Inside Asian Gaming

INSIDE ASIAN GAMING | July 2008 16 17 Ted Chan CEO, A-Max Holdings High stakes baccarat played inVIP rooms contributedalmost 70%of theUS$3.7billion in revenue generated by Macau casinos in the first quarter of 2008. Whereas luxury is the defining characteristic of VIP areas in casinos in the US and Europe, the main feature of independently-run VIP rooms in Macau casinos is the provision of credit to players, especially those from mainland China who are unable to take large sums of cash out of their home country. Casinos do not generally extend the credit themselves. That task is left to the junket operators who bring the VIP players to the casinos, and in return receive commission from the casinos on the chips purchased by their clients to place wagers with. Competition in Macau’s VIP sector has intensified since the end of Stanley Ho’s effective 42-year monopoly in 2004, with casinos steadily increasing the commissions offered to junket operators in an effort to grab a bigger slice of the lucrative VIP gaming pie. Despite efforts by the new foreign casino operators arriving in Macau to AMA generated more than HK$40 billion (US$5.1 billion) of rolling chip volume in each of the first five months of 2008. Although the higher commission rate has eaten into casinos’ profit margins, A-Max CEO Ted Chan argues this is offset by the increase in turnover. Before being appointed CEO of A-Max, Ted Chan headed Melco Crown Entertainment’s Mocha Clubs string of slot parlours. Insiders note Melco Crown wanted him at A-Max in order to protect its interests and ensure the smooth running of the new junket arrangement. do away with the “middle-men”, the vast majority of high stakes gamblers continue to be brought in by the junkets. “Clearly [casino] operators thought the quality of the property would be what drove market share gain,” commented UBS gambling analyst Robin Farley. “The junkets have more power than I think would have been expected.” In order to gain greater bargaining power, A-Max Holdings got the idea of aggregating eight large junket operators under its associate company, AMA International, and signed a three-year deal, starting December 2007, to send its customers exclusively to Melco Crown Entertainment’s Crown Macau casino, in return for a commission rate as high as 1.35%—significantly higher than the hitherto market average of about 1%. A-Max—which receives 80% of AMA’s profits—uses its Hong Kong stockmarket listing to raise cash to buy VIP rolling chips in bulk from the casinos at preferential rates and to extend more credit to players. The arrangement has made a clear impact on Crown Macau’s share of local casino revenue, which rose from 2% in May 2007 to 9% in December, then 18%—the highest share of any single property in the city—in February 2008. 18 & 19 The Sportsbetting Heads The CEOs, IBC and Singbet The low-key heads of Asia’s two largest Asian handicap sportsbetting operators— IBC and Singbet—are the first entrants from the online world in the Asian Gaming 50, and they are ranked here jointly. Although they are well known in the industry, we have agreed not to publicly name them at this time. Each runs a business with betting turnover in excess of the combined turnover of the world’s two largest publicly listed sportsbetting companies. Both hold online gaming licenses in the CEZA (Cagayan Economic Zone Authoity) online gaming jurisdiction in the Philippines. IBC and Singbet enjoy a diversified customer base across Southeast Asia and consolidation among Asian bookmakers over the past few years has seen them expand rapidly. They mainly offer soccer betting (with a small amount of basketball betting) and cater to Asia’s insatiable appetite for “in running” betting. The scene at their trading floors on a soccer weekend is more reminiscent of a dynamic stock trading floor than a bookmaker’s office. Although they enjoy huge betting turnover, they face notoriously narrow margins when compared to western bookmakers (due to high commissions paid to introducing agents and very tight spreads). This has led them to develop extremely efficient systems and risk management capabilities. With over 15 years of operating history and an enormous network of customer- introducing “Super Master Agents” and underlying “Master Agents”, “Agents” and “Sub Agents”, their businesses are well insulated from competition. Smaller bookmakers and new entrants find it extremely difficult to compete and we see the consolidation trend continuing. Their traditional products are being supplemented by additional sports betting options (new sports and new bet types) and they are diversifying into online casino and P2P gaming. They have learnt from their western counterparts that revenue can be grown significantly by expanding the gaming offering to customers and we expect their already impressive profits to continue rising. It is even possible that they may use some of these profits to acquire their western competitors or invest in the land-based gaming sector.