’s issue of Forbes, as of end-September, Mr Adelson’s net worth stood at around US$15
                                        billion—down about $13 billion over the course of this year, and taking the 75-year-old billionaire
                                        down to 15th place on the list of 400 richest Americans. Mr Adelson has suffered the steepest drop
                                        among those on the list who lost $1 billion or more during the current credit crisis.
                                             Mr Adelson’ stratospheric climb up the Forbes rankings can largely be attributed to the success
                                        of his first Macau property, Sands Macao, which opened in May 2004 and famously recouped its
                                        initial investment within ten months of operation. This led to visions of a similarly speedy return
                                        on investment from the string of further casino resorts, and perhaps also from the one he was
                                        developing in Singapore.
                                             Even though Mr Adelson’s Las Vegas Sands Corp (LVS) only operated two major properties—
                                        Venetian Las Vegas and Sands Macao—prior to the Venetian Macao opening, bullishness on the
                                        prospects of the properties on the way drove up its stock price to the point where it had the largest
        Editor and Publisher            market capitalisation of any casino operator in the world. That market cap was heavily reliant on
           Kareem Jalal                 Macau’s future promise.
                                             A weaker than expected start at Venetian Macao from August 2007, worsening fears of over-
                                        capacity and a coming slowdown in Macau’s casino sector had led to LVS shares plunging 94%
       João Costeira Varela
                                        year-to-date as of end-October, while those of Wynn Resorts had dropped 67%. This led to Wynn
 Business Development Manager           Resorts—headed by Mr Adelson’s arch rival Steve Wynn—taking over from LVS as the largest US
           Matt Phillips                casino operator by market cap. Meanwhile, MGM Mirage, which has one joint-venture property
                                        in Macau, has seen its stock price fall 85% during the period, with its majority shareholder, the
       Operations Manager               91-year-old billionaire Kirk Kerkorian, seeing his wealth decline by $1.2 billion to $10 billion.
         José Abecasis                       What Macau giveth, it can also taketh away, with astounding rapidity in either direction.
                                             To a large extent, Macau’s prosperity derived from Mainland China’s munificence, and that
            Contributors                seems to work quickly in both directions too. Beijing’s easing of travel restrictions on Mainland
  Michael Grimes, Desmond Lam           Chinese wishing to travel to Macau and Hong Kong from the second half of 2003 was a major factor
   Steve Karoul, I. Nelson Rose
                                        behind the massive visitor influx fuelling the casino boom. Many believed the restrictions would
  Richard Marcus, Shenée Tuck
                                        continue to be progressively eased. Almost nobody foresaw the trend could go in reverse, as first
       Andrew MacDonald
       William R. Eadington             happened in June last year, and continued with increasing severity over the past few months. The
                                        evolution of the visa issue is discussed in detail in “Shut That Door,” starting page 13 of this issue.
         Graphic Designer                    Visa restrictions, combined with the global financial crisis, have finally halted the juggernaut
           Brenda Chao                  of Macau’s casino revenue growth. Gross casino revenue declined 0.8% in September and 3.5% in
                                        October—a sharp reversal compared to the 51.6% year-on-year growth recorded over the first eight
            Photography                 months of the year. According to a report in Hong Kong-daily South China Morning Post, the sharp
                Ike                     slowdown is almost entirely due to declining revenue and betting volumes from VIP gamblers in
                                        Macau’s private baccarat rooms. VIP gambling revenue will be further hit by the imposition of a cap
       Inside Asian Gaming              on commissions on VIP chip sales at 1.25%, down from the current maximum of as high as 1.4%.
           is published by                   There is one other factor behind the drop in casino revenue. Over the past four years since the
   Must Read Publications Ltd           opening of Sands, Macau has seen visitor arrivals and casino revenues spike following the unveiling
 Suite 1907, AIA Tower, 215A-301        of major new casino properties. The gap in the new openings pipeline in 2005 led to a relative
   Av. Comercial de Macau -             slowdown in growth that year, with growth only resuming in the third quarter of 2006 following
                                        the opening of Wynn Macau.
        Tel: (853) 6646 0795
                                             Now, the last big opening was that of Venetian Macao in August 2007, and there is another
     For subscription enquiries,        temporary lull in openings. The pipeline will resume in earnest in 2009 with the opening of other
           please email                 resorts on Cotai. Those openings could be delayed, however. Melco Crown’s City of Dreams just
         subs@asgam.com                 pushed back its scheduled opening by three months to July.
                                             The soon-to-open mega resorts on Cotai will require thousands more imported staff and put an
     For advertising enquiries,         even greater strain on the city’s infrastructure. The new resorts will likely also exacerbate Macau’s
           please email                 acute labour crunch, which has left many small- and medium-sized enterprises struggling to
         ads@asgam.com                  operate. The benefits of the recent casino-driven economic boom have not been evenly distributed
      or call: (853) 6646 0795          and the development has created a raft of social problems that have led to mounting political
                                        dissatisfaction. Political stability has for the first time become a concern for businesses looking to
                                        set up in Macau.
                                             Beijing has slammed the brakes on Macau’s breakneck casino revenue growth, but that is not
               Printed by               all bad. The city now has a little breathing space to improve its infrastructure and alleviate other
 Unique Network Printing Factory Ltd.
                                        social problems ahead of the next wave of openings and growth. Without those improvements, the
         Tel: (853) 2828 2832
         Fax: (853) 2828 2830           gains could be easily lost.
    E-mail: unique@macau.ctm.net                                                                                              Michael Grimes
4 INSIDE ASIAN GAMING | November 2008
November 2008 | INSIDE ASIAN GAMING   5
6 INSIDE ASIAN GAMING | November 2008
                                                                                                                                    Cover Story

                                                                                         Steve Wynn believes the middle of a
                                                                                                       global crisis is no time
                                                                                             for compromise at Wynn Macau

        teve Wynn is resisting the temptation to gloat. Being named               The company is feeling so upbeat it has now announced
        least worst loser in a bearish global gaming market isn’t exactly     extra cash—16.6% more to be precise—for Encore Macau, the
        cause for celebration.                                                404-room casino-hotel tower for high rollers scheduled to open
     “It’s sort of like dancing at a funeral. I feel guilty that my company   on the Wynn Macau site in the first quarter of 2010. Mr Wynn has
is in such good shape,” Mr Wynn stated in a recent interview.                 decided to add several floors to the building, taking the final bill
     The ‘good shape’ referred to by Mr Wynn relates not so much to his       to US$700 million.
company’s share price, although that has also held up well compared
to those of his rivals. It relates to something more fundamental,             Message
namely positive cash flow and a relatively low gearing on debt,                   It sends out an important message at a time when rival operators
especially in Macau.                                                          in Macau and Las Vegas are talking about cutting back spending or
     If it’s a truism that experience is the best teacher, then Mr Wynn       reducing the scale of their projects.
can be considered a diligent dance student. He’s had previous                     During a recent interview with The Wall Street Journal, Mr Wynn
acquaintance in Las Vegas with what heavy exposure to debt can do             summed up his approach.
to a company during a downturn.                                                   “If I start compromising, what happens? Word gets around. It’s
                                                                              viral. That’s why this is a dangerous time.”
Turning point                                                                     The spending on a new VIP facility in Macau at a time of bearish
    A pivotal moment in his Macau venture was when Mr Wynn’s                  global sentiment gives an indication not only of the company’s
company pocketed US$900 million of what in effect was free money              general strategy, but also more specifically the approach in Asia.
by selling a gaming sub-concession to Lawrence Ho and James                       Wynn’s caution on capital spending was backed by a strategic
Packer. The cash largely paid for the first development phase of Wynn         decision to chase hard after VIP revenue in Macau, despite the
Macau, helping the company avoid the kind of gearing now proving              relatively modest margins on that business compared to the mass
so challenging to Las Vegas Sands Corp.                                       segment. This was not a bad call in a market where VIP turnover has
    The low gearing helped the company to complete an extension               been going up in real terms and also as a proportion of gross gaming
to Wynn Macau on schedule in December 2007. It added around                   take year on year.
75,000 square feet of gaming space, most of which was immediately
injected into the VIP part of the business. The extension also added          Quality product, quality players
20,000 square feet of retail space, including 11 new boutiques.                  Mr Wynn says, though, he isn’t just after any VIP. He wants the
                                                                                                                November 2008 | INSIDE ASIAN GAMING   7
Wynn Results

quality ones, especially during uncertain economic times. Although         Cash rich
credit risk in the Macau market is mitigated by the use of VIP                  This theme of fiscal caution and incremental development was
agents, it doesn’t look good if an agent crashes and burns in his          taken up by Matt Maddox, Wynn Resorts’ Chief Financial Officer and
establishment.                                                             Treasurer, at the start of the company’s earnings call for the third
    “We don’t use credit as a marketing tool in this company. We give      quarter of 2008.
credit to people who really don’t need it when they ask for it,” he told        “Wynn Resorts is in an enviable position not only in gaming but
the Q3 ’08 earnings call.                                                  in any industry that is capital intensive,” said Mr Maddox.
    “We don’t provoke playing by saying ‘here we will give you more             “We have US$1.7 billion of cash on hand. Plus we have US$500
money.’ We have never done that in the whole 40 years.”                    million available on a revolving credit facility, meaning total liquidity
    In 2006, VIP play accounted for 64.9% of Macau’s gross. In 2007,       right now is US$2.2 billion. We have approximately US$500 million
it was 67.1%. As of the end of the third quarter this year, despite        left to spend on Encore at Wynn Las Vegas which will open in the
the impact of restrictions imposed by China on its citizens’ travel        next couple of months. We also have approximately US$500 million
to Macau, VIP baccarat’s contribution to the gross for all games of        left to spend at Encore Wynn Macau. So we have roughly US$1
fortune in Macau stood at 68.6%. Even more importantly, between            billion of capEx left to finish our two major projects, meaning we
2006, when Wynn Macau opened, and the end of 2007, VIP baccarat            have over US$1.2 billion of excess cash on hand before any credit,
revenue across Macau surged by 51.5%.                                      for free cash flow.
                                                                                “What that means is we can pay off all our debt maturities over
Upbeat                                                                     the next three years with the cash we have in the bank right now
    Wynn’s third quarter performance for 2008 in Macau’s VIP-centric       and still have hundreds of millions of dollars of excess cash flow. On a
market gives cause for cautious optimism despite the increasingly          ratio basis we are also in a very good position. We have US$4.9 billion
bearish sentiment in the regional economy.                                 of debt. If you back stop that with excess cash of US$1.2 billion, that
    Wynn Macau’s table games’ turnover in the VIP segment                  is US$3.7 billion of debt. The last twelve months’ EBITDA [earnings
increased 35.6% to US$13.3 billion for the period, compared to             before interest, taxation, depreciation and amortisation] of US$800
US$9.8 billion for the third quarter of 2007. VIP table games win          million means our debt to EBITDA [i.e., pre-tax gearing] is running
as a percentage of turnover (calculated before discounts and               at four and a half times. That is fully funded debt before our projects
commissions) was 3.10%. This was slightly above the expected               open,” added Mr Maddox.
range of 2.7% to 3.0% and higher than the 2.96% in the comparable
period of 2007. Regular readers of Inside Asian Gaming will know           Boating talk
by now that we have less faith in ‘win as a percentage of baccarat             Mr Wynn’s Macau property, which his management likens to
turnover’ as an indicator of business performance than do the              a luxury speedboat rather than a ponderous ocean liner, has also
gaming operators.                                                          doubled as a bit of a lifeboat in supporting the Las Vegas operation
    Nonetheless,Mr Wynn’s caution in gaining just enough exposure          and in maintaining shareholder confidence in the overall business.
to the Macau market in terms of infrastructure to give it a credible       In current market conditions, this amounts to running in order just
presence, and then using cash flow from that infrastructure to help        to stand still, rather like a pedestrian walking up a down escalator. It
service the capital costs of a measured, incremental expansion of          must have given Mr Wynn at least some comfort to see that Las Vegas
capacity, looks with the benefit of hindsight very sound indeed.           Sands Corp’s down escalator was moving even faster, at least as far as
8 INSIDE ASIAN GAMING | November 2008
November 2008 | INSIDE ASIAN GAMING   9
 Wynn Results

 market capitalisation was concerned.                                       was approximately US$568.8 million during the period, a 19.7%
     Quality is a word used a lot in all marketing, but not every company   increase from US$475.4 million in the third quarter of 2007. A
 delivers on its promise. Mr Wynn believes his company does.                mass-market table games win percentage (calculated before
     “The franchise, the future, the value of the enterprise is almost      discounts) of 20.3% was in-line with the win percentage in the
 totally dependent on one thing: customer experience,” Mr Wynn told         third quarter of 2007 and above our expected range of 18% to
 analysts during the earnings call.                                         20%. We refer to our previous comments on win percentages.

 Marketing                                                                  Slots up
      By the very nature of the business, not every visitor to Macau gets       More interestingly, after a market-wide slow start for the slots
 the chance to see a VIP gaming room. Everyone does, though, have           sector in Macau, attributed largely to some cultural resistance
 the chance to see the main floor of a property, and that can act as a      among Chinese players and a lack of familiarity with individual
 living, breathing marketing tool. Players and industry analysts have       products, Wynn Macau’s slot performance is really starting to
 certainly praised the mass-market floor of Wynn Macau for having           take off.
 an intimate and luxury feel. Wynn Macau’s President Ian Coughlan               Slot machine win increased 103.2% compared to the third
 has said he attributes this partly to the company’s policy of breaking     quarter of 2007. Average win per unit per day was US$366, a 19.7%
 up the mass gaming floor by creating distinct zones in what might          decline from the third quarter of 2007, but in real terms a very strong
 otherwise seem a daunting and almost superhuman space.                     performance, considering the venue’s total number of operational
      Wynn Macau’s table games drop in the mass-market category             slots rose 153% year-on-year from 486 to 1,230 machines.

        “Players and industry analysts have certainly praised the mass-market floor
                   of Wynn Macau for having an intimate and luxury feel.
  Wynn Macau’s President Ian Coughlan has said he attributes this partly to the company’s
           policy of breaking up the mass gaming floor by creating distinct zones
        in what might otherwise seem a daunting and almost superhuman space”

10 INSIDE ASIAN GAMING | November 2008
Rates up, occupancy down
     The company said Wynn Macau’s 600-room hotel achieved
an average daily room rate of US$272 for the quarter, up 11% on
the US$245 achieved in the third quarter of 2007. The property’s
occupancy rate slipped, however, to 86.2%, compared to 91.9%
during the prior year period, though this was probably a function of
new room supply coming on to the market, including, among others,
the 3,000 suites at The Venetian Macao. Wynn Macau’s revenue per
available room stood at US$234 in Q3 ’08, an increase of 4.2% on the
equivalent quarter in 2007.
     In the third quarter of 2008, Wynn Macau generated net
revenues of US$474.8 million, compared to US$347.7 million for the
third quarter of 2007. Adjusted property EBITDA increased 14.5%
to US$106.3 million (with a 22.4% EBITDA margin on net revenue),
compared to US$92.8 million in the third quarter of 2007. EBITDA
at Wynn Macau during this quarter was also reduced by a US$11.0
million increase in reserves to cover bad debt. The company says
raising the reserves is a deliberately conservative move based on the
current global economic uncertainty.
     Despite the positive performance of Wynn Macau, Mr Wynn
appears to be much less bullish about the possibility of a second
resort of up to 1,800 rooms on Cotai, the reclamation area south
of the Macau peninsula that is home to his rival Sheldon Adelson’s
Venetian Macao and to Melco Crown Entertainment’s City of Dreams
property due to open in July next year.
     “I don’t have any kind of pressing need to rush into a new hotel
at Cotai, especially until I have some evidence that the expansions of
our neighbours have been absorbed by that market,” he told analysts
during the Q3 conference call.
     “At the present moment, there isn’t one shred of evidence to
indicate that the current expansions have been absorbed.”

