Inside Asian Gaming

15 Feature Company President Bill Weidner has identified improving the performance of The Venetian Macao’s VIP business as a priority. In Q2 2008,LVS said it won back 3.01% of turnover onVIP rolling chip sales of US$9.89 billion. Win percentages will only take investors so far, though, when it comes to assessing the performance of an operator’s VIP business, as IAG reported in The Big Squeeze in the May 2008 issue. Magic by numbers Given that the laws of probability do not vary across casino properties, interested parties would probably do better to inquire into the operating margins on the volume of play. Baccarat ranks among the most volatile of all casino games. One high stakes player on a winning streak can cause a VIP baccarat room to under-perform significantly in relation to the theoretical VIP baccarat house edge of 2.52%, while players who choose not to make the optimal player bet of banker on every hand can help to raise the house win well above the 2.52% level. The point is that any operator who seeks to use a high win percentage in any given quarter as an indicator of sustainable business performance is being somewhat disingenuous. A high win rate is chiefly down to luck, which cannot be relied upon to continue indefinitely. Direct marketing If some of these high rollers are also regular Macau visitors, then LVS might be able to lever them away from the grip of the local Macau agents.If the whale has bank accounts outside China in convertible currency,then LVS could in theory deal directlywith that player in Macau using their international creditworthiness as collateral, or alternatively offer them preferential credit terms when they visit the Las Vegas properties. What muddies the waters here is that even internationally sophisticated ‘overseas Chinese’ may prefer to deal with local junket agents when gambling in Macau. This is because of the attraction of the multiplier, a private ‘under the table’ arrangement that limits the cut received by the casino licensee and the government relative to the ‘real’ volume of play. The multiplier As IAG reported in our April 2007 edition, the multiplier is in essence a private agreement between junket agents and their customers, governing the size of the bets placed. Most commonly, it occurs in two basic forms, with essentially the same outcome. The first is when the agent agrees with players that whatever the value of chips placed on the table, the real ante is multiplied by an agreed number. For example, if the customer places a HK$1,000 bet and the agreed multiplier is 10, then the “real” bet is HK$10,000. The second common form of the multiplier is when the ‘real’ bet is agreed to be denominated in a different currency to that of the actual chips placed. For example, the customer places a HK$1,000 chip on the table, but agrees with the junket operator that the bet is in reality denominated in US dollars, so the ‘real’ bet is US$1,000, which represents a multiplier of 7.8 times. Inside Asian Gaming would like to point out there is no suggestion that either LVS or its VIP agent partners in Macau are in any way party to, aware of, or likely to condone such activity. The point about the multiplier is made simply to illustrate the challenges of trying to break the grip of the local agent system on the Macau VIP market. Slowly slowly In Asia in general and China in particular, changes in business practice tend to come via crab-like sideways steps, rather than the full-blooded straight-on cavalry charge of the Hollywood westerns. The VIP gaming market appears to be no exception to this general principle. After originally aspiring to shake up the Macau VIP market by cutting out the middle man and dealing direct with high rollers as operators do in the Las Vegas market, LVS and the others found themselves doing deals with those same agents, then subsequently scrambling to match the 1.35% commission on rolling chip volume that Crown Macau offered to A-Max from December last year in order to get access to the VIP players provided by the latter’s affiliated sub junkets. Two cheers During a private business trip to The Venetian Macao earlier this month, Mr Adelson welcomed the Macau government’s voluntary scheme to capVIP commissions,but said he would have liked to see tougher controls on the agents. Speaking via a live link during the company’s Q2 2008 earnings conference call, he told analysts: “We can benefit by having the [VIP] commission capped at 1.25 although we felt it should have been capped at 1.0, including comps [complimentary benefits for player loyalty].” Asked if a voluntary cap was workable, Mr Adelson said:“The central government told Edmund [Ho, Macau Chief Executive]— which is why he made that announcement—that he’s got to control it better. He made that announcement to the Legislative Council. It’s got to be seriously enforced. “I believe that certainly at the beginning it’ll be enforced.Will somebody find some way around that? I don’t know. I mean, you never know. “They’re smart enough businessmen to know they don’t want to kill the goose that’s laying the golden eggs. So if the government says 1.25, then based upon my conversations with a leading junket rep, I think they’ll abide by it. At least the top guys will. Gold at the End of the Rainbow LVS wants to improve its VIP business, but how to do it?