Inside Asian Gaming

April 2008 | INSIDE ASIAN GAMING 39 A ny economic downturn in the United States and Europe is unlikely to have a negative effect on Macau’s gaming business, said Lawrence Ho at the topping out ceremony for the US$1.85 billion City of Dreams integrated resort on the Cotai Strip. The fact that Mr Ho made this bullish statement on April 1st—a date associated in the West with practical jokes—had no significance. Positive Mr Ho, co-chairman of Melco PBL Entertainment Ltd (MPEL)—the company he set up with Australian businessman James Packer to manage their Macau gaming investments—is feeling genuinely upbeat about Macau’s prospects generally and his own in particular. “Our dreams are taking shape,” said Mr Ho at the ceremony. “Macau is transforming from a gaming-focused destination into a leisure hot spot. City of Dreams will continue to drive this phenomenon and usher in a new era of gaming and entertainment in Macau,” he added. MPEL recently passed an important milestone in Macau by achieving payback on its first local property, the US$524 million Crown Macau, says the company. It should allow it to concentrate on servicing the packet of debt and equity it has taken on to build City of Dreams, where costs have steadily crept up since the project was announced in April 2006. Cost review In June last year, MPEL Chief Financial Officer Simon Dewhurst announced the results of an in-house review of the City of Dreams project. He said costs for the project had risen by 23% from US$1.5 billion to US$1.849 billion, but stressed this was in line with plans to increase the gross floor area under development by 16.6% (from 3.6 million to 4.2 million square feet in total area). Mr Dewhurst knows a few things about Sweet Dreams MPEL turns a corner with payback on Crown Macau Feature cost control. He is a former senior executive at Rupert Murdoch’s News Corporation and was head of media and entertainment investment banking at CLSA Asia Pacific Markets before joining MPEL. Mr Dewhurst’s other boss,Mr Packer, was in typically upbeat mood on the day of the topping out ceremony. He said: “We introduced the Crown brand into Macau in 2007, with the opening of Crown Macau, which has quickly become the property of choice for high-rolling VIP customers in Macau. “City of Dreams is testament to our optimism about the future rapid development of the Macau market.” Improvement Behind the warm statements that are routinely made at such ceremonies, Mr Packer made an important point regarding Crown Macau. The property had a shaky start in May 2007, resulting in it being reconfigured the following autumn to focus fully on the VIP business. Crown Macau is now grabbing a healthy share of Macau’s VIP revenue and providing welcome cash flow. This success was due to a calculated gamble that boosting VIP business volume by yielding ground to the agents on VIP commissions would quite quickly result in a significant net gain for the operator. Commissions In December, Crown Macau boosted its agent commission to 1.35% on VIP rolling chip sales—more than a third higher than the previous upper range in Macau. If that wasn’t tempting enough for agents, the casino added daily settlement as an extra incentive. The tactics produced immediate results. The company stated in its fourth quarter results for 2007 that monthly rolling chip volume at Crown Macau increased from approximately HK$20 billion in October to HK$30 billion in December. In January, total monthly rolling chip volume jumped to more than HK$50 billion, said MPEL. Asaconsequence,CrownMacau’sportion of Macau VIP revenue rose dramatically from the 1.8% reported at launch. The company said in a statement:“We estimate that Crown Macau achieved a table games market share of 16% in January, up from 9% in December. Our February table games market share at Crown is estimated to be approximately 18% through February 17th.” Break even The performance helped Crown Macau