12 INSIDE ASIAN GAMING | November 2008
                           Shut That Door
                      Visa restrictions — be careful what you ask for; you may get it

   n all the comments and analysis about           With more than half of Macau’s visitors
   the travel restrictions imposed by China    originating from China, any Macau politician
   on citizens visiting Macau, one topic       or business leader who actively campaigned
that’s not often discussed is what the Macau   for or at least acquiesced to a political
government thinks about the situation.         decision to reduce the flow from this vibrant
    At first glance, common sense suggests     feeder market would risk being taken away
Macau would be against travel curbs.           by men in white coats. Yet such a tightening
People from Mainland China made up 57%         of the supply side of the market does appear
of the 2.31 million visitors to Macau during   to have been supported by Macau’s political
September, according to the territory’s        leadership. It would be easy simply to dismiss
Statistics and Census Service (DSEC). The      this as Macau doing as it was told by ‘Our
others were from Hong Kong (28.5%),            Friends in the North,’ as Beijing is sometimes
Southeast Asia (4.9%) and the rest of the      euphemistically described. As we discuss
world, including Europe and Oceania            later, there may be more to it than that.
(9.6%). Macau no longer publishes figures
on how many arrivals from the Mainland         Alternative markets
are residents of the neighbouring Chinese          Of course, China is not the only
province of Guangdong, but it’s likely to be   customer for Macau’s casino tables. There
the majority (around 80% by most estimates).   are still plenty of wealthy Hong Kong
Macau has become the de facto playground       residents with unfettered access to Macau’s
for Guangdongers.                              VIP gaming rooms. Recently, Macau has also       One country, two flags

                                                                                                          November 2008 | INSIDE ASIAN GAMING   13
 Cover Story

 been stepping up its marketing effort at         last year in association with Capgemini, a              So why would Macau and China
 operator level and government level among        business consultancy, estimated there were          consider cutting off or at least rationing
 high rollers and mass-market customers           around 345,000 US dollar millionaires on            such a lucrative source of tax and wealth
 in the Middle East, Australia, Europe and        the Mainland. A million dollars won’t get           redistribution? The signals have been there
 Southeast Asia.                                  you very far nowadays either in a Macau VIP         for months, if not years, for those taking the
     It’s China though that has the real          gaming room or on the street. It’s reportedly       time and trouble to decode them.
 scale. Only India is in the same league          the minimum amount of credit required for
 demographically, and the new integrated          entry to The Venetian Macao’s VIP facility,         One country, two mindsets
 resorts in Singapore are closer to the Indian    the Paiza Club. The average price of a four-            It all goes back to the unique—some
 market.                                          bedroom house in many major international           might even say bizarre—status of China’s
     China’s middling middle class–those          cities is also something close to that figure.      two Special Administrative Regions under
 with an annual income of between RMB                                                                 the ‘one country, two systems’ principle.
 40,000 and RMB 100,000 (US$5,700 to              The ‘ultras’                                        Macau and Hong Kong are unmistakably
 US$14,300)–is likely to number 290 million           Nestled among that group of Chinese             Chinese and yet in some ways profoundly
 by 2011 according to a recent study from the     millionaires, however, are a group Merrill          different from the motherland. Imagine
 management-consulting firm McKinsey.             labelled as ‘Ultra-HNWIs’. These are nearly         California had been politically and socially
     The spending power of that middle-           5,000 people with net worth of at least US$30       isolated from Nevada for 450 years and
 income group is though modest compared           million. Of that cohort, 106 were classed as        then suddenly bus- and planeloads of
 with its demographic equivalents in the US       US dollar billionaires. It’s likely the number      Californian tourists started arriving in Las
 or Europe. For Macau’s gaming industry the       of Chinese multi-millionaires and billionaires      Vegas. They speak the same language,
 real mother lode is among the high net worth     has fallen since the escalation of the global       they eat the same food—they even look
 people. These are the sort of people currently   financial crisis, but that’s still a lot of super   like the locals—yet they’re also different
 providing between 65% and 70% of Macau’s         rich people. If only 10% of them came to            and a little bit ‘foreign’. That difference has
 entire annual gross gaming revenues. Here        Macau to gamble it would keep Macau’s VIP           to be factored in to any understanding
 again, China has scale. A study published by     turnover in a healthy state for months if not       of Macau’s attitude to China and China’s
 investment bank Merrill Lynch in October         years to come.                                      response to the Macau SAR.

                                                           China’s Macau Travel Policy
                                                  O    ne of the main drivers of Macau’s
                                                       spectacular tourism and gaming
                                                  boom since mid-2003 was the Individual
                                                                                                      IVS. (By May 2007, just over half of Mainland
                                                                                                      Chinese visitors travelled to Macau under the
                                                                                                      scheme). These new terms included limiting
                                                  Visit Scheme (IVS), which was introduced            visits to once every two weeks and only
                                                  by the central government in Beijing in             allowing single entry permits (abolishing the
                                                  July 2003. The scheme allowed Mainland              previously popular double-entry permits).
                                                  Chinese wishing to visit Hong Kong and                   The mainland authorities did not make
                                                  Macau to travel as individuals, rather than         any public announcement about their
                                                  as part of heavily restricted tour groups, as       thinking behind the new restrictions, but the
                                                  previously required. The scheme initially           move was widely interpreted as a response
                                                  covered residents of Macau’s prosperous             to several social issues. One was excessive
                                                  neighbour, Guangdong province, and a few            gambling in Macau by some Guangdong
                                                  other wealthy cities in China. It was gradually     residents—particularly        managers      of
                                                  extended to cover additional parts of China.        public firms who may have been using
                                                  When Macau’s first foreign-owned casino,            misappropriated company funds. Another
                                                  Sands Macao, opened in 2004, China was              reason touted in the media was that the
                                                  pretty much operating an ‘all comers’ policy        move was to prevent labourers from
                                                  within the admittedly limited terms of the          Guangdong working illegally in Macau.
                                                  IVS. Most analysts and industry observers
                                                  believed travel restrictions would be lifted        Fitting the tap
                                                  further as time went on.                                China’s curbs on travel to Macau are not
                                                      The consensus view proved overly                though a guillotine-like measure designed
                                                  optimistic when,in June 2007,the Guangdong          to separate Macau’s gaming head from its
                                                  provincial    government          implemented       Chinese customer body. They are more like
 Modern pilgrims—Chinese tourists at the          new restrictions on Guangdong residents             the fitting of a tap to an open pipe.
 ruins of St. Paul’s                              wishing to apply for travel permits under the           Until 2002, when Stanley Ho’s 40-year
                                                                                                                                 Cover Story

                casino monopoly ended,           lawmakers in Macau) to make their point.         know better, drew his service side arm and
           Mainland visitors accounted                Mr He’s suggested solution was to allow     fired live bullets into the air. A ricochet hit
                           for only 20% of       more workers to be legally recruited from        a passing motorcyclist and the incident
                              Macau’s total      the Mainland, rather than from foreign           received international attention. Ten people
                                visitors, with   countries such as the Philippines, though        were arrested and 21 police officers injured
                                Hong Kong        he pointed out that by law Chinese citizens      during the demonstration and subsequent
             visitors comprising the vast        wouldn’t be allowed to work on casino            disturbance involving 2,400 protesters.
majority. By the end of 2003, the IVS along      floors. Unfortunately, Macau’s long-term              Only weeks after this, at the end of
with strong growth in Chinese tour groups        unemployed took this not as a patriotic          May 2007, Guangdong announced the first
led to the share of visitors coming from the     gesture aimed at integrating Guangdong           amendments to the administration of the
Mainland rising to over 50%.                     citizens and Macau residents in ever closer      Individual Visit Scheme for its residents
    In 2007, there were 26.9 million visitors    economic union, but as a measure that            wishing to visit Macau. The timing may
to Macau—14.8 million, or 55.1% of them,         threatened even more competition for non-        have been a coincidence, but the issue of
were from Mainland China, with the number        gaming jobs.                                     ‘social harmony’ and how it might affect the
of Mainland visitors rising 26.8% from 2006.                                                      relationship between Macau and China was
    From June 1st this year, the central         Summer of discontent                             certainly on the political agenda by then.
government limited the number of visits              On May 1st that year, unemployed             The new system for processing and issuing
permitted under the IVS to one a month. This     workers took to the streets with placards        visas was announced via the travel industry.
was further tightened to one visit every two     protesting not just at the presence of migrant   Guangdong said it had ended the practice
months from July 1st, then one every three       workers from other countries, but also at        of accepting urgent permit applications for
months from October 1st.                         the arrival of mainlanders. The protestors       trips to Macau and that there should be a
    In September 2008, 57% of visitors were      clashed with police, the latter using batons     two-month gap between each application
from Mainland China, though owing to even        and shields to control them.                     to visit Macau. In reality, when the practice of
more stringent restrictions placed on the IVS                                                     storing up previously granted permits was
from June this year, the number of Mainland                                                       taken into account, it meant Guangdong
travellers coming to Macau with permits                                                           visitors were effectively limited to visiting
obtained under the scheme plunged 24.6%                                                           once a fortnight.
year-on-year in the month.                                                                             The policy may have placated Macau’s
                                                                                                  militant unemployed, but it did little to cool
Invasion or social progress?                                                                      down Macau’s economy. In June this year,
    When the visitor influx is combined with                                                      with local inflation rising above the Pearl
the arrival of thousands of new migrant                                                           River Delta Region average and Macau’s
workers from overseas, it’s not surprising                                                        gross gaming revenues growing at 52%
that a significant section of public opinion                                                      year on year, Guangdong residents were
in Macau—and not just Western expatriates                                                         limited to one visit every month. In July,
who liked the city’s previous slow pace—                                                          that was further tightened to one visit every
appear to feel the place has literally and                                                        two months. In addition, from September
metaphorically been invaded, with all the                                                         1st, Mainlanders travelling to or working
social dislocation and strain on resources                                                        in Hong Kong have been required to apply
that an invasion involves.                                                                        for a separate permit to visit Macau. From
    The first signs of a fraternal falling out                                                    the beginning of October, Mainland visitors
were seen in 2006. Worker associations in                                                         to Macau were restricted to one trip every
Macau and the city’s small number of long-                                                        three months.
term unemployed began complaining that           Happier times—locals turn out to cheer
some Mainland residents were abusing the         the Olympic flame before the Beijing 2008
‘open door’ visa policy. Locals said visitors    Olympics this summer
were using it as an opportunity to take
black market jobs in the territory’s booming         Soon after this incident, promises
construction industry.                           were made by the Macau government to
    At the same time, local employers were       help retrain and reassign the long-term
complaining that casinos offering above          unemployed, and there was a slowdown in
average salaries were poaching the best          the issuing of work permits to foreigners and
local workers. In January 2006, 60 of Macau’s    a clamp down on illegal Mainland workers
business leaders met with He Xiaowei, then       on construction sites. Resentment simmered
deputy director of the Liaison Office of the     on for another year. This time things got
Central People’s Government in the Macau         more serious. During May Day disturbances        Double trouble—Mainland Chinese tourists
SAR (the body that acts as the go-between        in 2007, at least one local policeman, either    bound for Hong Kong now need a separate
for the policy makers in Beijing and the         too frightened or too indisciplined to           permit to enter Macau

                                                                                                             November 2008 | INSIDE ASIAN GAMING   15
  Cover Story

                         David and Goliath
                China’s gamblers are slowly showing signs
                           of waning energy

  C    hina’s travel restrictions finally appear
       to be making an impact on growth
  of Macau’s visitor numbers and casino
                                                        Macau’s gross gaming revenues for the
                                                    third quarter of 2008 were up 28% compared
                                                    with Q3 ‘07, but were down 10% from the
  revenues. The restrictions initially seemed       second quarter of ’08. It was the second
  like small stones from a slingshot repeatedly     successive quarter that gaming revenue
  striking the giant that is China’s pent-up        had declined year-on-year, following an
  gambling demand. Each shot stung a little,        almost uninterrupted growth streak since
  but the giant simply refused to go down.          2005. It also reflects the lull this year in major
  The latest visitor and revenue figures from       new casino resort openings—since 2003,
  Macau suggest the giant just might have           significant spikes in visitor arrivals have
  been stopped in his tracks.                       accompanied large new property openings
       In 2007, the number of visitors from China   to the city. The last landmark property to
  grew by 24.2% compared to arrivals for 2006.      open was Venetian Macao (property #18 on
  The growth rate of Mainland visitors to Macau     the map overleaf ), in August 2007, and the
  over the first nine months of 2008 remained       pipeline will only resume in 2009 with the
  strong, at 23.1%, though the growth rate had      unveiling of more mega resorts on Cotai.
  dipped to 8.0% by September as the visa               [[HERE USE db map.pdf, go to fig 24 on
  restrictions were tightened further. Notably,     page 22. Put “Source: Deutsche Bank” – can           Hazy—the outlook for Macau’s gaming and
  the number of Mainland visitors travelling        put here or on the next page]]                       tourism sectors is now less clear
  to Macau with permits obtained under the              It’s too early to tell whether the
  Individual Visit Scheme—the target of the         consecutive revenue results represent a              they were a factor before the escalation of
  travel restrictions—plunged 24.6% year-on-        trend, but it looks as though they might.            the global financial crisis in late September.
  year in that month.                               The prime suspect is the visa restrictions, as       In September, turnover slipped to 6.9 billion
                                                                                                         patacas, down 3.4% on the equivalent month
                                                                                                         in 2007, and down 28% compared to August
                                                                                                         this year. This latter statistic represented the
                                                                                                         first fall in consecutive monthly revenue in
                                                                                                         VIP and mass market sectors combined,
                                                                                                         since 2005.

                                                                                                         VIP trade down
                                                                                                               Gross turnover from VIP baccarat—
                                                                                                         the lifeblood of Macau’s casino industry,
                                                                                                         providing on average between 65% and 70%
                                                                                                         of annual gross gaming revenues—fell by
                                                                                                         14.2% in Q3. It was the second consecutive
                                                                                                         quarterly fall in VIP revenue since the end of
                                                                                                         Q1 this year.
                                                                                                               This touches on the essential problem
                                                                                                         with blanket rationing of Macau entry visas.
                                                                                                         It’s a pretty unsophisticated and undiscerning
                                                                                                         tool. It makes no distinction between a
                                                                                                         highly successful businessman with cash to
                                                                                                         burn in the VIP rooms and a corrupt official
                                                                                                         gambling away public money on the mass-
                                                                                                         market floor. Neither does it distinguish
                                                                                                         between a middle class Chinese person
                                                                                                         wishing to attend first a trade exhibition and
                                                                                                         then to play on the mass market tables at
                                                                                                         The Venetian, nor a pensioner couple who
  A typical Macau VIP room                                                                               can barely afford the cab fare to Cotai.
16 INSIDE ASIAN GAMING | November 2008
November 2008 | INSIDE ASIAN GAMING   17
  Cover Story

                                    Whales and Hungry Minnows
          A small number of passionate gamblers are providing most of Macau’s turnover

  A    lthough the global financial turmoil is
       a wild card that may have had an extra
  drag on Macau’s gambling turnover, for what
  logical reason would the relatively modest
  rationing of visas have a depressive effect on
  demand and turnover in the Macau gaming
  market? After all there are plenty more
  Guangdongers where those pioneering
  independent travellers and tour groups
  came from.

  People’s Republic of Guangdong
      If Guangdong province were a country,
  it would be the eleventh most populous
  on Earth. The official number of inhabitants
  is 113 million (the real figure is probably in
  excess of this). That’s only 14 million people
  less than the entire population of Japan and
  greater than the population of Mexico.
      Even assuming only half of all Guangdong
  residents over the age of 18 were interested
  in coming to Macau and had the money
  to do it, there would be enough people to
  keep Macau’s tour buses and casinos full         The Venetian Macao main gaming floor provides the minnows surroundings fit for a whale
  for at least the next two years, even if those
  individuals only visited once a year.
                                                   Punching above their weight                       many months. The difficulty is that so many
                                                       The answer as to why the visa restrictions    different messages have been sent out from
                                                   appear to be hitting Macau’s bottom line          various sources that it’s not clear what are the
                                                   may be that a relatively small number of          key aims of Chinese officials in implementing
                                                   people like to visit often. These are likely to   the policy. The Macau SAR government and
                                                   be people motivated principally by gambling       China aren’t sharing their thinking publicly
                                                   rather than sightseeing, and they’re the ones     with the market, so it’s been open season for
                                                   most affected by the rationing. Pro rata the      speculation and conspiracy theory.
                                                   loss of a VIP player in this frequent visitor         What we can say is that this being China
                                                   group is of greater significance than a mass      rather than the United States, then forces
                                                   player in a market still 70% driven by high       other than simply the logic of the market
                                                   stakes baccarat play. Some VIPs regularly bet     are likely to be in play. The odds are also
                                                   the equivalent of a card dealer’s monthly         that it’s for some practical reasons rather
                                                   salary and more on a single hand of baccarat.     than ideological ones. China’s leaders have a
                                                   In cash turnover terms they are really big,       history of adopting free market methods to
                                                   but in demographic terms, they are probably       encourage foreign investment while at the
                                                   numbered in the low thousands for the             same time reserving the right to intervene
                                                   whole Macau market.                               politically when it perceives it advantageous
                                                                                                     or necessary. This arm’s length pragmatism
                                                   Why travel curbs? Why now?                        was first articulated more than 30 years
                                                       Although the financial markets have only      ago by Mao Zedong’s eventual reformist
                                                   recently discounted gaming operator stocks        successor Deng Xiaoping. When Deng was
                                                   in response to the Macau visa restrictions,       under pressure to explain China’s move from
                                                   the writing has been on the VIP room wall for     a socialist economy to a market-based one,
  China made great strides under the reformist     some time. Warning signals that curbs on the      he remarked: “It doesn’t matter if a cat is
  Deng Xiaoping                                    industry were coming have been flashed for        black or white, as long as it catches mice.”
18 INSIDE ASIAN GAMING | November 2008
                                                                                                                                 Cover Story

                               If the Face Fits
       Macau needs more rich visitors and fewer poor ones

M      acau remains geared up to act as a
       mousetrap for Asian gamblers and
as a generator of MICE business as well.
                                                   to drive up average daily spending and
                                                   length of average stay.

