Inside Asian Gaming

January 2009 | INSIDE ASIAN GAMING 21 The same logic appears to apply to Galaxy Entertainment Group, when the performance of its purpose-built StarWorld resort on the Macau peninsula is compared to its loss-making CityClubs, three of which are refurbished buildings aimed at the VIP market. Since StarWorld opened in October 2006, as a mixed VIP and mass-market casino resort, its performance has been solid, enabling that one venue alone to maintain a 6% share of the entire Macau market. StarWorld’s Q3 ‘08 revenue was up 2% quarter-on-quarter to HK$1.71 billion. VIP rolling was up 12% quarter-on-quarter to HK$19 billion per month (a 2.2% table hold), while mass table win was up 5% quarter-on-quarter to US$4,400 per table per day. In Q3 ’08, StarWorld’s EBITDA was up 21% quarter-on-quarter to HK$136 million due to slight margin expansion from 7% in Q2 ‘08 to 8% in Q3. Clubbed By contrast, Galaxy’s CityClubs, consisting of three refurbished buildings and one purpose-built resort, all aimed at the VIP market, have been going into reverse. City Clubs recorded a HK$4 million loss on fee income stream in Q3 ’08. In Q2 ’08, they made a HK$1 million loss. Part of the problemwith CityClubsmay be that they have outlived their purpose. It’s possible to argue that at least part of the reason for that is faulty strategy and execution on the part of Galaxy. Three of the four CityClubswere supposed to be an instant foothold inMacau’s lucrative VIP market, refurbished quickly and opened in advance of Galaxy’s purpose-built venues StarWorld and its integrated resort on Cotai. In the event, CityClubs were delayed and opened only months before StarWorld, which made its debut in October 2006. The revamped President Casino and the Rio Casino didn’t open under the CityClubs banner until the first quarter of 2006. The purpose-built Grand Waldo Casino, with accompanying hotel and spa, joined the party in May that year. The Waldo Casino & Hotel was the only one to open well in advance in July 2004. Jumbo junket Galaxy’s long-term commitment to the CityClubs concept must now be open to question, given the company’s decision in the second half of last year to open a jumbo-sized 100-table VIP facility at StarWorld with junket aggregator Neptune. If the VIP market stands still or even contracts in 2009, then there is a distinct chance that the StarWorld VIP facility could cannibalise some of the CityClubs’ business. “While management guides that three of the company’s [CityClubs] properties have now been moved to top-line revenue agreements, the effectiveness of this strategy in generating positive Revenue mix from legacy and new casinos Source: Deutsche Bank, SJM data Core EBITDA margins at legacy and new casinos Source: Deutsche Bank, SJM data EBITDAmargins of flagshipproperties by concessionaire (1H2008) Source: Deutsche Bank, SJM data President Casino—one of Galaxy’s underperforming CityClubs