Inside Asian Gaming

INSIDE ASIAN GAMING | June 2008 60 Briefs Regional Briefs Macau Casino Operator Dialogue On May 21, Macau’s six gaming concessionaires and sub- concessionaires held an unprecedented meeting to discuss gaming market regulations in a special meeting initiated by the Macau government. High level representatives of the six gaming operators, including local gaming magnate Stanley Ho and Las Vegas Sands Corp’s Asian Region President Steven Weaver, attended the meeting with top government officials. The meeting was originally aimed to discuss future development of the industry following the local government’s announcement in March that it would impose a moratorium on issuing new casino licenses and approving new casino projects. The main issues discussed at the meeting, however, were escalating junket commissions and the increase in gaming table capacity, according to Secretary for Economy and Finance Francis Tam, who also attended the meeting. Mr Tam said that most of the representatives agreed at the meeting that the commission should be capped at a lower maximum rate than the current market level, while opinions differed when it came to the number of gaming tables each operator should be allowed to have. On the topic of rising junket commissions, erstwhile monopoly operator Stanley Ho said:“The only way to control this crazy cutthroat competition is to control two things, the number of [gaming] tables for each licensee and the commission rate.” Casinos in Macau generally pay commissions on chip sales to the junket operators, who bring high-rollers to play in private VIP rooms within the casinos. Last year, the VIP market contributed more than 67% of total casino revenue, and the share crept up to almost 70% in the first quarter of this year. Will Melco Profit Rise Last? Macau’s VIP gaming market was shaken up by Melco PBL Entertainment Ltd’s Crown Macau casino hotel, which increased its maximum junket commission to 1.35%—reportedly one of the highest rates in the local market. Following the deal, which began in December 2007, Melco PBL’s share of the city’s total gaming revenue rose from about 5% in November last year to 18% by March 2008. Melco PBL’s higher junket commission helped it swing into a first- quarter profit. The company reported earnings of US$43.2 million in Q1 2008,compared with a loss of US$27.2 million in the same quarter a year earlier—though notably, Crown Macau only opened in May last year. MelcoPBL’s sales after promotional allowances for the first quarter soared to US$482.9 millian—more than double the US$179.8 million revenue posted in the fourth quarter of last year (when Crown was fully operational but prior to the new junket deal).Melco PBL credited the improved operating performance to greater VIP gaming volume at Crown Macau following the new junket deal. Melco PBL is a joint venture between James Packer’s Publishing & Broadcasting Ltd and Hong Kong-listed Melco, headed by Lawrence Ho, son of Macau casino tycoon Stanley Ho. “In the span of a few short months,Crown Macau has become the busiest casino in the world in terms of gaming volume,” Lawrence Ho said in the statement. “The dramatic improvement in the core rolling chip business at Crown Macau in the first quarter has been maintained into the second quarter.’” If the property can continue to operate at the impressive levels of the first quarter, then Melco is set to surpass earnings estimates this year. However, two factors make that difficult to predict. Firstly, Melco PBL benefited from a better-than-expected VIP baccarat win percentage in the first quarter. The win percentage of 3.1% was higher than the 2.4% reported in the previous quarter and above Melco’s expected long-term average of 2.7%. So, although the company reported better than expected earnings in Q1 2008, adjusting for a normalized hold, it may simply have met (or slightly missed) expectations. Secondly, following the new Crown Macau junket deal, other operators are rushing to raise their junket commissions too. This will erode Crown Macau’s competitive advantage and could see its market share dip again. The true test of whether the new junket deal has permanently reversed the previously ailing Crown Macau’s fortunes will therefore come in the second half of this year. Expanding Genting Eyes Macau In a recent interview with Forbes Asia , 30-year old Justin Leong, the grandson of the founder of Malaysia’s Genting Group, says he would still like to find an investment opportunity for the group in Macau. As Genting Group’s head of strategic investments and corporate affairs, Mr Leong is charged with identifying new areas of growth for the conglomerate, which includes casino, energy and plantation businesses Despite the recent announcement by the Macau government that it has placed a moratorium on awarding more casino licenses and approving new projects, Mr Leong is sill hopeful of finding a project for his company in the lucrative market. Genting is Malaysia’s monopoly casino operator, and runs the sprawling Genting Highlands casino resort outside Kuala Lumpur. The resort boasts the world’s largest hotel, the 6,118-room First World. The company is also building one of Singapore’s two planned integrated resorts. Genting’s Resorts World at Sentosa, located on the resort island of Sentosa, will include a casino and Universal Studios theme park, and is expected to open in 2010 at a cost of S$6 billion (US$4.4 billion). Crown Macau