The city is, however, in a tricky position.        A gambling home from home
It wants to build a world-class tourism                Policy makers in Macau and Beijing
and meetings market, but it knows it               may not have reckoned on the deep
can’t do so at the expense of causing              appeal of gambling even to Chinese
social trouble inside China. For its part,         people with modest incomes and
China appears generally happy for its              the lack—because of cost and
Special Administrative Region to get on            visa issues—of alternative travel
with running its own affairs—except that           destinations outside China. The
there’s a joker in the pack. Macau has had         fact that Mainland visitors don’t
no problem attracting Chinese visitors—            need a passport to come to Macau, but        The
it’s just that so far it’s had too many of         can use their identity cards, and that the   wrong sort
the wrong sort (i.e. poor people) and not          language and food are all comfortingly       of visitor
enough of the right sort (the high spending        familiar, makes Macau the obvious
professional and managerial classes).              destination for Chinese consumers            among ethnic Chinese executives in the
     For quarter after quarter since 2007,         taking their first uncertain steps outside   industry, that eventually something more
government surveys have shown that 25%             the immediate borders of the ‘Middle         like a free market based on product pricing
of all visitors to Macau are retired people,       Kingdom’—a society that had been in          rather than permit rationing would be the
students and the unemployed. A further             self-imposed isolation for centuries until   norm, as Macau’s visitor footprint widened
20% plus are clerks and low-grade clerical         the late 1970s.                              and the integrated resorts took the place
staff. This is hardly the target audience likely       There was a feeling, however, even       more upmarket.

                                                     Mixed Feelings
      Macau may have its own motives for accepting the squeeze on Chinese travellers

                                                                                                T    he visa issue is generally being viewed
                                                                                                     in the foreign media as something China
                                                                                                is ‘doing’ to Macau. This may be misleading.
                                                                                                Macau officials may have their own motives
                                                                                                for welcoming travel restrictions.
                                                                                                      For some time they have been frustrated
                                                                                                that Macau remained stubbornly a day
                                                                                                trip market for low-spending visitors
                                                                                                from Guangdong, rather than the truly
                                                                                                international conference and holiday
                                                                                                destination they dreamed of.

                                                                                                A ‘must-visit’ city
                                                                                                     João Manuel Costa Antunes, director of
                                                                                                the Macau Government Tourism Office, said
                                                                                                recently after signing a deal to promote
                                                                                                the city to visitors from the UK that the
                                                                                                general aim was to make Macau a ‘must-
                                                                                                visit’ destination on any Far East holiday and
                                                                                                an ideal location for business events and
                                                                                                             November 2008 | INSIDE ASIAN GAMING   19
  Cover Story

      The message between the lines seems         expressed frustration at the snail-like pace    casino operators would remain the
  to be that China is not quite rich enough yet   of the move up market. Macau residents                                               ,
                                                                                                  same for “the foreseeable future” (i.e.,
  to supply all the sought after high-spending,   concerned about the effects of high volume,     three concessionaires and three sub-
  upmarket tourists.                              low value tourism was having on ordinary        concessionaires). He added that the
      This was never going to happen              life also did so.                               government would not approve new
  overnight in any case. For one thing,                                                           applications filed by gaming companies
  the Chinese middle class is literally           Policy shift                                    for land use. Projects already under
  and figuratively young and unevenly                 In April, Edmund Ho, Macau’s centrally      construction, approved, or under discussion
  distributed. Most of its members appear         appointed chief executive, announced            with the Macau government, would not be
  to live in urban areas, and most of them        an indefinite moratorium on new casino          affected, Mr Ho added.
  in the handful of Chinese cities and            licenses, a ban on new land being used for          Francis Tam, Economy and Finance
  provinces that have been exposed to             casinos, and a plan to limit the number of      Secretary, added it was time to “review”
  direct foreign investment. Guangdong is         casinos, gaming tables and slot machines in     the gaming industry after years of rapid
  the pre-eminent and obvious example of          operation.                                      development that had put pressure
  such a domestic market.                             In a plenary session of the Legislative     on Macau’s environment and human
      Not just local officials and politicians    Assembly, he said the number of                 resources.

                                                                              No Vacancies
                                                              China’s official media says Macau is near its
                                                                            current visitor limit

                                                                                                  Rationing not banning
                                                  I n September, Xinhua, China’s official
                                                    news agency, an institution that can
                                                  usually be relied on to give some insight
                                                                                                       Delve into the implications of the
                                                                                                  headline and it soon becomes clear that
                                                  on official thinking in the People’s            if total daily access is rationed, then so too
                                                  Republic, ran a story captioned: “Research      must frequency of individual access if all
                                                  Shows that Daily Visitors of Over 79,000        who want to visit Macau from China are to
                                                  Will Full-Load Macao” .                         get a ‘go’.
                                                      This is an interesting and arguably              Unless access is done on a rotational basis,
                                                  partial analysis of current market              rather than a first come first served one, then
                                                  conditions, given that hotel occupancy          the Chinese authorities risk the possibility
                                                  levels in Macau have actually been falling,     that the divvying out of trips to Macau will
                                                  although that in turn is partly a function of   become a source of social discontent and
                                                  rapid expansion in room capacity.               resentment within the country rather than
                                                                                                  the pleasant diversion from long hours and
                                                  Occupancy down, stays lengthen                  hard work the trips were meant to be.
                                                      According to the government’s                    The     Xinhua report         citing    the
                                                  own statistics, in August the average           79,000-visitors per day ‘limit’ quoted a study
                                                  hotel occupancy rate dropped by 7.1             it said was published by Macau’s Institute For
                                                  percentage points to 76.7%, with 5-star         Tourism Studies (IFT) and commissioned by
                                                  hotels leading at 80.7%. The average            the Macau Special Administration Region
                                                  length of stay of hotel guests increased        (SAR) government.
                                                  by 0.2 nights to 1.5 nights. At the end of           The study claimed that both residents
                                                  August 2008, the total number of guest          and visitors became “less than satisfied”
                                                  rooms available in the hotel sector grew        with their surroundings and gave generally
                                                  by 799 (+5.1%) from a year earlier to           lower approval ratings to local services and
                                                  16,577 rooms.                                   facilities when the daily average number of
                                                      Even if the premise of the Xinhua story     incoming visitors reached a certain critical
                                                  and the doubtful syntax of its headline         level, said Xinhua. This figure was curiously
                                                  need to be challenged, the gist of the story    precise, standing at 75,537 daily visitors.
                                                  was clear. Macau could only currently                The survey was divided into two parts.
                                                  stand receiving 79,000 people per day—          The first part consisted of questionnaire
  Macau’s infrastructure is under strain from     for purported reasons discussed later in        interviews on 44 selected days of 2007.
  the tourist influx                              this article.                                   They covered weekdays, weekends and days
20 INSIDE ASIAN GAMING | November 2008
November 2008 | INSIDE ASIAN GAMING   21
 Cover Story

 within the so-called Golden Week, the holiday     They were asked for their perceptions           sample was also questioned on waiting
 period straddling China’s National Day on 1st     on ‘crowdedness’. That itself is arguably a     time as well as service quality, and also
 October. The second part was based on data        loaded question and likely to produce a         waiting times at the border.
 and information collected from government         less than enthusiastic response. When was            Without delving too deeply into the
 departments and ‘stakeholders’ (the modern        the last time you met a person (other than      methodology of the study, and whether or
 buzz word for any person or group with the        perhaps a retailer) saying that his or her      not some of the questions might have been
 capacity to cause trouble if not consulted).      local streets were not crowded enough?          loaded, the message was that Macau had
                                                   The sample was also asked about its             a good number of disgruntled locals and
 Perception test                                   levels of satisfaction regarding the local      visitors, and unless Chinese people suddenly
     The IFT said that a total of 5,158            environment, local transportation, the local    got bored of coming to Macau, something
 residents and 5,120 visitors were sampled.        food and beverage trade and shops. The          was likely to be done to control arrivals.

                                 Free markets need free people
                                  Travel curbs on consumers not a long-term solution

 T   his magazine has argued for some time
     that more attention needed to be paid
 to quality of visitors rather than quantity, if
                                                       Market entry cost (as opposed to casino
                                                   entrance fee, as is planned for Singapore) is
                                                   a factor in upmarket gaming jurisdictions
                                                                                                   every price point.
                                                                                                        The comparison with Nevada’s gambling
                                                                                                   hub is not, though, one often made by Macau
 Macau’s reputation as a world-class tourism       such as Monaco, the autonomous                  government officials. That may be a clue that
 destination was to be developed and if the        principality in the south of France. Monaco     reveals the fault line between how foreign
 gaming and hospitality industry was to            in general, and Monte-Carlo in particular, is   investors see the future of Macau and how
 benefit significantly. We said so in our story    simply too expensive for all but the most       the local politicians and national leadership
 ‘Borderline Case’, published in January. At no    well heeled visitor to spend more than an       in Beijing see it.
 time did Inside Asian Gaming argue for the        hour or two there.                                   Politics and history do to some extent
 restriction of the movement of people across          For political reasons, China might not      tie the hands of the Macau government and
 borders, whether internal or international.       wish to be seen to be turning Macau into the    its tourism marketing effort, but politics and
 Genuinely free markets need free people.          Monte-Carlo or the Nice of the east. Macau’s    history will only take Macau so far. The worst-
      Instead, we pointed out the potential        hoteliers and gaming operators might also       case scenario is for Macau’s economy and
 benefits of pricing as a way of moving            reasonably argue they’d already tried pricing   society to be exposed to the downside of the
 upmarket. We quoted government visitor            and it didn’t work in stemming the flow of      free market in terms of intense competition
 surveys suggesting that up to 26% of              Mainland visitors.                              for resources and rapid urban growth, while
 Macau’s 26.9 million visitors in 2007                 In any case, why shouldn’t Macau, after     at the same time being hobbled politically
 classified themselves as ‘economically            so many centuries of political separation       so that investors, residents and visitors can’t
 inactive’, consisting of the jobless, retired     from China, become a playground for             enjoy the benefits of that free market. Only
 or students. That’s a lot of people on a very     the grandsons and granddaughters of             time will tell which of these competing
 small budget.                                     Mao’s revolution, rather than an upmarket       impulses—market-led innovation or social
      Within six months, at least one Macau        playground for the country’s uber-rich, as      engineering—will be allowed to prevail.
 government official was publicly expressing       well as Overseas Chinese and foreigners?
 similar thinking.
      This is what Maria Helena de Senna           China, not Nevada
 Fernandes, the deputy director of Macau                Macau is often referred to in the
 Government Tourism Office, said in remarks        international media as ‘Asia’s Las Vegas’.
 quoted in the international media in July:        Sheldon Adelson, the chairman and
      “Obviously, from a strategic point of view   controlling shareholder of Las Vegas Sands
 we feel this is a very good moment for us to      Corp, the biggest single foreign investor in
 not just pursue quantity but also to give a       Macau’s new gaming infrastructure by miles,
 very good look at the quality of what we’re       loves the phrase, and his company even had
 providing.”                                       it trademarked.
                                                        There may well be things Macau can
 Conceptual leap                                   learn from Las Vegas, and not just in terms
     The jump from an individual official          of infrastructure and service culture. Vegas
 expressing a generalised desire to improve        makes a point of welcoming everybody
 the quality of Macau’s visitor market, to visa    and is probably the best example yet of a
 rationing is a very big one indeed.               gaming jurisdiction with services to suit       The regal Casino de Monte-Carlo

22 INSIDE ASIAN GAMING | November 2008
                                                                                                                                    Cover Story

                                                               Could recession stall Macau’s retail revolution
                                                                         before it really begins?

                                                    that the mass market Grand Canal Shoppes          are no less genuine, but served in a more
                                                    over the road at The Venetian Macao is not,       bustling setting.
                                                    namely exclusive and intimate, though not
                                                    necessarily low-key.Headline features include     Guangdong—no rust belt
                                                    Asia’s first Moët et Chandon Champagne                 The negative influence that long-term
                                                    bar and a corporate entertainment area            recession can have on all sectors of the

       o borrow a line from an old joke about       with a gold chandelier from which the             retail industry is nonetheless obvious and
       a farmer giving directions to a lost         aforementioned sparkling wine flows. This         particularly well documented in more
       motorist, David Sylvester probably           is all in a setting with boutiques by the likes   mature markets such as LVS’s home base in
wouldn’t have started from here.                    of Dior, Fendi and Gucci. It doesn’t get much     the United States. Illinois, the home turf of
     Mr Sylvester, Vice President Retail Asia for   more conspicuously consumptive than that.         the US Democratic President-elect Barack
Las Vegas Sands Corp., is a straight-talking             The DFS Galleria even has a special          Obama, is a good example. Illinois was once
Australian with no desire to gloss over the         entrance for VIP use only. The focus at The       the home to many smokestack factories.
challenges faced by Macau’s new, high end           Four Seasons is on low volume and high            De-industrialisation began there in the
retail sector, one of the foundations of the        margin business, serving rich customers in        1970s and started to drain the prosperity
integrated resort business model imported           a relaxed setting, goods that are genuine.        from suburban communities. As a result
from Las Vegas. LVS’s The Shoppes at The            Goods in the The Venetian’s retail area           Illinois now has the dubious distinction of
Four Seasons, on Cotai, launched only days
before the world plunged into an economic
crisis so profound that it could well have
a knock on effect even for the cash-rich
Chinese economy and the savings-rich
Chinese consumer.
     Mr Sylvester has over 22 years of
experience in development and managing
of shopping centres in Asia Pacific. Over the
course of his career, he has been involved in
more than 40 major retail developments.
     “The Four Seasons mall has only been
open a month or so. I know some people
have been critical of it but give us a break,”
says an upbeat Mr Sylvester.

Mixed reception
     The criticism of this deluxe addition to
Macau’s retail market—DFS Galleria Macao
at The Shoppes at Four Seasons—to give
its full title, has been mainly levelled at the
relative scarcity of shoppers. Not only may
this be premature, it may also be missing the
point, says Mr Sylvester. The Four Seasons’
shopping zone is supposed to be everything          The Four Seasons

                                                                                                                November 2008 | INSIDE ASIAN GAMING   23
                                         being the location of more dead and dying
                                         shopping malls than almost anywhere else
                                         in the country, according to Mike Shedlock of
                                         SitkaPacific Capital Management, who writes
                                         about these things on a website called Mish’s
                                         Global Economic Trend Analysis.
                                              Macau has a few dead or dying
                                         shopping malls of its own, but they are all
                                         serving the local market, which is a world
                                         away from the shoppers being targeted by
                                         the likes of LVS on Cotai and Wynn Macau
                                         on the Macau peninsula. The good news
                                         from the viewpoint of this ‘new’ Macau
                                         is that it’s targeting a highly specialised
                                         sector. Most of Illinois’ ill-fated shopping
                                         centres were mass-market offerings in areas
                                         where the chances of deep-rooted success
                                         were marginal at best. They were places
                                         built during America’s out-of-town retailing
                                         mania in the 1970s that in hindsight
                                         coincided exactly with the beginning of the
                                         end of America’s post-Second World War
                                         industrial boom.
                                              Now China has taken over the US’ role
                                         as the factory of the world, and it’s the
                                         turn of newly enriched Chinese citizens
                                         to shop until they drop, notwithstanding
                                         the looming threat of world recession. The
                                         decision to build high end malls in Macau, a
                                         veritable mousetrap for some of the world’s
                                         most passionate gamblers and shoppers
                                         looks like what the LVS chairman Sheldon
                                         Adelson might call ‘a no brainer’.

