Inside Asian Gaming

INSIDE ASIAN GAMING | February 2010 12 T he whole Macau VIP system is based on huge volumes of play in terms of gambling revenue (79.8 billion patacas or US$9.98 billion in the VIP segment in 2009). But house theoretical win is slight (around 2.5%, though many casinos claim a theoretical win of 3% or more). There are also so many people (such as agents) and so many costs (such as comped rooms and entertainment) in the chain that once the government’s tax cut of around 39% is deducted from the top, margins on the VIP gross are low. Deals to bring in players to a particular venue can be made or broken on a few fractions of a percent of commission in either direction (i.e., from junket agent to player, or from junket agent to marketing agent or a combination thereof ). In traditional Macau VIP rooms prior to market liberalisation in 2002, the commission paid to agents on player’s non-negotiable chips (non-negotiable chips effectively beingmoney that has been ‘loaned’ to the player to allow him to gamble) was around 0.7%. In other words, if the player rolled HK$1 million (US$128,000) in a session the agent would make notional commission of HK$7,000. That commission would only be realised, however, once the agent had been paid out of a player’s winnings or had been refunded by a losing player. Incentives are also paid to agents if they exceed rolling chip sales targets. In order to keep a player at the table, however, the agent is also expected to give a rebate to that player out of his agent’s commission. In 2007, business improved considerably for junket agents generally. Macau rolling chip commission soared during a price war sparked by the decision of Crown Macau (now Altira) to pay 1.35% commission to the junket consolidator Amax. That in turn meant agents could afford to give improved rebates to players, further increasing the players’ incentive to stay with Amax at that time. The other operators joined in the price war and the Macau government threatened to impose a commission cap. In theory, the cap is now in place at 1.25% with regulations to cover ‘back door’ incentives paid for generating volume on borrowed working capital. Currently, it is generally accepted that junket agents in Macau are offering rebates to players of around 0.8%. By way of comparison, Bank of America Merrill Lynch said recently in a research paper to investors that Resorts World Sentosa, the new Singapore casino resort majority owned by Malaysia’s Genting, is likely to offer a 1.1% rebate on rolling chips to direct players. (It’s not yet clear whether junkets will be allowed in Singapore.) High Volume, Low Margin Why gambling agents matter in the Macau millions race Charity Begins at Home Can casinos combat player poaching with greater handouts to players and agents? Macau VIP Sector An interesting question is can the Macau casinos afford to be more generous to their direct players and head off any player poaching by junkets. The wiggle room of the casinos must be considerable if figures previously released by Las Vegas Sands Corp (LVS) are accurate. LVS said in June 2009 in a note to investors that its margin on direct high roller play inMacauwas 1.0 to 1.2 times higher than the margin on players fed to it by junkets. When LVS’s figure is meshed with other industry data, including an average 0.5% net hold to the casinos on VIP gross (after tax and expenses and after theoretical hold is smoothed out to account for baccarat return volatility), that would mean Macau casinos with direct players are achieving a net hold of 1.0% plus. In other words, they have up to 0.5% to play with as incentives to direct marketers and VIP players before they dip below the returns they can achieve by simply going the junket route.