Inside Asian Gaming

INSIDE ASIAN GAMING | May 2009 16 VIP Market Outlook Through a Glass Darkly Accurate analysis of Macau’s VIP business is hard to achieve T he opacity at the centre of Macau VIP gambling has all sorts of knock on effects that could ultimately make it harder for the sector to compete in an open and increasingly globalised market. How many multi-billion-dollar industries can you think of in the rest of the world that have virtually no formal market research publicly available? The US$9.23 billion spent in 2008 on VIP gambling in Macau is in all likelihood coming from a tiny number of players—probably numbered in the low thousands—compared to the 22.9 million people recorded as tourist arrivals in Macau in 2008. The reality is we can’t be sure. The people who could potentially provide the information— the agents, sub agents and casinos and, of course, the players themselves—generally have a vested interest not to shine too bright a light into the corners of the business. For one thing, the agents don’t want to give important information about their players away to competitors. Octo Chang adds that those with a cynical turn of mind believe that the greater the distance between the casino, the agents and the hard men who may ultimately have to enforce any debts owed by players, the better for the image of the industry as a whole. Publicity shy The chances of the players themselves volunteering information about their consumer habits as VIP gamblers aren’t high either. An academic at Macao Polytechnic Institute recently made a brave attempt to add some kind of metrics to the high volume end of the Macau table gaming trade. He did it via the painstaking but relatively low-tech method of monitoring Chinese media sources for information on criminal and other judicial hearings where high volume gambling in Macau was mentioned as a contributory factor in proceedings. Care is needed for anyone tempted to extrapolate wider messages from the findings of Professor Zeng Zhonglu’s research. In all likelihood only a small proportion of Macau’s high volume table game gamblers end up the subject of criminal proceedings. It’s also important to bear in mind that not all high volume gamblers use VIP rooms. Some are known to play on the public tables. Their motivation for this is not clear, though it’s been suggested in sections of the local the media that it’s in order not to draw too much attention to their presence in Macau. Most high volume gamblers (whether labelled VIPs or not) appear to take their wins and losses with equanimity and without it having a catastrophic effect on their lives and businesses. Even with those caveats, it’s fair to say Prof. Zeng’s findings make startling reading. Perhaps the most interesting statistic was that among the 99 high rollers fromMainland China he tracked via media reports, the average debt contracted over the period of their Macau trips was US$3.4 million. Of the group Prof. Zeng followed, more than half worked for the Chinese government or state-owned enterprises. A total of 33 state officials each reported average US$2.7million losses. Nineteen senior managers at state-owned enterprises each lost US$1.9 million, and seven cashiers at state-owned businesses US$500,000 respectively. Such behaviour is reportedly less of a problem since Mainland police started monitoring casino floors last year. Macau’s anti money- laundering laws also require suspicious transactions or those by “politically exposed persons” to be reported. Losing streaks His research found that in a single gambling session one on the theoretical house edge for baccarat means that as with cross-border standards in general accounting, there is considerable opportunity for creative interpretation. In Macau the foreign casino operators have certainly shown a tendency to put a positive spin on house edge. Mr Chang gave a possible explanation for these variations in his ‘House of Cards’ piece in November 2007. “How about this—the house advantage assumed onVIP baccarat in the financial statements of Macau casino operators is no longer the long-established 2.5%, nor the more recent 2.7%, but now 3.0%. That appears to satisfy the fund managers and investors that there is still plenty of overhead room, and for the casino business development managers to argue that they can still give some more margin away in return for the promised business. “Another six months from now, when the other casinos decide that they will not sit idly by and decide to up the bidding war, I guarantee you that we will see the house advantage go up above 3.0 (in fact, some are claiming that their actual win in Macau is 3.0% to 3.2%). And when a lousy quarter or year comes around, they will inevitably call it an abnormality whereas the statisticians will call it a correction that brings the actual results back closer to the theoretical,” stated Mr Chang. This is effectively what has happened. In the fourth quarter of 2008 for example, Las Vegas Sands Corp. reported rolling chip (i.e. VIP baccarat) percentage win at The Venetian Macao of 2.82% (up from 2.72% in the fourth quarter of 2007). This compared to what the company said was its ‘expected’ rolling chip win percentage of 3.0% (calculated before discounts and commissions).