                                         Hard bargain
                                             LVS has a reputation for highly effective
                                         deal making in selling or leasing real
                                         estate assets in general and retail space
                                         in particular—a technique known in the
                                         financial sector as ‘monetisation’. Of late
                                         though, LVS’s brand image has not been
                                         as powerful as hitherto, due to the well
                                         publicised challenges it, along with other
                                         casino operators, has had in interesting
                                         the shell shocked banking community in
                                         issuing it with fresh loans. Retailers also read
                                         newspapers and sense this is the time to
                                         drive the hardest possible bargain with LVS
                                         in the Macau market.
                                             “There’s always pressure in every market
                                         to keep rents down, but what we’re focusing
                                         on is getting the sales up, rather than getting
                                         the rents down,” explains Mr Sylvester.
                                             If LVS can support retailers in building
                                         their sales then everybody wins, he says.
                                             “We have base rents and we have
                                         percentage rents. With that percentage rent
                                         formula you need to see what the turnover is
24 INSIDE ASIAN GAMING | November 2008
                                                                                                                                      Cover Story

to do your calculations.                            visitors are from Mainland China, whereas          private entrance exclusively for VIP use. The
    “Here in our Macau properties we have           58% of visitors to Macau as a whole are from       hotel includes suites with built-in gaming
a PoS (Point of Sale) system where we get           there according to Macau’s Statistics and          rooms in an echo of the intimate club style
sales figures daily via the cash registers. That    Census Service, known as DSEC.                     atmosphere available in some European
goes into our database so we can see on a                                                              gaming establishments. LVS president
daily basis what the retail is doing.               High rollers high-tailed?                          William Weidner says the company is already
                                                          So what’s going on? Another possibility      recruiting VIP players from as far afield as
Marketing support                                   is that high-end Chinese gamblers and high-        the Middle East for these suites—exactly
    “It’s not just so we can set the rent levels,   end Chinese shoppers aren’t particularly           the sort of audience that LVS’s luxury retail
but also for us to find out what’s working          attracted to The Venetian because they don’t       partners are seeking.
and what’s not working in our marketing. If         want to mix with mass patrons. One of their            “One of the pitches for Four Seasons mall
for example we can see we’re having slow            motivations for working hard and getting           is we’re doing limited editions specific to the
days in a particular category even though           rich was precisely so they wouldn’t have to        venue,” says Mr Sylvester.
we’ve done some promotional work, we may            line up with ordinary Joe Wongs to taste               “For instance we’ve worked with Versace
need to reassess how we’re approaching              life’s pleasures and life’s necessities. Mega-     to do a line of two bags.That’s really targeting
things and analyse what we’re doing in our          rich Americans such as Bill Gates and Warren       our Paiza level customers.”
marketing.                                          Buffett may pride themselves on personal
    “When we arrived, the retail market in          modesty and the common touch, but that             Up market
Macau was in its infancy,” adds Mr Sylvester.       may be a culture-specific preference that                “We really see The Four Seasons and Paiza
    “I think the average rent was about HK$20       doesn’t travel into emerging markets.              together in terms of consumer audience,”
per square foot. We achieved US$30 per                    “One thing the high rollers do not like is   explains Mr Sylvester.
square foot. It’s a case of setting benchmarks      mass,” says David Sylvester.                             “The Paiza customer is the Four Seasons
and then going out into the market.                       “You’ll see at The Venetian that they very   customer.The Paiza customer likes one offs—
    “Normally when you lease a shopping             rarely venture outside of the Paiza [VIP club]     they like to think of themselves in terms of
centre you do research and work out the             area. They don’t like coming on the main           exclusivity. They like to think they can get a
total sales in that market and then work out        gaming floor, they don’t like mixing with the      product no one else—or at least very very
occupancy costs and come up with rent.              masses, so that’s the rationale for the way        few people—can get. That’s really the angle
                                                    The Four Seasons is pitched.”                      we’ve taken with our launch through our
From scratch                                                                                           ‘One in a Million’ campaign.
    “The problem with this market was               The other side                                           “We call The Four Seasons our boutique
there weren’t really any shopping malls                 The Four Seasons’ shopping area is             mall, because the whole idea is it’s intimate,
and also the market we’re in isn’t really a         designed by ambience and location to               it’s small,” adds Mr Sylvester.
domestic one. We couldn’t go around and             plug directly into the high roller market. It’s
look at what was happening [in the local            linked by air-conditioned walkways to the          Personal touch
shopping districts] in Macau, because those         Four Seasons Hotel and has, as mentioned, a            “It feels like you’re not in a rush. If you
retailers and local shoppers are not really
our customers. Our customers are coming
from China and places like Japan and
Taiwan. It’s not an ideal way to set it up, but
you have to work with the information you
have,” he explains.
    “In this particular environment we had to
just go out and sample the market. Our first
deals were in watches and jewellery, then
the next deals were with fashion [retailers]
and so on, working our way through the
categories and we then set rental levels
based on that feedback.”
    The Chinese customers that Mr Sylvester
mentions have been in short supply recently
at The Venetian Macao. This may be linked
to several factors. The first is the well
documented one about visa restrictions
introduced by China. This cannot be the
whole story though. According to research
conducted on behalf of LVS by the University
of Macau between 4th and 10th August
this year, only 32% of The Venetian Macao’s
                                                                                                                  November 2008 | INSIDE ASIAN GAMING   25
  Cover Story

  go to the Grand Canal Shoppes it’s a lot         Jeans, Tommy Hilfiger and United Colors of           “The interesting thing is that it
  more bustling, with tourists taking pictures     Benetton are already part of a scheme called     [shopping] is endemic in Hong Kongers,”
  everywhere. That’s great, but not what           The Grand Canal Shoppes Shopping Club.           says Mr Sylvester.
  we were aiming at with the Four Seasons.         The original version of the club, launched at
  We deliberately didn’t do big stores, we         The Venetian Las Vegas offers participants       Shop and drop
  wanted it to be small in scale and have          slot or table play credits as well as discount        “They love to shop. It’s the culture in
  limited edition ranges. The idea is that as a    vouchers for food and drink.                     Hong Kong. You see it at weekends—it’s
  customer you go in there and feel special,           “We’re also about to start—especially        people’s leisure activity—you go to the
  that you’re getting things you can’t get in      with the luxury brands—having them gain          shopping malls and shop. They also love
  Hong Kong or anywhere else in the world.         access to our comping system,” explains          coming here and shopping. We offer them a
      “With [Cotai Strip™ plots] seven and         Mr Sylvester. “We’re developing a one card       different environment to Hong Kong.
  eight, which we’ll be doing later on, we’re in   system, where that card can used around               “Hong Kong malls tend to be very
  discussions with Louis Vuitton for an 18,000     the whole resort, and that card’s linked to      generic,” adds Mr Sylvester. If you look at
  square feet store, and Chanel’s talking          everything that’s in the resort.”                the fit out of them, they don’t even let the
  about 12,000 sq. ft, so in that property                                                          retailers do their own store front. They [the
  we’ll do a big, deep range [of branded           Old hat?                                         centre management] design the store
  products]. But for The Four Seasons, that’s          According to the most recent figures         front, they design the bulk head, they tell
  not the market we’re going for. It’s [The        from Mr Sylvester, 56% of the visitors           you you’ve got to put your sign in this
  Four Seasons] only a 360-room hotel, it’s        to The Venetian are now from Hong                zone, you’ve got to fit out behind this, so
  six-star, and everything there is high end,      Kong, a market that already has most of          it’s unusual for them [the retailers] to come
  so we want to keep it scalable so that it’s      the high-end retail recently launched            to an environment where we throw it [the
  not overwhelming,” he emphasises.                in Macau. Macau has no special retail            rule book] away. We want the retailers to do
                                                   price advantages compared to Hong                what they do best, so we want them to be
  Loyalty links                                    Kong, other than perhaps slightly lower          in charge of their fit out. So shoppers from
     LVS also plans to offer the luxury brands     leasing overheads in some cases, as both         Hong Kong come here and see a different
  the option of linking their PoS system to        jurisdictions are free of sales tax. How in      sort of retail environment, and they shop.
  Sands’ own customer loyalty schemes.             those circumstances, do you persuade             Our strongest market for sales is still Hong
  Outlets in The Venetian Macao such as Guess      Hong Kongers to shop in Macau?                   Kong shoppers.”

26 INSIDE ASIAN GAMING | November 2008
                                                                                                                                   Cover Story

                                                             Reversal of Political Fortune
                                                   The spectacular growth in Macau’s casino revenues and GDP
                                                  has led to a remarkable awakening in its political consciousness

     Macau’s GDP has soared over the past         candidates to fill the chief executive position,   deflect attention from inequality and social
few years on the back of increased gaming         when the term of the incumbent, Edmund             problems and to maintain calm ahead of
and visitor receipts and massive investment       Ho, comes to an end in 2009.                       the torch relay, the government announced
in new casinos and tourist attractions. That                                                         a 2.6 billion pataca (US$325 million) cash
spectacular growth had made the city’s GDP        Beijing’s watching                                 giveaway from its bulging fiscal reserves,
per capita higher than that of any other              Beijing has been closely following the         with MPtc5,000 paid to every permanent
Asian economy by the end of last year.            Macau population’s mounting dissatisfaction        resident and MPtc3,000 to every non-
     Media reports have been disdainful of        with its government. Part of the central           permanent resident.
Macau’s newfound prosperity, however,             government’s motivation for applying the                The measure is ostensibly intended
highlighting the worsening wealth gap and         brakes on Macau’s overheating gaming               as a means to return some of the wealth
other social problems created by the growth,      sector could be to halt the worsening              generated by the casino and tourism boom
which has been largely concentrated in            inequality and social problems that have           to the public, but has been criticised as a
the powerful gaming and tourism sectors.          fuelled the dissatisfaction.                       token measure intended to shift attention
Despite boasting the highest GDP per capita,          At the close of this year’s China’s National   away from worsening inequality and rising
Macau’s median monthly salary stands at just      People’s Congress in March, President Hu           inflation in the city.
over 8,000 patacas (US$1,000)—well below          Jintao issued a stern reminder to the Macau             The government’s budget surplus has
that of other advanced Asian economies.           government to maintain calm in the lead up         been steadily widening over the past few
     Long known for their political apathy,       to the Beijing Olympics and avoid another          years on the back of soaring gambling tax
Macau people have over the past two years         messy Labour Day protest.                          revenue. Also contributing to the surplus
been involved in a series of unprecedented            This is a marked shift from four years ago,    has been the government’s failure to meet
public protests. In 2004, Chief Executive         when Macau appeared incapable of doing             its spending targets. Macau’s long-term
Edmund Ho was regarded as perhaps one             wrong in Beijing’s eyes. While Hong Kong’s         interests may have been better served if
of the most popular heads of government in        then chief executive, the beleaguered Tung         the government had instead focused its
the world, with his approval rating put at 80%.   Chee-hwa (who stepped down in disgrace             attention on speeding up investment in
At the time, people were apparently pleased       in 2005), was berated for failing to quell         the city’s infrastructure, which has been
with the initial spurt of economic growth,        mounting discontent in his city, Macau             straining under the load of a massive influx
after years of economic stagnation prior to       chief executive Edmund Ho was praised for          of visitors.
the reversion of Macau’s sovereignty to China     leading the reversal of Macau’s economic                Other priorities are improving education
(from Portugal) and the liberalisation of the     fortunes. This year, President Hu warned Mr        and helping to diversify the economy in
gambling sector. As the negative impacts of       Ho to “deal properly with ‘new situations’         order to reduce its heavy reliance on the
that growth became more pronounced while          and ‘new problems’ Macau faces in its              tourism and gaming sectors, which leaves
the benefits were not equally distributed,        development,” while Hong Kong’s current            it extremely vulnerable to external shocks.
that approval rating plummeted, as is now         chief executive, Donald Tsang, was praised         Diversification has been hindered by the
no longer publicly reported.                      for guiding his city’s development “in a good      labour crunch and other shortages created
     The Macau’s government’s image has           and right direction.”                              by the casino and tourism boom, with small
been tarnished by more than its inability                                                            and medium-sized enterprises struggling
to prevent disruption caused by breakneck         Populist response                                  to compete for resources with the powerful
economic development. There are also                  In April, in a populist response to            casinos.
mounting accusations of administrative
incompetence and corruption within the
government.Earlier this year,former secretary
for transport and public works, Ao Man-long,                                      Ardent Censors
was sentenced to 27 years’ imprisonment                 Authorities in Macau are more ardent censors of free speech than their Hong
on charges of accepting bribes, money-              Kong counterparts. A recent report in Hong Kong-daily the South China Morning Post
laundering and abuse of authority. Mr Ao’s          highlighted that Macau’s most popular internet forums had been shut down during
harsh sentence has not entirely reassured the       politically-sensitive events (including the June 4 anniversary of the 1989 Tiananmen
public that the government is serious about         Square crackdown and the Olympic torch relay through the city on May 2 to 4). One
tackling corruption, especially given the           person had been arrested for encouraging people to disrupt the Olympic torch relay,
widespread perception that the corruption           and firewalls have prevented the use of politically-related terms such as “gang leader”
of which he was convicted was likely to have        and “shameless Ho”— a name labour protestors have used in recent years to describe
involved other members of the government.           Chief Executive Edmund Ho.
Pro-democracy advocates have derided Mr                 The Macau resident arrested on April 26 for posting a message encouraging people
Ao’s trial as a show, claiming that corruption      to disrupt the relay had been identified to police by Macau’s monopoly internet service
in the city is so endemic that it would not be      provider, CTM. A legislator pointed out that under Macau law, only judges have the right
affected by the verdict. Notably, prior to his      to demand internet service providers to disclose details of users.
conviction, Mr Ao was one of the possible
                                                                                                               November 2008 | INSIDE ASIAN GAMING   27

        Big Trouble in Little China
                   Opponents of gaming across Asia may take heart from global chaos

        he globalisation of capital flows and investment that ultimately   the other way round.
        led to some Japanese banks investing unwittingly in sub-prime          Will this mood help political opponents of gaming in those
        mortgages in the United States is the same globalisation that      Asian countries where it has been legalised? There are signs it might.
  helped Las Vegas set up shop in Macau.                                   In August, South Korea’s National Gaming Control Commission
       Now that the world economy’s debt-funded equivalent of a pub        announced it planned to cap the total annual revenue of the country’s
  crawl is over and many people are nursing sore heads, are we going       gambling industry, including horse racing, lottery tickets and casinos,
  to see a general lapse into good old fashioned temperance and            to about 14 trillion Won (USD13.4 billion). It resulted in an immediate
  trade protectionism, and if so, what effect if any will it have on the   slide in local operators’ share prices.
  regulation and taxation of gambling in Asia?
       The banks that normally help gaming and other investors to          Economic clout
  maintain their day-to-day cash liquidity are already practising a form       If a country is big enough and powerful enough, though, it
  of trade protectionism. In many cases they’re refusing to lend to each   doesn’t need to hide behind recession as a pretext for economic
  other or to businesses in the wider economy until counter-party          nationalism. It simply does what it wants. The US passed the
  risk abates. This has already had a knock-on effect in Macau, where      Unlawful Internet Gambling Enforcement Act (UIGEA) long before
  Las Vegas Sands Corp recently found it hard going to get US banks        the current global credit crisis. If published reports are to be believed,
  interested in a tranche of new debt funding for Cotai.                   the UIGEA came into being principally because in the autumn of
       The fact that governments the world over have been stepping         2006 the then Republican majority leader in the US Senate, Bill Frist,
  in to bail out major banks may give encouragement to those               needed a popular cause to take voters’ minds off Republican Party
  politicians who never much liked the free market system in the           scandals and the Iraq insurgency. The bill got tacked on to another
  first place. Suddenly governments are back to their old ways of          urgent piece of legislation and the rest, as they say, is history.
  lecturing businessmen on managerial shortcomings rather than                 The Act is still on the statute books and there is no indication it

28 INSIDE ASIAN GAMING | November 2008
will be even a faint blip on President-elect Barack Obama’s political
radar. Under those circumstances and at a time of continuing
financial crisis, it’s hard to make a rational and fair-minded case
for insisting that China should open its online markets to foreign
gaming investors. The United States, the supposed spiritual home of
the free market, had already effectively stuck two fingers up at free
trade and barred its own citizens from access to online wagering
back in September 2006—long before the recent storm clouds of
recession gathered.

