Inside Asian Gaming

September 2008 | INSIDE ASIAN GAMING 43 Briefs to 20% of net sales by Jan. 1, announced the Ministry of Strategy and Finance. The National Gaming Control Commission earlier said it aimed to limit the annual revenue of the country’s gambling industry, including horse racing, lotteries and casinos, to about 14 trillion won (US$12.4 billion). “Imposing a 20% tax on companies suffering from stiffer competition and falling profit is just like they are telling us to shut down shops,’’ Paradise said in an e-mailed statement. In conjunction with raising the casino tax, the South Korean government plans to reduce income taxes and remove some property taxes to spur economic growth. LVS Doesn’t Count on Paying Settlement Even tough Las Vegas Sands Corp (LVS) has been ordered to pay a lawsuit judgment of US$58.6 million to a Hong Kong businessman, the company has not recorded any reserves or contingencies for the legal matter because it does not believe it will ever have to pay up. LVS said in a 10-Q filingwith the Securities and Exchange Commission last month:“The company believes this potential loss is not probable or estimable.” A Clark County District Court jury on May 24 awarded Richard Suen a US$43.8 million verdict following a six-week trial, after Suen claimed he had been paid by LVS for helping the company secure a Macau gaming license. The trial judge tacked on US$14.8 million in interest. The company’s reluctance to recognise the settlement is not surprising, according to the Las Vegas GamingWire , which points out that in its May 2007 10-Q, LVS told investors Suen’s chances of winning the lawsuit were “remote.” Adelson Expresses India Hopes Las Vegas Sands Corp Chairman and CEO Sheldon Adelson commented to a reporter at the Venetian Macao anniversary on August 28 that he wanted build an Indian version of Las Vegas, and had met the Indian trade and tourism ministers in recent days. “You could have the equivalent of Las Vegas. If your government wants to invite us there, we would be happy to commit 12-14 billion US dollars,”he told one Indian reporter. “We would like to build a Cotai Strip in India that would not affect Macau whatsoever. As a matter of fact, the market in India with 1.1 billion people would justify more than one Cotai Strip” he told reporters. Melco Crown Q2 Performance Dips ThefirstquartersurgeinprofitseenatMelcoCrownEntertainment when the company grabbed a large slice of Macau’s VIP gaming revenue, proved impossible to match in the second quarter, with the company slipping into the red. Melco Crown Entertainment lost USD5.68 million in Q2 2008 compared with a gain of USD43.2 million during Q1. Earnings before interest, tax, depreciation and amortisation (EBITDA) fell 48 percent to USD40.09 million from USD76.69 million in the first three months. An important factor in the poorer Q2 2008 performance was increased competition in the VIP sector fromother operators fighting to match Melco Crown’s record 1.35 percent commission on rolling chips. That trade war frenzy has now been cooled thanks to a 1.25 percent commission cap negotiated between the industry and the Macau government and to be implemented (for the time being) on a voluntary basis. The company said in its earnings call the new commission cap was understood to apply to all expenses, leaving no leeway for casinos to pay the cost of travel and hospitality for VIPs on top of the 1.25 percent. The firm said sales of VIP gambling chips at Crown Macau fell 4.6 percent to USD18.5 billion from USD19.4 billion in the first three months. Looked at year-on-year, Melco Crown’s Q2 2008 VIP turnover looks impressive. It managed only USD1 billion in the equivalent quarter in 2007, but Crown Macau only opened in May 2007 and did not have Hong-Kong listed junket aggregator Amax Entertainment Holdings as a VIP play partner at that time so year-on year comparisons have little statistical value. In Q2 2008, Crown Macau had a modest win rate on the chips it did sell, claiming back 2.7 percent, which is only 0.18 percent above the theoretical house edge for baccarat (i.e., what the house would win if players optimised their win frequency by betting banker on every hand). The operator’s VIP gaming revenue gross fell nearly 17 percent to an estimated USD499.5 million from USD601.4 million in the first quarter. “Competition for [VIP] chip business in Macau during the second quarter became a lot more aggressive, with higher commission rates and a significant expansion in the facilities being offered [by other casino licensees] to junket operators,” said Lawrence Ho, the joint venture’s CEO during an earnings conference call. Crown Macau, the company’s only Macau property until City of Dreams opens on Cotai next year, booked an operating income of USD27.8 million, down from USD66.33 million in Q1. Nonetheless Simon Dewhurst, Chief Financial Officer, said that in the first half of 2008 Crown Macau had generated “impressive” returns of USD117 million EBITDA on a property he said cost USD380 million to build. The win from mass market table games at Crown Macau came in at USD13.7 million, down slightly from USD15.08 million in the first quarter.Winnings from slot machines were up 7.9 percent to USD4.1 million from USD3.8 million in Q1. This performance was all the more impressive for the fact that Crown Macau actually reduced the number of slots during that period from 240 units to 187 units. During the earnings call MPEL executives said the company hopes to monetise real estate assets at City of Dreams and its third development site in Macau, enhancing liquidity. Recently though legal and constitutional experts have raised doubts about whether land title on Cotai will allow this. The company said the government’s suggestion of a cap on tables per concessionaire will not limit MPEL’s growth because it only has 250 tables now, well below any cap being discussed. Construction on Melco Crown’s USD2.4 billion City of Dreams resort is well under way and the resort is scheduled to begin opening in phases from next spring.