Inside Asian Gaming

May 2009 | INSIDE ASIAN GAMING 19 VIP Outlook Nonetheless the ability of theVIP agents to adapt to new trading conditions (including the shift from SJM’s monopoly to a liberalised market post 2002) has been one of their strengths. China’s relative isolation from the international money markets has undoubtedly assisted in this—so far. No one should doubt, though, that in the medium to long term Macau’s VIP agents face an existential threat. The history of business has shown that the trend to remove the middleman from the equation is consistent and inexorable. A good example is the grocery supermarket sector, where many large chains use their buying power and economies of scale to purchase supplies directly from producers. Arguably Macau gaming has already seen the start of this process of squeezing the middleman through the growth of the junket aggregators, who suck in the smaller fish and on occasion (in the case of Amax and Crown) have such a symbiotic relationship with the casino operators that they actually interchange senior staff. Survival strategy Here’s what Mr Chang wrote in IAG in his piece ‘Long Live the Middle Man’ published in October 2007: “The VIP Rooms that will survive in Macau will be the ones that can move quickly, and are adept at playing off one casino operator against another. The ultimate winners from more competition will always be the customers—in this case, the players.” What he didn’t say (because at that time he had no way of knowing Singapore’s planned tax rates on VIP play) was that junket operators might come to play not just one casino off against another, but one jurisdiction off against another. In the case of Las Vegas Sands Corp., which has the advantage over other Macau operators of a presence in the Singapore market, it might actually be in the interests of the operator to help the outside VIP agents it is currently working with in Macau, to up sticks and relocate their VIP players to Singapore. Devil in the Detail Performance clauses are a key element in Macau’s VIP gaming business C ommissions are the real battleground of the VIP trade. The formulae used for deals between the properties and the agents can lookprettydense to the casual observer, but aswithmost systems, they can be boiled down to a few key principles. In this case it’s about cost versus benefit, incentives, and levels of sales performance that determine whether a VIP agent makes a reasonable living or a good one. Typically performance clauses are structured so that the achievement of a certain volume of roll triggers an improvement in commission paid by the casino operator, and thus it goes on down the line of what is in effect a pyramid-marketing scheme. Depending on one’s point of view, the complexity of the agreement formulae is either deliberate (to divert attention from who actually contracts the debt with the player and thus who actually enforces it if necessary) or it’s an accidental by-product of the spider’s web of sub deals done with sub-agents delivering players to the venues. Symbiosis Here’s what our columnist Mr Chang wrote in his piece ‘Long Live the Middle Man’ in October 2007. “Whatever its origins, the VIP roomhas evolved into what is today a symbiotic and highly specialised marketing operation that exists not side by side but within the host gaming operation, to provide a pipeline of customers who not only have the propensity to gamble, but also the means. “The VIP room does this in a manner that hides the darker side of these operations, particularly regarding the extension and collection of credit, and helps the casino operator disavow knowledge of the source of the funds or what happens when the