Online plans
     For some time now, Macau has been promising legislation to
regulate online gaming, but for the last six months there’s been a
deafening silence. Given that the only obvious rationale for Macau
to take such a step would be to leverage its linguistic and cultural
connections to enable ethnic Chinese customers to have access to
locally developed online gaming products, it’s difficult to avoid the
conclusion that someone somewhere doesn’t want it to happen—at
least not yet.
     If, as has been suggested, part of the rationale for rationing access
to land-based gaming product in Macau is to curb excessive gambling
by some Mainland residents, then it would hardly make sense to shut
a physical door and then open a virtual one in cyberspace.

Bubble burst?
    Online gaming companies listed on alternative markets and
with interests in Greater China and the Asia Pacific were already
experiencing some difficulty in selling their story to investors even
before the global equity bubble burst this autumn. This caution
among investors was probably because there was a distinct lack of
clarity about exactly what would be allowed by China both in terms
of type of gaming product and in terms of what companies would
be authorised to participate. It was difficult to escape the conclusion
that individual deals were being struck that depended entirely on
personal relationships between outside entrepreneurs, local partners
and state officials or associations. Potential investors in that putative
Chinese online sector will not have been reassured by the lack of
transparency and lack of debate over issues such as the travel curbs
imposed on Guangdong residents visiting Macau.
    Back in 2001, when the Macau government first invited
international operators to apply for gaming licences, the government
seemed almost endearingly grateful that the industry’s big
players were taking an interest at all. Casual observers formed the
impression that Macau was willing to make almost any concession in
terms of cheap land or regulatory support in order to make market
liberalisation a success. The notable exception to the government’s
generosity was the steep 40% tax on gross gambling revenue faced
by the successful bidders.
    Following liberalisation, and buoyed by the obvious success of its
revamped gaming sector, Macau has become increasingly assertive
towards its guest operators. This trend was evident even before the
latest economic turmoil.
    In other words, Macau started soft and toughened up gradually,
emboldened by local success and perhaps the growing clout of
China in world politics and economics. By contrast, Singapore has
been tough with its operators from the start, but has been arguably
more transparent and more consistent—two qualities that foreign
investors appreciate, but can often be in short supply in Asia.
30 INSIDE ASIAN GAMING | November 2008
                                                                                                                                    Hot Games

                      Rise of the
                            Robot dealers are coming to a casino near you–maybe

           ost consumers are comfortable with the idea that their           the Hot Games Show.
           family car might be built by robots. A less familiar notion is       “Robot technology adds a lot to the cost of the equipment but
           that a visit to a gaming table could be directed by them.        it does seem to drive sales,” says Simon Lai, Vice President of Jumbo
    It’s already happening. Robot dealer multiplayer baccarat was           Technology.
the red-hot game at this year’s Hot Games Show in the Taiwanese                 “Our Robot Baccarat isn’t cheap but it’s popular with operators
city of Kaohsiung. In every corner of the exhibition hall, robot dealers    and with players because everyone can see that the dealing is
could be seen whirring up and down and from side to side like so            done fairly.”
many motorised water birds feeding at a river’s edge. Being robots,
they don’t grumble or need to be retrained if a venue operator wants        Licensing fees
to configure them for a local variation in baccarat rules, though of            A significant portion of the equipment cost is to cover the
course they do need the relevant software input.                            licensing fees that all the Taiwanese manufacturers must pay the
    It doesn’t just end with baccarat. Some manufacturers’ robot            Japanese makers of the robots. Dawson Shen, Senior Sales Manager
dealer systems provide players with a glass panel touch screen as an        for BingoTIMES, says it’s a price worth paying.
interface. This allows the machine to be configured for any dealer-             “There are a number of reasons why this type of product has
based card game, such as blackjack or poker, provided that there’s an       been accepted by gaming operators and players,” explains Mr Shen.
appropriate software program to drive the technology.                           “One important reason is that there’s transparency and fairness
                                                                            with robot dealers. Even in Las Vegas, people still think there’s some
Market players                                                              way the dealers can cheat¬–for example that there may be something
   Jumbo Technology and BingoTIMES Technology are two of                    wrong or ‘fixed’ regarding the card shoe. It’s the way gamblers are.
the better-known Taiwanese manufacturers in this market, but                They never quite trust the casino. They only trust the system when
there are others, including Jinda Electronic Technics Corp., and            they are making money. I think that applies to all gamblers, not just
Golden Royal Technology Developer Ltd who also exhibited at                 to Asian gamblers.”

                                                                                                               November 2008 | INSIDE ASIAN GAMING   31
  Robot Baccarat

                                                       Why Taiwan?
                         The factors that make the island a hive of robot dealer games

         Taiwan is Asia’s robot dealer game manufacturing capital         the sources. The robots were originally developed by the Japanese
    for a number of reasons. The first is that Taiwan is very strong in   companies to perform repetitive manufacturing tasks in car
    information technology, both at the hardware manufacturing            assembly lines, but have now had new programs written for them
    level and at the software programming level. Many slot machine        in order to perform the function of automated entertainers.
    manufacturers across the world say they source motherboards
    and sound cards from Taiwan because of the quality of its output.     World market
         The second is that Taiwan provides a strong domestic market          The potential global market for robot dealer baccarat could be
    for the machines via the arcade trade. Although Taiwan is still       significant, as gaming operators seek, either for cost or regulatory
    pondering whether to legalise casinos, the reality is that the        reasons, to find alternatives to live dealers. The robots can be
    island has more than 2,500 gaming parlours of all shapes and          used in a land-based establishment or in live streaming webcasts
    sizes, according to Simon Lai of Jumbo. The company says it has       operated by online casinos. In Asia, gaming operators seeking to
    sold more than 200 of its own multiplayer machines of all types       build a market for automated multiplayer games need a credible
    including baccarat and sic bo machines to the domestic arcade         alternative to random number generation programs, which are
    market. They are licensed locally and provide gambling services       widely distrusted by Asian gamblers.
    using a business model similar to Japan’s famous pachinko
    arcades. Technically in Taiwan no money actually changes hands        Compliance
    in these parlours, and players compete for prizes. Privately people        One of the practical challenges to global market penetration
    will tell you that in some establishments prizes can be exchanged     for Taiwan’s robot dealer games is whether the makers can acquire
    for cash. Arcades in poor areas tend to have mainly old-fashioned     the necessary regulatory and technical compliance certificates.
    slot machines that are cheap to play. Better off areas have arcades   Currently the companies are selling to the Taiwan, Mainland China
    offering bingo and baccarat. In those establishments potential        and Indo China markets without the need for such international
    prize money is greater but so is the cost of making a bet. Taiwan     certification, though Taiwan does require new gaming products
    also has around 250 specialised bingo halls according to Mr Shen      to be tested to national standards. If Taiwan manufacturers wish
    of BingoTIMES.                                                        to sell to Macau or other major gaming markets these products
                                                                          will almost certainly need to jump the necessary international
    China market                                                          regulatory hurdles.
        A third and by no means minor reason for Taiwan manufacturers’         Jumbo has already had success in getting another of its
    enthusiasm for gaming robots is that there’s a very big potential     multiplayer machines, based on the traditional Chinese dice
    market in the arcade trade across the water in Mainland China.        game Sic-Bo, certified by Gaming Laboratories International. That
    Jinda says it has sold 200 machines in the China market alone.        machine though uses a mechanical randomiser in tandem with a
    This may come as a surprise to those readers who thought the          mechanical dice tumbler, rather than a robotic dealer.
    only gambling in China was that controlled by the two state
    lotteries. The reality seems to be that in some areas there’s an
    official tolerance of arcade gaming, but the authorities draw the
    line at allowing live dealers, hence the demand for robot baccarat.
    Taiwanese manufacturers have a clear cultural advantage both
    in terms of configuring machines in the Chinese language for
    Mainland players, and in cultivating the contacts to sell equipment
    in that market in the first place.
        A fourth factor in the rise of these machines in Taiwan is
    that Toyota, DENSO Corporation and Mitsubishi, the Japanese
    companies that developed the technology used in the robot arms,
    have been willing to licence the use of the equipment to Taiwanese
    firms, though the robots themselves are still made in Japan. Why
    the Japanese have been willing to release their technology to
    Taiwanese companies that are selling the equipment directly
    to China is not clear. Some in the Taiwanese gaming equipment
    industry speculate the Japanese have confidence that their
    copyright can be protected under Taiwanese law. If the robot
    technology were sold direct to gaming manufacturers in Mainland
    China, copyright protection might be harder to enforce, suggested     Peeking at a card, in Jumbo’s Robot Baccarat

32 INSIDE ASIAN GAMING | November 2008
                                                                                                                          Robot Baccarat

                                     No ghost in this machine
                        How robot baccarat works from the players’ perspective

    Some manufacturers have opted for robot baccarat machines          player panel. After that, the robot holds the card face up for every
with the player terminals clustered in an arc around the robot,        player to see, to assure him or her there’s no cheating. BingoTIMES
in imitation of how players crowd around the dealer at a busy          says that a useful side effect of having card ‘squeezing’ done
casino table. This is the set up chosen by BingoTIMES. Jumbo           electronically is that a single pack of cards can be used 500 times.
by contrast has opted for what might loosely described as the          With conventional table baccarat, the cards get such a pounding
cinema or theatre configuration. Players in that case sit behind a     from enthusiastic players that for anti fraud and administrative
row of terminals in a shallower arc similar to seating in a theatre.   reasons packs need to be replaced after only a few hands.
The robot dealer is housed in a physically separate unit in front
of them.                                                               Flexible system
                                                                            BingoTIMES’ Robotic Arm series can be configured for what
Well armed                                                             the company describes as ‘land based’ play, where each player has
    The robot arms on display at the Hot Games Show had                his or her own computer terminal. This format is designed for the
either a suction device on the business end or a suction device        VIP rooms now increasingly seen in slot clubs and arcades. Players
and a mechanical pincer. The difference is more a matter of            can relax on sofas in such rooms, which offer a less frenetic and
showmanship than practicality because both formats of machine          less noisy atmosphere than is generally found on the main floor.
do the same job.                                                       The other more familiar format for BingoTIMES’ Robotic Arm series
    With robot dealer baccarat, the cards in the shoe have been        is the ‘terminal’ type arcade multiplayer, with seating for four, five,
randomly pre-shuffled by machines like the cards at a conventional     six or eight players.
baccarat table. The robot doesn’t choose                                                              The use of glass panel touch screen
the cards, it simply draws them like                                                              technology in the terminal version
a human dealer, but always from a                                                                 allows players to switch easily between
transparent shoe so every player can see                                                          different languages. As with server-based
there’s no cheating. Unlike conventional                                                          slot games, the touch screen system also
table baccarat, the actual cards never                                                            allows a simple interface with other game
reach the hands of the players. Once the                                                          content.
players have made a bet though they
can choose to peek at their dealt hand                                                           National variations
just like in the real life table version. The                                                       “In India, in Goa, for example they
process of ‘peeking’ works in the same                                                         like the player and banker symbols to
way as modern multiplayer baccarat. A                                                          be in different colours from those found
virtual hand is displayed face down on                                                         in the China market,” says Mr Shen of
the player screen. By touching a corner or                                                     BingoTIMES.
side of the virtual card, the player can reveal as much or as little       “It can be configured like any baccarat game in the world. In
of the card as he chooses. Alternatively players can peek at the       the Philippines for example people play baccarat differently from
actual three-dimensional cards via a screen on their player panel.     say Macau,” explains Mr Shen.
The robot does the work for them, passing the cards tantalisingly          “Play can be on a commission or a non-commission basis.
slowly over a glass panel set in the surface of the robot’s dealing    Our accounting software can set up the system to suit operator
table. A small camera monitors this from below. The view from the      requirements. You can set up minimum bets, you can have five
camera appears as a pop up panel on the player’s computerised          different chips at a time, you can have jackpot systems,” adds
screen, or can be monitored from a dedicated screen on the             Mr Shen.

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  Talking Heads

                               Blazing Ahead
                                Despite global economic uncertainty,
             Catherine Burns, Vice President and Managing Director, Asia Pacific, of Bally
                     Technologies, says her company is sticking to its game plan

            ith an unobstructed
            view of the towering                           Why are you relocating to a new office?
            Grand Lisboa from                                   We have grown to 26 people and at the moment we have people
  her office window, Cath                                  spread out around the city—some are at our warehouse, some are
  Burns has watched the new                                here and some are in the AIA building. Everybody was just sitting on
  Macau take shape. Ms Burns                               top of each other. Following the move to the FIT building everybody
  says that being part of that                             will have their own space. I’m looking forward to reuniting the team
  growth has been exciting                                 under one roof.
  and at times exhausting.
  Bally’s own Macau expansion
  has seen it outgrow its
                                                           Bally is recognised as the leading supplier of casino
  office, necessitating a move                             management systems and is one of the biggest suppliers
  to smarter digs in the FIT                               of slot games. What are your respective market shares of
  building. Inside Asian Gaming
  caught up with Ms Burns for                              the systems and games markets in Macau?
  a chin wag.                                                 About 48% of machines in Macau are on a Bally system thanks to
                                         Catherine Burns

34 INSIDE ASIAN GAMING | November 2008
our presence in big properties such as The Venetian, Sands and Four
Seasons. A system is a long-term partnership with a customer; it is
the foundation of their business and the mission critical that helps
them control it.
    For games, we look at two sets of statistics: one is market share
[the percentage of existing machines in the market], the other is ship
share [the percentage of new orders going into the market]. Our ship       Celestial Winds is based on the traditional Chinese tile game of
share is around 20% and that’s where we aim to be overall in fiscal        mahjong and was developed specifically for the Macau market.
year 2009 [July 1 to June 30]. We’ve secured 20% of the City of Dreams     According to Catherine Burns, Vice President and Managing Director,
order. Our market share is less than that, however, at around 9%.          Asia Pacific, of Bally Technologies, “the game plays like a poker pay
                                                                           table.” She adds that Bally’s research and development “is based in the
                                                                           US and India. Our guys in Macau give a lot of feedback to those guys
Are you happy with Bally’s rate                                            to create market-specific games and products.”
of growth?
    We’re growing at a nice rate. Last year was a good year and this
                                                                           carefully and controlling those aspects.
year we’re looking at achieving similar results. Fingers crossed that
                                                                               Our business is healthy and Bally’s business as a whole is strong.
no unexpected financial changes get in the way. At the moment it
is hard to tell what’s around the corner. When there is uncertainty in
the world, like there is now, it’s a matter of managing expenses really    In your experience, how well is the Asian gaming
                                                                           industry weathering the current storm across financial
                                                                               Asia seems to be holding on quite well; there are a few things
                                                                           happening. Key projects are continuing in Macau. City of Dreams
                                                                           will open in the first half of 2009—there is no room for concern
                                                                           there. Las Vegas Sands Corporation continues to say it will open
                                                                           parcels five and six on the Cotai Strip. The outlook for Macau is
                                                                           strong in the long-term.
                                                                               Around Asia, Bally also has business in Singapore, with a system
                                                                           going into Marina Bay Sands and good prospects at Resorts World at
                                                                           Sentosa. The Philippines is moving along. We just received an order
                                                                           from Korea and shipped our first machines to Cambodia. We have a
                                                                           strong partnership with 113 East, which looks after us in Cambodia
                                                                           and Vietnam. These markets give Bally a nice, solid business—we’re
                                                                           not dependent on just one.
                                                                               We’ll survive the financial challenge—barring anything
                                                                           unforeseen that none of us has heard about yet [laughs]. We’re
                                                                           running a very tight, lean, focused business and if nothing else
                                                                           comes out of the woodwork we should be on track for a good year.
                                                                           I usually don’t caveat this much, but we are in uncharted water
                                                                           with this financial crisis. I believe that our business as a whole is
                                                                           solid and I don’t want to play into the negativity. We may have a
                                                                           few bumps, but we’ll work through them and keep focused and
                                                                           that should be enough.

