Inside Asian Gaming

INSIDE ASIAN GAMING | May 2008 10 Multiplier Effect “House of Cards” in the November issue of Inside Asian Gaming highlighted how competition between junket operators was becoming increasingly bitter. Columnist Octo Chang explained this led to the margins of junkets also being squeezed as they gave a higher percentage back to players. Although the junket operators only get a maximum of 1.35% commission, industry sources say they are giving players as much as 1.8% commission on rolling chip purchases. This is possible because of the multiplier, which is in essence a private arrangement between junkets and their customers, whereby whatever the value of chips placed on the table, the real value of the bet is understood to be multiplied by an agreed number. Various junket operators confided the multiple was commonly two times in Macau, and could even go as high as ten times. According to Octo Chang: “On the surface, the junket operators get 1.2-1.4% (depending on how candid the casino operators are with you). They in turn give the players 0.9-1.0% on the official bet. Taking the 0.9%, if a two-times multiplier is in effect, the players will get 1.8%, and the junket gets the rest of the pie on the side bet—with the casino and government tax effectively removed from the equation. Octo Chang postulates this could be why junket operators are now seeking to raise large sums of capital. “They are now operating a virtual casino—and a potentially more profitable one—in close parallel to the brick and mortar one they are operating inside.” rapid fall in their market share—although the loss of share was mitigated by the impressive 73.3% year-on-year jump in VIP baccarat revenue in the first quarter. Still, if they do not respond, there may be little to prevent Crown gobbling up further market share. Although Crown is a swanky property, and boasts some of the nicest rooms in town, its less-than-ideal location and lack of attractions beyond fine dining suggest it has been grabbing greater share primarily as a result of the higher commission rate. Crown has a mere 216 hotel rooms, but apparently that is enough to support the highest-grossing VIP operation in town. There is a clear divide between high-rollers in Macau and those inVegas.A baccarat table is pretty much all the entertainment a typical Macau high-roller needs. Around 20% or more of Macau’s casino revenue is currently generated within one of its smallest venues, supporting the view that operators will have a hard time drawing high-rollers without a competitive commission offer. Thus, the VIP rolling commission offered by the other operators will probably soon follow Melco PBL’s lead. There are also plans to expand VIP gaming facilities at most properties. Galaxy Entertainment Group Ltd announced it was planning a new “Jumbo sized” VIP facility, which will add a further 100 plus VIP tables at its flagship StarWorld property.To put that expansion in perspective, StarWorld currently has a mere 69 VIP tables. The coming widespread adoption of higher rolling commissions and expanded VIP facilities will probably result in growth of the VIP market continue to outstrip that of themassmarket.When SandsMacaoopened in May 2004, becoming the first foreign operated casino in the city, many predicted the mass market would rise steadily to overtake the hitherto dominant VIP market, seeing initial confirmation of their view Cover Story