Inside Asian Gaming

March 2009 | INSIDE ASIAN GAMING 13 Galaxy’s CityClubs appear to be under pressure, and their future looks uncertain. What was your strategy with the CityClubs? Mr Lui: “The strategy we took five years ago when we first entered the market was not just about the money. At the time, as you know, Galaxy was a company with no legacy in gaming, so we needed to get into the market quickly, and needed to get to know quickly how to do business in Macau and establish a management team and also to quickly capture some market share and feed that into the system. That is as important as the money side. I think the object was to get our hands dirty quickly so to speak, get market share, get a management team going—in short, get experience. We felt that eventually the bigger, more expensive properties were going to be dominating and would pressure smaller casinos, such as the CityClubs. This is why we were saving up our capital and investing it in a property like StarWorld and over in Cotai. There’s no hiding the fact that the CityClubs will be under a bit of pressure from now into the future, because all these bigger properties are very competitive.” Were there any technical or practical problems in opening CityClubs to start with? Have they been addressed? Mr Lui: “Waldo Casino was in operation in ‘04, and then Rio Casino, President Casino and Grand Waldo Casino were open in ’06. It could have been faster, but we’re happy with the timing. What we didn’t realise at the time was that there would be a financial tsunami coming this year that would knock everybody off course. There was also a commission price war that started last year. We thought there might be some pressure on pricing, but to have it start more like the early part of last year was a little bit outside expectations. “We have changed the business model a lot. Three out of four CityClubs are now on a top line revenue arrangement which means we would probably benefit our bottom line. “On top of that, we are also sitting down with our service providers to see how we can trim costs. So starting late last year we were probably one of the first operators who decided we needed to reduce the number of gaming tables in the CityClubs and to make it more efficient. That way we think they can survive, because all of the CityClubs that we have are attached to hotels. Instead of trying to capture market share as a resort casino, it’s more about offering a gaming service to hotel guests. That means we are not going to have 50 or a hundred tables in each venue. CityClubs are not the sort of venue where you are trying to attract hundreds or thousands of people coming in as day-trippers. “At one of our CityClub properties, for example, we have managed to turn it into an amenity. What I mean is that the hotel is operating full, so guests have the convenience of being able to come down and play in the casino. So in that case we are able to take a lot of the [casino operation’s] costs away.” What do you think will happen to table capacity in Macau in 2009? Mr Lui: “We closed tables at theCityClubs last year. It’s not just us closing tables. Everybody is doing it. An interesting number to note is that back in the third quarter of‘07, the total number of gaming tables in Macau was only around 3,000, by the end of 07’ it peaked at 4,400, a 50% growth within 1 year. By the end of 08’, it came back down to 4,000 tables. So you can see that the market is consolidating, which is good.” In gaming markets outside Macau, the emphasis is often on getting the casino element operational before opening hotels and other amenities. Is that a possible strategy for you on Cotai? Mr Lui: “If you are looking at our strategy as a company, we are doing exactly that. The CityClubs are basically a cash box to us. Somebody pays for the facility, we go and manage it and get the cash out. If you look at StarWorld it’s a very efficient casino hotel. You can’t say that it is a fully integrated casino resort where you have the theatre, the arena, the convention centre and the shopping mall, but this is a very efficient hotel casino, where the emphasis is still on gaming, and then we have some amenities such as hotel rooms, coupled with it. Again, this is a cash box. If you go into Cotai, that’s a different story. We believe it’s got to be an integrated resort, because Cotai is a destination area. StarWorld is located in the heart of the Macau peninsula. It’s downtown. It’s where everybody comes and goes. So whether you have all the amenities or not on your property, you will find them somewhere else downtown. But in Cotai we believe it has to be integrated from day one.” How will your Cotai project differentiate itself in the market? Mr Lui: “On Cotai we are using a ‘blue ocean’ strategy. We are trying to create something different from the rest. That’s why we see right now even the architecture is different. It has much more of a resort feel. This is why when other investors are signing up international hotel brands; we are going for the Asian hotel brands. We have teamed up with Okura, we have teamed up with Banyan Tree—both Asian brands. They are excellent brands in any market, but the reason we chose them is for specific reasons. We wanted to create an Asian feel to it. Banyan is a resort brand in its own right, so this is the kind of atmosphere we want to create, because we think the market’s not being covered at the moment.” Is there a market for so many luxury hotels on Cotai? Mr Lui: “It’s a good question. That’s why in Cotai we have three brands. We have our own brand, we have Okura, and then we have Banyan Tree. Banyan is of course the top tier, where you have your more affluent, more high-end customer. We also have our own hotel, which is more or less catering for the mid market, for the family, for the people who want to come here for a holiday. And we have Okura right in the middle. We feel that it is a market not well covered by the existing properties. “If you take a look at some of the other Cover Story