                                                                           What innovations is Bally introducing to the market?
                                                                               On the systems side, we are looking to introduce the Power Series
                                                                           suite of marketing modules, which involve bonuses, player rewards
                                                                           and games—things that are tied to loyalty cards.
                                                                               In the US, Bally has just released something called Display
                                                                           Manager, which takes our iVIEW™ technology and places it on the
                                                                           game screen. iVIEW™ Display Manager runs off our system, not off
                                                                           the game core, so it is not interfering with the game in any way. To
                                                                           the player it is seamless, but it gives the operator another option to
                                                                           communicate on the game screen or through the iVIEW™.
Bally’s TableView™ table-rating and player-tracking system allows pit
                                                                               We have done some significant development on our table
staff to enter player ratings, request chip fills and credits, and issue   products, which are now bilingual in Chinese and English. The
customer comps and markers in real time                                    enhancement is focused on the demands of players here.

                                                                                                              November 2008 | INSIDE ASIAN GAMING   35
  Talking Heads

                                                                                  We have added a new junket model. Asian junkets are very
                                                                             specific to this part of the world. Bally is making sure that the system
                                                                             product we have can account for those junkets to improve control
                                                                             and accountability.
                                                                                  As the market becomes more competitive, operators want
                                                                             business intelligence add-ons that tell them more about their
                                                                             players, what they are like, how they play—it helps them understand
                                                                             players better and gain more control of their business. Those tools
                                                                             help operators manage their expenses and resources.
                                                                                  On the games side we have just released a new
                                                                             product called Quick Hit™ Platinum, which builds on                      the
                                                                             success of our Quick Hit™ stepper product.
                                                                             Quick Hit™ was the re-birth of steppers.
                                                                             It’s not only a stepper, it is topped with
                                                                             a video top-box. This was a bit of a
                                                                             revolutionary product in Macau.
  Bally’s iVIEW™ player-communication technology
                                                                                  We took this product and put it in
                                                                             an elongated cabinet and added an
                                                                             extra jackpot, taking the total to six.
                                                                             The new version is similar to a stepper
                                                                             but in video format with the top box
                                                                             separated from the main game.
                                                                                  The next game product we are
                                                                             about to release is our CineVision™
                                                                             product in a reel. Reels are getting
                                                                             more popular in Macau. Bally has
                                                                             definitely found a niche with
                                                                             this product that is strong for
                                                                             us and it is doing really well. The
                                                                             CineVision™ reel product will roll out
                                                                             at City of Dreams.
                                                                                  With the benefit of hindsight,
                                                                             is there anything you wish you had
                                                                             done differently in Macau?
                                                                                  If I had to do it again, I would do it
                                                                             exactly the same way. We came here
                                                                             in February 2006, just as the market
                                                                             was about to ramp up. We were
                                                                             focused on ensuring The Venetian
                                                                             Macao’s system implementation The Hot
                                                                                                                         Shot Progressive™ on Bally’s
                                                                             was as flawless as possible given its
                                                                                                                         CineVision™ widescreen
                                                                             scale, and we achieved that. On the cabinet has proved a hit in
                                                                             products side we built a good client Macau
                                                                             base in Macau, and later Asia, with
                                                                             Blazing 7s™, Hot Shot Progressive™ and Quick Hit™, and built up a
                                                                             lot of confidence in Bally and our products.
                                                                                  One of the most difficult parts of our Macau expansion was
                                                                             growing our personnel. We were busy hiring at the same time as our
                                                                             customers were ramping up their businesses—I would have liked a
                                                                             bit more breathing space there, but in the end it worked out well. We
                                                                             have a great team.
                                                                                  Labour continues to be the number one concern for all of us.
                                                                             Right now, Bally is where we need to be: we have 26 team members,
                                                                             most of which are Macanese in keeping with our desire to be a strong
  Reel Money™ is available on the new CineReels™ platform, an award-         Macanese-built business. If we had to grow, adding to the team may
  winning stepper product based on the CineVision™ cabinet. Reel             become a challenge.
  Money™ is a five-level “game-in-game” progressive slot that offers              At the moment we have some breathing space, and as long as
  players a chance to win all five progressive jackpots with just one spin   engineers keep coming out of the universities, I think we’ll be all right.
36 INSIDE ASIAN GAMING | November 2008
                                    The Case
                                  for Integrated
    Andrew MacDonald and William R Eadington provide an insight into the evolution of the
                            concept of “Integrated Resort”

         ne of the latest buzzwords that has come into general
         usage in the world of legal gambling is that of “Integrated
         Resorts” (or “IR’s” as they are sometimes known). The notion
of Integrated Resorts came into prominence with the bid process for
the two Singapore Casino licenses. The Singaporean government as
early as 2004 made it quite clear that what they did not want was
“just” casinos or resort facilities dominated by their casino operations,
so they mandated that only a very small proportion of the actual
physical facilities would be for casino utilization. The rest would
be support facilities and consumer oriented amenities that would
dominate the developments. The Singapore authorities therefore set
up a licensing structure that mandated that less than ten percent of
the gross floor area would be for casino use—the rest would be for
hotels, theatres, convention centres, theme parks, museums, retail,
and food and beverage offerings.
     The concept of Integrated Resorts is in reality nothing new in
the world of gaming. Singaporeans were requesting international
world class developments combining elements already found in
other major casino developments such as the Crown Entertainment
Complex in Melbourne, Australia; The Venetian and Palazzo in Las
Vegas; The Atlantis on Paradise Island in the Bahamas; Genting
Highlands outside of Kuala Lumpur in Malaysia; or the Grand West
Casino in Cape Town, South Africa, just to name a few.
     At present, many operators claim to have the first Integrated
Resort in their region, but arguably the mid-20th century Nevada
developer Jay Sarno can lay claim to the distinction of being the first
to establish this type of facility. Caesars Palace—which Sarno opened
in 1966—ushered in a new era for Las Vegas casino facilities. Caesars
acted as a critical catalyst for the more diversified styles of casino
resorts that were to follow. Sarno built the Circus Circus Casino which
                                                                            Jay Sarno can lay claim to the distinction of being the first to establish
opened two years later as a heavily themed family resort which              an Integrated Resort, with the opening of Caesars Palace in 1966.
continued the transformation of the Las Vegas Strip and served as an        Circus Circus Casino soon followed
                                                                                                                  November 2008 | INSIDE ASIAN GAMING    37
  In Focus

  additional model for future developments. Along with Caesars Palace,
  it brought about a significant shift in the composition and profile of
  Las Vegas visitors that has continued over the past four decades.
  While Caesars and Circus were still principally “casinos,” they were no
  longer just centred on gambling but also offered much more in the
  way of non-gaming amenities to their guests.
       Today’s concept of Integrated Resort has come a long way since
  those first resort developments. The Mirage in Las Vegas—which
  Steve Wynn opened in 1989—had capital costs of around US$630
  million. Many Wall Street analysts and other industry observers
  felt that this was far too ambitious a project to succeed and would
  never provide a reasonable return on investment. Of course, Steve
  Wynn proved his critics wrong, as The Mirage demonstrated the
  attractiveness and revenue generating capabilities of non-gaming
  amenities to diverse audiences who are interested in more than
  “just gambling.”
       Integrated Resort developments at the present time might
  cost US$4 billion or more, and include facilities and amenities that
  create virtual “cities of entertainment.” These new style resorts also
  change the landscape around them by spurring complementary
  developments and even enhancing the interest amongst some to
  have residences in close proximity to them. Thus they can become
  substantial hubs of economic activity and catalysts for further

  Defining “Integrated Resorts”
       The scale and mix of amenities and assets as well as their ability
  to act as catalysts that can transform a region’s economy are what
  makes such developments distinct from traditional casinos and
  casino-hotel complexes. How should one define an Integrated Resort,
  and what outcomes can typically be expected when such a facility is
  developed in a region?
       An Integrated Resort is really a euphemism for a very large scale
  entertainment development based around a casino. The casino
  component, while physically small, must still act as the primary            With the opening of The Mirage in Las Vegas, in 1989, Steve Wynn
                                                                              gave birth to the modern day Integrated Resort
  economic engine which drives overall returns and facilitates
  investment in other facilities and amenities. Thus the casino element       showrooms, nightclubs, golf courses, spas, wild animal exhibition
  must be of such magnitude and importance that it can generate               areas, art galleries, amusement parks, and retail shopping malls. A
  over half of the development’s annual cash flow. With capital costs         new trend, yet fully tested, is the integration of mixed-use tourist
  associated with Integrated Resorts at, say, US$4 billion, such a facility   accommodation units into Integrated Resort complexes, on the
  would need to generate at least US$500 million in EBITDA (Earnings          belief that a certain proportion of the population will want to live
  Before Interest, Taxation, Depreciation and Amortisation) to be viable.     or have second residences in close proximity to such attractions.
  Even with the casino occupying less than ten percent of the gross floor     Thus, many new Integrated Resorts are incorporating apartments,
  area, it has the capability to generate a disproportionate contribution     condominiums, time-share units and other residential hybrids to the
  to EBITDA so that substantial investments can be made in non-gaming         mixed-use master planning of such developments.
  facilities that might not be otherwise sustainable. With the casino as          However, to create a modern Integrated Resort, it must be
  the nucleus, the structure of the rest of the Integrated Resort may         developed proportionate to the demand that can be generated
  be developed. This could include a sizeable hotel development (15           in the market where it is located. It is important to note that most
  of the 20 largest hotels in the world are affiliated with “mega-casino”     gambling markets are local; they rely on the demand created from
  projects located within a two mile radius along the Las Vegas Strip)        within a catchment of about one hundred kilometres drive time.
  of at least 1,500 rooms and would also likely include significant space     There are, of course, some exceptions to this guideline, such as Las
  for conferences and conventions.                                            Vegas and Macau, but for the great majority of gambling markets in
       As with any development planned for so many visitors, an array of      the world, their primary clientele are local or regional residents.
  food and beverage outlets and facilities are needed as complementary
  amenities. The range and breadth of restaurant and lounge offerings         Planning an Integrated Resort
  create an even greater magnet effect that can enhance the overall               In planning an Integrated Resort, there is little point in just putting
  appeal of a venue and allows for even more facilities to be added.          a pin into a map and drawing concentric circles to determine the
  Other non-gaming assets that might be considered include cinemas,           number of individuals who live within three, four or five hours flying
38 INSIDE ASIAN GAMING | November 2008
                                                                                                                                        In Focus

or driving time of a location. Dropping such a pin almost anywhere        be important to consider the number and style of hotels within the
in Asia can result in hundreds of millions or even billions of people     vicinity of the IR that can cater to business travellers.
being located within the area.                                                 Overall, this iterative and holistic approach should produce an
     Market and feasibility studies are essential in creating the         Integrated Resort model which fits within its location, community
appropriate sizing of any IR development under consideration. Such        and region. While it is important to think of the local catchment area
studies should focus on those segments of the population who have         as a critical component of this exercise, contributions to revenues
the means and interest to participate in the kinds of resort activities   and operating income can also come from more distant visitors, and
being contemplated. As the primary economic engine, it is important       visitors who are interested in other IR attributes besides the casino.
that adequate attention is given to the casino segment and the            Based on the experience of Las Vegas, when dealing with a true
returns likely to be generated from this portion of the operation.        Integrated Resort, it is possible that only about half of the total revenue
Gravity models that take into account the local population may be         generated will come from casino operations. The remainder will be
essential to determine base-line revenue generation potential and         driven largely by people staying in the hotels, attending conferences,
income contributions from the casino. This                                conventions, events, or theme park activities. Depending on the
     Gravity models also take into account the impact of increasing       general attractiveness of the venue and its supporting infrastructure,
distance from a location on the number of trips made per capita and       much of the non-gaming spend at the IR will be derived from people
also the size of the trip budget. It has been found that as distance      outside of the local catchment area and will support the direct new
increases, the number of annual per capita visits decreases so that       investment being made into the project.
when distance above a threshold level is doubled—visitation rates              To illustrate this point, one can note that the major IR mega-
drop by roughly three-quarters, when the distance is quadrupled—          casino resort properties on the Las Vegas Strip now derive around
visitation rates drop by fifteen-sixteenths, etc. At the same time the    sixty percent of their revenues from non-gaming amenities. The
gaming budgets of individuals who travel long distances to an IR          Atlantis on Paradise Island in the Bahamas generates over seventy
increase dramatically—as such trips are considered more as special        percent of its revenues from non-gaming facilities. At Sun City in
purpose gaming trips, so individual visitors budget accordingly.          South Africa, seventy percent of total revenues also come from non-
     Defining these models carefully will provide an indication of        gaming sources. In other markets, non-gaming contributions as a
how many visits a particular location might generate and what level       percentage of total revenues tend to be less significant. However,
of income the economic engine provided by the casino is capable           the ratio is sometimes skewed by casino revenues that are driven by
of producing. If this simple base-line modelling does not result in       relatively few international high-end customers who are attracted to
predictions of a gaming market above US$300 million per annum,            the Integrated Resort as a consequence of the grandeur and scale,
then it is unlikely that a true stand-alone Integrated Resort could be    or because of aggressive marketing strategies in combination with
developed. On the other hand, once that base-line model has satisfied     high quality facilities.
these threshold criteria, then it should be possible to add further            Initially the Singaporean authorities—as part of their bid
business and income streams generated from premium customers              process for the two IRs in Singapore—stipulated that no more than
and high-rollers.                                                         fifty percent of gross revenues could be derived from gaming. This
     Once the base-line size of the casino engine has been                requirement was later dropped in light of the recognition that
established, it is then possible to design the remainder of the
Integrated Resort. That too depends on the appropriate market
and feasibility studies being conducted. However, these become far
less important to the overall project, as sensitivities will be driven
largely by the success or failure of the casino component. That said,
one area where this statement may not be true is the development
of convention and conference facilities. Such concepts should not
be considered in isolation of what already exists in the market and
how the location of the IR is perceived by potential convention and
conference customers.
     Conventions of substantial scale require accessibility and ease
of movement afforded by such locations as Las Vegas or Orlando.
Flight access and location of the airport relative to the convention
facilities and hotels are high in importance in determining relative
attractiveness, as is the overall appeal of the destination. Convention
and conference organisers are usually driven by the potential for
a venue to maximize attendance for their events. Consistent with
this objective is a desire for environments that can accommodate
conference needs in terms of size and mix of amenities, as well as
offering a vibrant night life for after-hours networking to take place.
Furthermore the stock of hotels at or near the location becomes
of critical importance. No single hotel can accommodate all the
delegates of many major conferences and conventions held today            The Grand Wailea, in Maui, serves as an example of the difficulties an
and thus, while an Integrated Resort itself may be sizeable, it will      Integrated Resort without successful casino operations must cope with

