Inside Asian Gaming

INSIDE ASIAN GAMING | January 2009 20 Market Outlook Vegas Sands Corp’s Cotai plots five and six, and the postponement of the opening of Galaxy’s Cotai IR until 2010. The points made by Ms Tang of Deutsche Bank about the mathematics of the VIP market apply to all operators and their agents. They are likely to be of particular significance to any VIP venues that were already underperforming relative to the Macau market’s general growth in the first eight months of 2008. In this context, Galaxy’s CityClubs immediately come to mind. L egacy casinos are so-called because they were built before Dr Stanley Ho’s Macau casino monopoly ended in 2002. All of them operatedon SJMgaming licences, thoughother companiesmanaged a good number of them. Another thing they all had in common was a relatively uniform approach to provision of facilities. To have seen one legacy casino prior to 2004 was pretty much to have seen them all. They had the same smoky gaming rooms, the same style of rather tired furnishings and the same unrelenting focus on VIP play. The few mass-market players there were at the time mainly came from Hong Kong and Taiwan—the players’ tired and pinched faces often hinting more at financial desperation than leisure and relaxation. The liberalisation of the gaming market, the relaxation of travel rules for Mainland Chinese citizens and the introduction of Las Vegas- style casinos dramatically changed the picture. First on the scene in May 2004 was Sands Macao, a mass-market focused casino operated by Las Vegas Sands Corp. The culture shock caused by Sands Macao’s arrival and the fact it generated enough cash to recoup its US$265 million initial investment within a year did more to raise product quality standards across the Macau market than anything that had happened in the previous four decades of monopoly. Eye opening One of the things that made a particular impression on the incumbent SJM and on Hong Kong-listed Galaxy Entertainment Survival of the Fittest Macau’s legacy casinos are likely to face particular pressure in a tougher VIP market Group, another early entrant to the new-look Macau market, was the ability of a new venue’s ‘buzz factor’ to build margin through volume of play. Although SJM and Galaxy already had plans of their own for new resorts, they realised that in the short term, they needed to organise refurbishment of legacy properties in order to hold or build market share. There was, though, an important problem. The sheer scale of a purpose-built new venue such as Sands Macao gives an operator the chance to offer a wider range of facilities than legacy casinos, thereby boosting the mousetrap effect. Old versus new Here’s what Karen Tang of Deutsche Bank said about legacy versus non-legacy venues in a report released before Christmas on Stanley Ho’s casino operating company SJM Holdings. “Grand Lisboa [a new property] has proven that, under new management, EBITDA margin at new properties can be substantially higher than at legacy casinos (1H08: 18% vs. 2%).” The Grand Lisboa towers beside the legacy property