Inside Asian Gaming

INSIDE ASIAN GAMING | September 2009 48 Feature Peace breaks out It’s a doctrine of free market capitalism that appealing to self-interest is often the best regulator of market behaviour T hat appears to be the case on Cotai in Macau. Las Vegas Sands Corp and Melco Crown Entertainment Ltd were ahead of the pack in announcing a bilateral agreement on VIP commission caps of 1.25% several weeks before the capwas agreedon amarket- wide basis with the Macau government. This was to avoid a costly and (from their perspective) unnecessary trade war between The Venetian and its newly opened neighbour, City of Dreams. As Stephen Weaver, Asian regional president of LVS told Inside Asian Gaming after the inauguration of the casino operators’ trade chamber at the Grand Lisboa Casino recently: “We’re neighbours, we’re on friendly terms, so it didn’t make sense to enter into [commission] agreements that might have to be amended later at the behest of the government.” In case anyone is worried that a new Woodstock-style era of peace and love is in danger of breaking out between the operators in Macau, don’t worry. It isn’t all sweetness and light. There’s still the small matter of whether to build an air-conditioned bridge linking The Venetian and City of Dreams. The current line of thinking in both camps seems to be to push for first mover advantage and damn the bridge. In other words, grab as many customers at the ferry terminals and border land crossings as you can, then hang on to them for dear life until they’ve spent up and so have nothing left for your rival across the road. Some market research published recently in Australia seems to support this theory. M edia reports on the 1.25% VIP commission cap agreed recently between Macau casino operators have naturally focused on how it will benefit those operators’ bottom lines. Another interesting question receiving less attention is what impact price fixing agreements will have on other service and equipment suppliers in Macau. Slots and slots systems suppliers have already spoken privately of a trend toward discounting and revenue share agreements with operators on new equipment rather than capital expenditure up front. The recently formed Chamber of Macau Casino Gaming Concessionaires and Sub- concessionaires could be an extra factor in increasing the downward pressure on equipment supplier revenues. The chamber is far more than a talking shop. It’s a forum allowing the operators to share information, compare notes and, if deemed necessary in the interests of the Macau industry, fix prices. Were this principle to be applied by the operators to the slot supply sector, it could have a dramatic impact on the business model for those suppliers in the Macau and East Asia market. Any cap on the prices operators are willing to pay for original slot equipment and systems support inMacau could reduce the incentive for the suppliers to develop Macau cartel to squeeze slots sector?