                                                                                                               November 2008 | INSIDE ASIAN GAMING   39
  In Focus

  significant casino revenues could be generated from international          opportunities. The development of a multi-billion dollar resort takes
  tourists. (From Singapore’s perspective, such revenues would be            a minimum of two years and is likely to extend to three or more years
  beneficial to the City-State as sources of foreign exchange and            when planning is included. The extent of local economic impact will
  “export services, as well as import substitution that would create “net    be related to the amount of local labour and resources utilized in
  economic impact” for Singapore).                                           planning and construction, as well as the extent to which the local
       Thus a successful casino operation as the nucleus of an Integrated    region can cater to the demands of those employees and resource
  Resort is essential to the process of developing a proposed multi-         owners earning higher incomes from the project. Depending on the
  billion dollar development. Indeed it is difficult to think of many        construction environment, much of the construction budget will be
  resort projects—with billions of dollars invested and at risk—where        spent locally, although there will be some leakage, depending on the
  such an important economic contributor is not included. The failure        materials being used and the capabilities of local construction firms.
  in the early 1990s of two multi-hundred million dollar non-casino          In general, however, it would not be unusual to see around forty
  integrated resort projects in Hawaii—the current Grand Wailea in           percent of the construction budget being spent locally with seventy
  Maui and the Waikoloa on the Big Island of Hawaii—point out the            percent of that generating local incomes and employment.
  challenges of success without such an engine.                                  If an appropriate income multiplier was around 1.4, the total
       In summary, a reasonable working definition of an Integrated          economic effect of an IR project meeting the above parameters
  Resort is: A multi-billion dollar multi-dimensional resort that includes   would be about forty percent of the construction budget. In other
  a casino that takes up, say, no more than ten percent of the resort’s      words, local incomes in aggregate could be expected to increase by
  public floor space, but where the casino generates at least US$300         about 40% of the magnitude of the entire project over the course of
  million in gaming revenues.                                                the construction phase. Taking average labour costs into account, it
                                                                             would then be possible to estimate the annual number of jobs created
  Economic benefits and the development                                      and the impact on full time equivalent labour during construction—
  of Integrated Resorts                                                      both of which can be very meaningful to a local community.
      With any development involving capital in the billions of US               Of course it is the actual opening of the Integrated Resort
  dollars there are going to be a number of wide ranging economic            that generates the greatest flow of economic benefits. Integrated
  benefits and multiplier effects accruing to the region. The first round    Resorts tend to be labour intensive, requiring large numbers of staff
  comes from the construction contracts and the related employment           to service the various facilities and activities on offer to customers
                                                                             and guests. This number can exceed ten thousand direct full time
                                                                             equivalent employees, depending on prevailing wage rates and
                                                                             other factors. The casino in particular can be a major contributor
                                                                             to employment with anywhere from five to seven employees per
                                                                             table game. In Asia particularly—where table games are the most
                                                                             popular form of casino entertainment—an IR casino might have
                                                                             five hundred or more table games with thirty five hundred or more
                                                                             staff just in that department.
                                                                                 The diversity of job opportunities within an Integrated Resort
                                                                             can be surprising to outside observers. However, an IR should be
                                                                             viewed as a small township with a multitude of roles required to
                                                                             maintain its operation. It is not unusual for there to be one to two
                                                                             hundred different positions within the entire complex, ranging from
                                                                             accountants and attorneys to, in some cases, zoologists and marine
                                                                             biologists. Direct employment of this magnitude induces a multiplier
                                                                             effect in the local community with additional jobs created to service
                                                                             the employees of the IR. Depending on the extent of economic
                                                                             development in the region, the increase in jobs and incomes deriving
                                                                             from employment at the Integrated Resort can be very large indeed.
                                                                             An employment multiplier of 1.5, for example, would result in an
                                                                             additional five hundred jobs for every thousand full time jobs created
                                                                             within an Integrated Resort. This sort of impact on a local community
                                                                             can be of great significance and should not be underestimated.
                                                                                 There are few industries that can provide quality employment at
                                                                             this level of scale in one location. The Crown Entertainment Complex
                                                                             in Melbourne, Australia is an example of an Integrated Resort casino
                                                                             opened in 1997 that can boast of being the largest single site
                                                                             employer in the Southern Hemisphere.
                                                                                 Another significant impact of IR developments is the amount
                                                                             of consumable items required on a daily, monthly and annual
                                                                             basis to satisfy staff and guests. Operating expenses, maintenance,
  The Venetian in Las Vegas                                                  marketing and cost of goods sold will be substantial cost elements
40 INSIDE ASIAN GAMING | November 2008
                    “Singapore, when it decided to establish two Integrated Resorts          In Focus
         in the City-State, did so on the basis of the potential visitor impacts and the positive
         effects they would have on Singapore’s economy as well as its image. Singapore’s
         goal was to triple its tourist numbers over a period of twelve years and to more than
                  triple the resulting economic impact by attracting higher spending
          and thus higher value visitors to that country. When they open in 2010 or 2011, the
              two IRs will be critical in achieving that objective and will likely contribute
                     more than fifty percent to Singapore’s long term goal by 2015.”

of which a significant proportion will be purchased locally                 impact by attracting higher spending and thus higher value visitors
or regionally, depending on the conditions prevailing in the                to that country. When they open in 2010 or 2011, the two IRs will be
regional economy. Supply chain benefits and clustering effects              critical in achieving that objective and will likely contribute more
can be substantial in creating new business and employment                  than fifty percent to Singapore’s long term goal by 2015.
opportunities within a region.                                                   Another benefit of such developments is the regenerative power
     Perhaps the most significant economic impact from the                  successful large scale Integrated Resorts can have on their particular
development of an Integrated Resort is visitor impact. An IR located in     locales. Such effects might include transportation infrastructure
a capital city such as Singapore or Melbourne, or even those close to       upgrades to the venue to cater to the visitors expected to be drawn to
population centres such as Foxwood’s or Mohegan Sun, can generate           the area, as well as improvements in general facilities and amenities
significant visitor numbers sometimes exceeding ten million per             for guests as well as locals. A gravity effect of sorts also occurs with
annum (implying an average of upwards of 30,000 visitors per day.)          complementary leisure and entertainment facilities that might be
Depending on location and the actual type and range of facilities           developed nearby, as well as new hotel and apartment developments
offered, this may well result in millions of additional tourists visiting   at different price points.
the region, resulting in incremental spend in the local communities              Urbanisation in general leads to many mixed-use developments
as these visitors take tours, eat in local restaurants and stay at local    in and around cities, but this can be accentuated around Integrated
accommodations (outside the IR) and spend time and money                    Resorts due to the extent and range of leisure options that can be
outside the Integrated Resort. At Genting Highlands in Malaysia, for        afforded under one roof. A multi-billion dollar IR can stimulate
example, it is estimated that approximately three million people visit      billions of dollars of additional developments within the local region
the country annually specifically to visit the Resort. This represents      as businesses and accommodation options cluster around the site.
around fifteen percent of total international visitors to Malaysia.              An excellent example of this can be found around the Crown
     Singapore, when it decided to establish two Integrated Resorts in      Entertainment Complex on the Southbank of the Yarra River in
the City-State, did so on the basis of the potential visitor impacts and    Melbourne. In 1993, prior to development of the A$1.7 billion Crown
the positive effects they would have on Singapore’s economy as well         Complex, the neighbourhood was largely a derelict and abandoned
as its image. Singapore’s goal was to triple its tourist numbers over a     industrial area. Within a decade after the opening of Crown, the
period of twelve years and to more than triple the resulting economic       Southbank had become one of the most attractive commercial,
                                                                                                                November 2008 | INSIDE ASIAN GAMING   41
  In Focus

  residential, and entertainment areas in all of Melbourne, with capital     provinces empowered to authorize casino-style gambling, is to reach
  investments in excess of A$10 billion within two kilometres of the         the understanding that their policy alternatives are NOT a question of
  Crown site.                                                                Integrated Resorts versus no gambling whatsoever. Rather, they have
       Some casino operators such as MGM Mirage have created                 a choice between permitting alternative structures, styles and types
  master planned precincts such as their CityCenter development              of gambling industries that have markedly different economic and
  on the Las Vegas Strip. In a similar manner, Las Vegas Sands and its       social impacts. By virtually any measure, the concept of Integrated
  majority owner Sheldon Adelson—and some other companies—are                Resort best harnesses the benefits associated with their alternatives,
  developing the Cotai Strip in Macau as a massive series of Integrated      while (potentially) reasonably constraining the unintended negative
  Resorts, with aggregate capital investments in the range of US$12          impacts. Carefully developed legislation and implementation, which
  billion in the form of branded hotels, entertainment offerings, and, of    seems to be the case for Singapore, will prove far more benevolent
  course, casinos. Other situations have developed over time to bring        in the long run than the haphazard and opportunistic approaches
  about Integrated Resorts in less planned ways. The massive organic         that have been undertaken by many countries, states and provinces
  growth of Genting Highlands, outside Kuala Lumpur in Malaysia,             over the past few decades. Such alternatives, such as permitting the
  which now boast over 10,000 hotel rooms (the largest concentration         proliferation of electronic gaming devices in arcades or bars and
  under single ownership in the world) has resulted in an entertainment      taverns (so-called “convenience gambling”), limits the economic and
  complex with indoor and outdoor theme parks, convention and                catalytic power that might be associated with Integrated Resorts.
  conference facilities, as well as over two hundred retail, food and        Furthermore, the ability to control for excessive or problematic
  beverage outlets. While less structured in its evolution than other IRs,   gambling through exclusionary strategies is far more difficult for
  it is nonetheless important to appreciate from Genting Highlands           convenience gambling than it can be for highly regulated and
  what can be developed off the back of casino led expansions.               cooperative Integrated Resorts.
       The positive annual impact from Integrated Resort developments            It will be interesting to see which countries will be next to
  can indeed be substantial. Estimating the economic potential of            accept and act upon these scientific observations, by harnessing
  these IRs will depend on the unique situations established within          the economic potential that Integrated Resorts promise with
  each locale and legal situation. However, it is often the case that such   thoughtful and effective legislation and implementation. Among the
  developments can become the most significant that any locale will          candidates to watch in the immediate future will be Mexico, Japan,
  have seen from a single activity, and can have impacts in excess of        Taiwan, Thailand, and Vietnam, and even perhaps (but with lower
  the holding of the Olympic Games or sponsoring a World’s Fair or           probabilities) Dubai, Abu Dhabi, India, or somewhere in China other
  some other spectacular event of worldwide significance.                    than Macau. The high potential of success of IRs in Singapore will
       It becomes easier for affected parties and stakeholders to            no doubt be an important example to other governments and may
  understand the changes that the development of an Integrated               indeed set the stage for the next major direction in the spread of
  Resort can bring to a government and community once the                    legal commercial gambling.
  quantitative and qualitative impacts are released and understood.
  These multi-billion dollar developments can generate thousands                 Andrew MacDonald is founder of urbino.net and is also
  of jobs, regenerate regions, and stimulate much broader economic           Executive Vice President of Genting Berhad. He can be reached at
  activity, as well as bring about substantial returns from gaming taxes,    andrew.macdonald@genting.com
  fees and initial license costs. One need only look at the fiscal and           Bill Eadington is a professor of economics and director of the
  economic impacts that have accrued in Macau in several short years         Institute for the Study of Gambling and Commercial Gaming at
  to understand these fundamentals, or to analyse what Singapore is          the University of Nevada, Reno. He is an internationally recognized
  achieving and will likely experience in the next few years with the        authority on the legalization and regulation of commercial gambling,
  Genting International development at Sentosa Island and the Las            and has written extensively on issues relating to the economic and
  Vegas Sands development at Marina Bay.                                     social impacts of commercial gaming. Eadington can be reached at
      Because of their relative economic and social benefits and costs,
  the attractiveness to countries and jurisdictions of the strategy
  of authorizing substantial Integrated Resorts, in comparison to
  legalizing other forms of gambling, such as gambling-centric
  casinos that do not require other amenities, or convenience
  gambling outlets such as arcades filled with slot machines, will
  likely become a popular option in the future. Such efforts will have
  to be accompanied by specific limitations on the number of licenses
  issued, as well as other protections against regional competition,
  which will create an environment conducive to the substantial
  capital investment levels desired. This will obviously not work well
  for every jurisdiction that would like to go forward with this kind of
  strategy, but it can work if the underlying economic, political, and
  social circumstances permit it.
      The major conclusion for national governments, or for states and       The Atlantis on Paradise Island in the Bahamas

42 INSIDE ASIAN GAMING | November 2008
November 2008 | INSIDE ASIAN GAMING   43

  Regional Briefs
                                                                             October amounted to 8.9 billion patacas (US$1.1 billion), down 3.5%
                                                                             from the same month last year. It was the second consecutive month
                                                                             of year-on-year declines in casino revenue, with September seeing a
                                                                             0.8% contraction, which came in stark contrast to the 51.6% year-on-
                                                                             year growth in revenues over the first eight months of the year.
  Singapore Government Working to Avoid Resort Delays                             According to a report in Hong Kong-daily South China Morning
       The Singapore Tourism                                                 Post, the sharp slowdown is almost entirely due to declining revenue
  Board (STB) said it was working                                            and betting volumes from VIP gamblers in Macau’s private baccarat
  with the developers of two                                                 rooms, resulting from increasingly stringent government restrictions
  casino resorts in the city-                                                on visitors from the mainland.
  state to resolve any potential                                                  A report from Citigroup outlined a bearish outlook for the sector.
  delays and facilitate their                                                It stated: “The next negative catalyst for Macau will come from the
  completion. In a statement                                                 commission caps expected by year end. This should affect those
  issued to the press, STB said                                              operators who have started to extend credit to junkets and [should]
  it was “aware that the current                                             also drive down junket rebates to VIPs.”
  uncertain economic climate                                                      The government announced it would impose a cap on
                                     Rendering of Marina Bay Sands
  may give rise to concerns on                                               commissions on VIP chip sales at 1.25%, down from the current
  the opening” of the casinos and was monitoring the situation.              maximum of as high as 1.4%. Although the cap would improve
       The statement followed a report in The Straits Times newspaper        casinos’ currently wafer-thin margins, analysts fear it would lead to
  that Marina Bay Sands, which is being built by Las Vegas Sands Corp        a further decrease in VIP gaming revenue, as it would reduce the
  (LVS), may not open fully at the end of next year, as scheduled.           amount of credit and the size of rebates that junkets were able to
       The report also said that Resorts World at Sentosa, the second        offer to players.
  casino resort which is being built by Malaysia’s Genting International,
  was in talks with the government to defer the opening of some
  facilities.                                                                Weike Announces New Cabinet Range
       LVS and Genting both said their projects were on track to open
  as scheduled.
       “STB has been informed by Marina Bay Sands and Resorts World
  that they expect the respective IRs (integrated resorts) to open in
  2009 and 2010 respectively,” the tourism board said.
       “Together with key agencies, we are working closely and are in
  regular dialogue with both companies to resolve any potential delays
  that may arise, and to facilitate the completion of the projects.”
       Singapore hopes the integrated resort complexes, which will also
  include hotels, convention centres, family attractions, restaurants        The new WP30 cabinet
  and shops alongside the casinos, will boost the city-state’s appeal to
  foreign tourists.                                                              Weike Gaming Technology, Singapore’s only licensed Gaming
                                                                             machine manufacturer, has announced the impending market
  Online Gambling Bust                                                       launch of a new range of cabinets for its WP30 gaming platform.
       Agence France Presse reports that South Korean prosecutors            Commenting on the launch, David Kinsman, Weike Gaming’s CEO,
  have busted an online gambling ring operated by Koreans from               said: “This new range of cabinets is our first major product upgrade
  Manila, the Philippine capital. Officials said the operation earned        for the WP30 platform launched earlier this year. We have designed
  some US$100 million over 18 months until it was busted in August.          a new range of cabinets to meet client requirements across the
       The Seoul Central Prosecutors’ Office said four South Koreans         Asian market, and deliveries will commence in December 2008, with
  have been charged. Two others have fled abroad but prosecutors will        the first of this new range being delivered to a major Macau-based
  seek to have them extradited.                                              operator.”
       Online gambling is illegal in South Korea and regular gambling is         The new WP30 cabinets are available in both “Lowboy” and
  strictly limited, with only one of Korea’s 17 casinos open to locals.      “Hightop” versions and they accommodate all major monitoring
       The ring allegedly opened a casino in Manila in February last year.   and player tracking systems, include dual LCD screens with
  They hired 30 Filipino dealers and webcast baccarat games were             high quality touch screens, TITO, a range of Bill Acceptors, Dolby
  being staged at the casino to domestic online participants.                surround sound with stereo speakers and sub woofer,“Gamesman”
       In order to assure online gamblers they were taking part in real-     button panels and other client facilities and requirements across
  time games, the ring depicted CNN broadcasts in its online coverage.       Weike’s markets in Asia.
  Some online gamblers wired more than US$100,000 for a single bet.              “This new cabinet range was designed in-house by our product
                                                                             development team and heralds new standards of both quality and
                                                                             technical facilities,” said Mr Kinsman. “We have incorporated facilities
  Macau Casino Revenue Declines                                              for all markets in Asia, from Singapore through to Indochina and
      According to unofficial data, Macau’s gross casino revenue in          Macau. The cabinets come in a standard version without coin trays,
44 INSIDE ASIAN GAMING | November 2008
but for markets like Singapore where coins are still used, these are
available as a no-cost option. Weike’s WP30 imbedded Windows
platform incorporating “off the shelf PC technology” is further
enhanced by this new range” .

