Inside Asian Gaming

INSIDE ASIAN GAMING | May 2009 18 Changing Landscape Tax cuts on the VIP gross and caps on agent commissions are being actively discussed in Macau T he economic challenges faced by the Macau gaming industry in 2009 could be an opportunity to re-engineer the VIP segment of the industry. Major changes, including a reduction in the tax on the VIP gross and possible cooperation between operators regarding VIP commission caps are being actively discussed. Macau is an overwhelmingly baccarat-centric and in particular VIP-centric place. The game in all its table forms pulled in gross revenues of 95.2 billion patacas (US$11.9 billion) in 2008—equivalent to 87.5% of all Macau’s takings that year from games of fortune. Of that baccarat gross, more than three quarters (73.7 billion patacas) came from the VIP market. It follows therefore that what happens to the Macau VIP market in 2009—in terms of numbers of players, volume of business, and the commissions paid to agents and sub agents—will have a big influence on the fortunes of Macau and the wider Asian industry. In Who’s in Charge? A multi billion dollar business run by proxy I n most multi-billion dollar industries the names of the senior executives are widely known. That’s not necessarily the case in Macau VIP gaming. As an industry insider told IAG recently: “The newspapers go on about people like Ted Chan from the days when he was at Amax [the Hong Kong-listed junket aggregator], but the real people behindVIP gaming in Macau don’t do interviews and don’t have their photos in the newspapers. Most people in Macau don’t even know their names.” Macau’s high roller trade is unique in the casino gaming world for the sheer volume of its business set against the distinct opacity of its management. In an effort to shed some more light on the sector, IAG presents here an update on the prospects for Macau’s VIP business in the remainder of 2009 and how conditions on the ground relate to Mr Chang’s recent analyses and predictions. We don’t shirk from holding up our collective hands if his crystal ball was clouded on occasions, but nor are we shy of taking credit on his behalf where his call was on the mark. gambler lost US$12 million, and one private company owner lost US$96 million over several years. During the period of his monitoring work, at least ten Chinese companies collapsed, reportedly casualties of massive gambling losses by big- spending players, said Prof. Zeng. The academic’s analysis of media reports revealed that 44% of the 99 high rollers had either died or been given long jail sentences as a consequence of their gambling. Mainland courts sentenced fifteen to death, seven committed suicide or were ‘killed by others’, two were given a death sentence reprieve and 20 were serving long jail sentences. Prof. Zeng said he wasn’t able to determine which casinos the gamblers in his survey had used. He added he was unable to use questionnaires or surveys to poll high rollers because they were ‘reluctant to reveal their gambling experiences’. Under the circumstances as revealed by his survey that’s probably not surprising. The theft of state funds by government workers was certainly mentioned by analysts last year as one of the reasons for China’s clampdown on issuing visas for visits to Macau. the first quarter of 2009, Macau’s VIP gross showed a year on year fall of 19.1% compared with the equivalent quarter in 2008 (although it was up 7.8% on the fourth quarter of 2008). Analysts are currently predicting an annualised year on year decline in the VIP gross in Macau this year of anywhere from 4% to 15%. Boom to not-so-boom During the boom times of late 2007 and early 2008, the Macau VIP sector was arguably a sellers’ (i.e. agents’) market. Casino operators (especially new entrants to the market such as Melco- PBL as it then was) needed to jump onto the VIP bandwagon in a rising market and weren’t always too squeamish about how they did it. This was seen in the 1.35% commission deal on rolling chips that Crown Macau did with the junket aggregator Amax. Now, at a time of a global credit squeeze, casinos are more focused on protecting themselves from bad debt than at growing VIP market share at any price. As a result, Macau has become arguably more of a buyers’ (i.e., casino operators’) market when it comes to taking on VIP business. VIP Market Outlook