TST opens new lab in Macau
     Technical Systems Testing (TST) has opened a new laboratory
in Macau.
     The company said it indicated TST’s commitment to playing              The planned Manila Bay Integrated City
an increasing role in the global gaming market. The new facility
will allow TST to keep updated on modifications and updates to              partners say they expect to open Resorts World Casino (the same
gaming technical standards in Macau as well as other surrounding            brand name that Star’s parent Genting Group is using for its new
emerging Asian jurisdictions. TST’s Chief Executive, Salim L. Adatia,       Singapore casino) in 2009.
said that having a laboratory in Macau would speed up the testing               Japan’s Aruze, a maker of pachinko and slot machines and 22%
work the company already does on behalf of Asian gaming operators           owner of US gaming giant Wynn Resorts, was awarded a Philippines
and enable it to provide an enhanced service for new as well as             gaming licence in August. In a statement issued before the recent
existing clients. This includes Transfers of Approval (TOA)’s between       escalation in the global financial crisis, Aruze said it planned to invest
jurisdictions.                                                              up to US$2.5 billion in a casino resort, to be opened in 2010.
     TST has more than 15 years of experience and worldwide
recognition in the systems testing market and also maintains offices
in Vancouver Canada, Sydney and Melbourne in Australia and                  Taiwan Cool on Casinos?
London, UK.                                                                     A senior Taiwan politician claims his fellow countrymen are not
                                                                            yet ready to accept casinos.
                                                                                The comments were made in an interview published in the
China Demand Rising                                                         Chinese-language Macao Daily News with Jason Hu, mayor of
    PacificNet, a provider of gaming and mobile game technology             Taichung, Taiwan’s third largest city.
with a focus on emerging markets, says it is seeing “impressive”                Mayor Hu was responding to reports that several foreign investors
growth opportunities in Mainland China and Macau, despite the               were interested in developing a casino resort in the Chennan area of
global economic downturn.                                                   Taichung County, on the northwest coastal plain of Taiwan.
    “We are seeing steady demand for our products in games, gaming,
mobile and e-commerce,” Victor Tong, PacificNet’s chief executive,
told the Asian Gaming Investor conference in Singapore.                     City of Dreams Faces Delay
    Attendees at the conference included Asian Coast Development                 Melco Crown Entertainment has been tipped to delay the opening
Ltd. (ACDL), the company behind the Ho Tram Strip project in                of its US$2.4 billion casino and hotel project by three months amid
Vietnam. Other bodies represented included: First Cagayan; PhilWeb;         a downturn in the world’s largest casino market, reports the Sydney
eCOGRA; International Masters of Gaming Law (IMGL); Sovereign               Morning Herald.
Group; AsianLogic; Spectrum OSO Asia; Nagacorp World; Orient Pearl               A gaming analyst at Merrill Lynch, Daniel Renshaw, said in a recent
Entertainment & Management; Asian Poker Tour; Globalysis; iFaFa,            note to clients that the 1,400-room hotel and 500-table casino was
and the China Center for Lottery Studies.                                   likely to be unveiled on July 1, instead of at the beginning of April.
                                                                                 According to the note, Melco Crown does not want a repetition
                                                                            of its experience with its first casino-hotel project in Macau, which
Manila Bay Casino Project on Target                                         opened in May last year without all its gambling rooms in operation.
    Newport City, the US$1.55 billion casino, hotel, entertainment          City of Dreams has experienced cost blow-outs during construction
and retail complex planned for Manila in a joint venture between                                                       and is facing difficult gaming
Star Cruises and Philippines entrepreneur Andrew Tan, is reportedly                                                    conditions.
on target with its funding.                                                                                                 When complete, City of
    Mr Tan said in an interview with a local newspaper that a significant                                              Dreams will boast a 420,000
proportion of his USD1 billion contribution had been raised through                                                    square foot casino with
the preselling of real estate at another project in Manila developed                                                   over 550 gaming tables and
by his property company Megaworld.                                                                                     1,500 gaming machines. It
    He said 70% of the 4,000 condominiums there had been presold.                                                      will also eventually include
The rest of the cash will come from selling or leasing ten office                                                      approximately 2,200 guest
buildings also on the site, and through cash flow from his various                                                     rooms and a wide range of
business interests.                                                                                                    dining and entertainment
    Mr Tan, the son of a Chinese factory worker, was recently listed                                                   options.
as the fourth richest man in the Philippines by Forbes Asia. He said
construction on Newport City is continuing around the clock. The                                                       City of Dreams rendering

                                                                                                                 November 2008 | INSIDE ASIAN GAMING   45

  International Briefs
                                                                             dining and retail complex.
                                                                                  “On the positive side, these announcements show that the banks
                                                                             are willing to work with MGM Mirage to relieve potential balance
                                                                             sheet pressure,” Goldman Sachs gaming analyst Steven Kent said in
                                                                             a note to investors. “However, the credit facility amendment is also a
                                                                             potential signal that MGM Mirage will likely increase the leverage on
  Anti-Piracy Alliance Formed                                                its balance sheet and operating conditions remain challenging.”
      To address an increase of piracy in the gaming industry, the major
  industry players have come together to form a Gaming Industry              Bermuda Challenge for Macau Investors
  Piracy Alliance (GIPA), providing a structure through which members
  can jointly participate in the enforcement of intellectual property
  rights and other anti-piracy activities and initiatives.
      Aristocrat Technologies Australia Pty Ltd, WMS Gaming Inc,
  International Game Technology, Austrian Gaming Industries GmbH
  a 100% subsidiary of Novomatic AG, Bally Technologies Inc, Konami
  Gaming Inc, SPIELO Manufacturing ULC, Progressive Gaming
  International Corporation and ATRONIC International have now
  joined forces to carry out investigative and other operations targeting
  piracy on an international scale.
      The regions that this group’s anti-piracy efforts are targeting
  include North America, South America, Asia, Central and Eastern
  Europe (CEE Countries) and the Middle East.
      “GIPA members expend significant resources in creating
  intellectual property.       The formation of GIPA demonstrates
  the importance we place on protecting those valuable assets”           ,
  commented Orrin Edidin, President of WMS Gaming Inc.                       Bermuda beaches could offer a potent draw to casino-goers
      Over the last two years, members of the alliance have successfully
  commenced criminal and civil proceedings in various countries                   Last time we checked, Bermuda was not a part of Asia. We mention
  worldwide against persons known or suspected of product piracy             this tiny Atlantic outpost of what remains of the British Empire,
  and intellectual property theft.                                           because it’s talking about getting into the gambling business.
      These proceedings have resulted in court orders and raids that              This could have a direct impact on some of Macau’s Las Vegas
  have permanently shut down a number of international pirate                investors, as Bermuda is only 650 miles and two hours’ flying time
  operations.                                                                from the east coast of the United States. It’s also tax-free, imposing
      With the formation of this anti-piracy alliance, the global gaming     a levy only on payroll count and an annual licensing fee on each
  industry will be able to aggressively act against offenders.               business.
                                                                                  Ewart Brown, the premier of Bermuda, told the BBC during a
  Most CityCenter Financing Secured                                          visit to London that his government was doing a feasibility study on
      MGM       Mirage     told                                              introducing casino and online gaming.
  investors last month that                                                       Mr Brown said it was in response to the global financial crisis
  it had secured most of the                                                 that has walloped Bermuda’s two main industries, namely offshore
  remaining US$3 billion in                                                  financial services and tourism. If things don’t work out with gaming,
  financing for its massive                                                  Mr Brown could always seek out his British namesake Gordon Brown
  CityCenter development.                                                    for a cash handout. Bermuda is still officially an overseas territory of
      In a statement, the                                                    the UK.
  company said it had                                                             Expect the incoming administration in Washington DC to take a
  secured a $1.8 billion senior                                              close interest in developments. Given that the United States is by far
  bank credit facility, which    CityCenter                                  Bermuda’s largest trading partner, providing more than 71% of total
  matures in April 2013.                                                     imports and 85% of tourist visitors, then lobbyists from Atlantic City
  The facility is expected to be increased to $3 billion as additional       and Las Vegas will have a strong hand should they wish to complain
  commitments are received. MGM Mirage Chief Financial Officer               to Capitol Hill.
  Dan D’Arrigo said CityCenter, which has a budget of $9.2 billion, has
  received additional signed commitment letters totalling more than
  $500 million.                                                              ATRONIC and Cantor Extend Cooperation
      Although the share price of MGM mirage has tumbled in line                 ATRONIC Group, a leading global slot machine manufacturer,
  with its industry peers, the company has alleviated a significant          has extended its cooperation with Cantor Gaming for exclusive
  question concerning CityCenter, which is expected to open next             use of the former’s games on online and mobile platforms. This
  year. The development has a 4,000-room hotel-casino centerpiece,           includes popular ATRONIC slot games, such as the classic SPHINX™
  boutique hotels, high-rise residential and an entertainment,               theme. Currently SPHINX can be played in casinos across 80
46 INSIDE ASIAN GAMING | November 2008

countries and is a highly popular game in Las Vegas and Atlantic             IGT has been exploring other areas for cutbacks.
City, says ATRONIC.
    In addition to an extensive library of popular games, the ATRONIC     William Hill Joins Forces With Playtech
portfolio includes dynamic casino management and linked gaming                 The Guardian newspaper
solutions.                                                                reports that UK-based William Hill
    Cantor Gaming is quickly becoming a major player in the online        has bolstered its underperforming
gaming industry thanks to a comprehensive range of popular                internet operations by joining
launches. The two companies said in a statement that the deal makes       forces with online gaming
CantorCasino.com a “one-stop shop” for gaming enthusiasts.                software giant Playtech.
    Cantor Gaming is an affiliate of the global financial services             Playtech will take a 29% stake
company Cantor Fitzgerald. Its games portfolio includes exclusive         in a new online gaming and
products such as Statjack™, the new card counting blackjack game,         sports betting operation, William
as well as XtraOdds Baccarat™, Cantor Financial Odds™ and Bonus           Hill Online, in return for folding in US$250m worth of newly acquired
Roulette™.                                                                affiliate businesses with a strong supply of customers as well as
                                                                          ‘marketing and customer retention expertise’.
                                                                               William Hill, which will put its existing online assets into the
Taiwan Games for Europe                                                   joint venture, will own the rest of William Hill Online and have full
     International Games System (IGS), a developer of arcade hardware     operational control of it, retaining an option to buy out Playtech’s
and software and an operator of online games in Taiwan, will begin        share in four or six years’ time. It has also agreed to use Playtech’s
shipments of arcade gaming machines in small volumes to clients in        software for poker and casino games for at least five years.
eastern Europe this month, the company said in a statement.
     IGS added in a market analysis note that eastern Europe,             CryptoLogic Teams Up With PartyGaming
including the Czech Republic, Poland and Romania, has an                       CryptoLogic, a software developer to the global Internet gaming
estimated 200,000 to 300,000 arcade gaming machines, mainly               market, signed a five-year licensing agreement with PartyGaming
AWP (amusement with prize) models, and an annual replacement              Plc, one of the world’s largest online gaming operators.
rate estimated at 50,000 to 100,000 units. IGS expects its total               CryptoLogic will initially provide PartyGaming with a suite
arcade gaming machine shipment volumes in 2009 to grow by                 of its popular branded casino games from the first quarter of
20-30% compared to 2008. Most of the growth will be as a result           2009. PartyGaming has declined to comment on reports that
of its eastern European exports.                                          it may team up with CryptoLogic as a software partner for its
     Operation of online games will account for 38% of IGS’s 2008         successful PartyPoker platform. However, CryptoLogic has made
revenues, the company indicated. IGS says it has expanded its             no secret of its desire to increase its poker player liquidity and
research and development team and plans to offer online games             to mitigate its development costs by doing a new deal with an
developed in house in the fourth quarter of 2009.                         operator of scale.
                                                                               Last month, it was announced William Hill was ending its nine-
                                                                          year gaming software partnership with CryptoLogic in favour of a
Investors Focus on IGT Cost-Cutting                                       deal with London-listed Playtech. CryptoLogic points out though
     IGT’s earnings in the third quarter of 2008 were US$52 million,      that PartyGaming is its ninth new sign up this year.
down almost 50% from the $123 million reported in the same quarter             Under the deal, PartyGaming has the option to offer further
a year ago. A large part of the lower earnings were attributable to       CryptoLogic-powered casino games to its customers.The agreement
write-downs on investments, with revenues only down 4.7% to $632          was made through WagerLogic Ltd, a wholly owned subsidiary of
million in the third quarter.                                             CryptoLogic that licenses CryptoLogic software and services to
     For the 12 months of fiscal 2008, IGT reported revenues of US$2.5    leading gaming and entertainment brands.
billion, a 3.5% decline from 2007. The company reported profits of             “We are delighted to welcome PartyGaming as our latest
$342.5 million for the period, compared with $508.2 million the           partner. This is one of CryptoLogic’s biggest customer wins of the
previous year.                                                            year and an endorsement of the branded games element of our
     Investors had expected lower earnings, and were more focused         new strategy. It proves that when you combine great innovation and
on cost-cutting measures being carried out at the Reno-based                                                         excellent execution, you
company.                                                                                                             get expansion,” said Brian
     During a conference call with analysts and investors, IGT Chairman                                              Hadfield, CryptoLogic’s
and Chief Executive Officer TJ Matthews said the year had been one                                                   President and CEO.
of the most difficult in the company’s history. The company is focused                                                   Cr yptoLogic ’s
on cost reductions, including previously announced job reductions,                                                   customer list includes
that could result in $100 million in annual savings.                                                                 888.com, Sky Betting
     “We’re trying to be as gentle as possible with our employees,”                                                  and Gaming, Gaming
Matthews said. The company has offered a voluntary job separation                                                    Media Group (The Poker
program, which will be followed by involuntary layoffs. He hopes the                                                 Channel), Maharajah Club,
total number of job reductions from the company’s 5,400-person                                                       OPoker, Kurastica, Betjacks
work force will be determined by mid-November.                                                                       and Khel Galli.
                                                                                                             November 2008 | INSIDE ASIAN GAMING   47
  Events Calendar

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

         5 - 13, November 2008                                                      27-29, January 2009
         2008 Executive Development Program                                         The International Gaming Expo
         Lake Tahoe Casino & Resort, Lake Tahoe, Nevada.                            Earls Court, London, UK
         Organizer:   University of Nevada                                          Organizer:    Clarion Gaming
         Contact:     Judy Cornelius                                                Contact:      Emma Green
         Tel:         +1 (775) 784-1442                                             Tel:          +44 (0)20 7370 8585
         Email:       judyc@unr.edu                                                 Email:        emma.green@clariongaming.com
         Website:     http://www.gaming.unr.edu/edp/index.htm                       Website:      http://www.ige-exhibition.com

         18 - 20, November 2008                                                     24 - 26, February 2009
         G2E 2008                                                                   AIG Asian i-Gaming Congress & Expo
         Las Vegas Convention Center                                                The Venetian Macao, Macau, P.R. China
         Tel:         + 1-800-363-3631                                              Contact:      Jennifer Poon
         Email:       info@globalgamingexpo.com                                     Tel:          +852 2219 0111
         Website:     www.globalgamingexpo.com                                      Website:      http://www.aigcongress.com
         Organizer:   Reed Exhibitions                                              Organizer:    Beacon Events Ltd

         20 - 21, November 2008                                                     01-02, April 2009
         Casino Affiliate Convention                                                New Zealand Gaming Expo
         Macau, P.R. China                                                          Christchurch Convention Centre, NZ
         Contact:     Talar Festekjian                                              Contact:      Ross Ferrar
         Tel:         +1 (212) 722-1744 ext 72                                      Tel:          +61 2 8216 0931
         Email:       Talar@affiliateconvention.com                                 Email:        info@gamingta.com
         Website:     www.casinoaffiliateconvention.com                             Website:      http://www.nzgamingexpo.com/
         Organizer:   Ticonderoga Ventures, Inc.                                    Organizer:    Gaming Technologies Association

         22 – 24, November 2008                                                     25-29, May 2009
         The 5th International Conference on “Gaming                                14th International Conference on Gambling
         Industry and Public Welfare”                                               and Risk Taking
         Beijing, China                                                             Harrah’s Lake Tahoe, Nevada, US
         Contact:     Ms. Esther Kong, Ms. Teresa Lei                               Contact:      Danielle Crowther
         Tel:         +853-8893 6322 / 8796 3176                                    Email:        dcrowthe@unr.edu
         Email:       conference2008@ccc.edu.mo                                     Tel:          +1 (775) 784-1442, +1 (775) 784-1057
         Website:             Website:      http://www.unr.edu/gaming/index.asp
                      welcome.htm                                                   Organizer:    University of Nevada

         26, January 2009
         Gaming Awards 2009
         Millennium Gloucester Hotel, London, UK
         Organizer:   Empire Events
         Contact:     Lisa Barrett
         Tel:         +44 (0)1543 57 86 89
         Email:       lisa@gaming-awards.com
         Website:     http://www.gaming-awards.com

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

48 INSIDE ASIAN GAMING | November 2008
November 2008 | INSIDE ASIAN GAMING   49
50 INSIDE ASIAN GAMING | November 2008

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