Inside Asian Gaming

INSIDE ASIAN GAMING | February 2010 16 A ny notion that competition in Macau’s VIP table gaming sector is mainly driven by the quality of facilities, rather than price, appears to have been dispelled by Melco Crown Entertainment’s fourth quarter results. The quarter—the first full reporting period since the 1.25% cap on VIP rolling chip commission was brought in by the government in September—saw a number of junkets abandoning MPEL’s Altira resort. Under the cap arrangement, Altira was no longer able to offer the enticing 1.35% commission that it had previously used to hook junkets and their high rollers. Once that spell was broken, the rationale for MPEL’s deal with junket aggregator Amax also disappeared. For the quarter ending 31st December, rolling chip volume at Altira totalled US$8.9 billion—a fall of 13.5% on the US$10.3 billion achieved in the fourth quarter of 2008. That doesn’t sound too bad given that smaller commissions mean better margins, but it isn’t especially pretty in the context of a generally rising Macau market. In Q4 2009, Macau’s total gross from VIP baccarat grew 37.4% year-on-year from the equivalent period in 2008. If there’s one clear lesson for executives working in Macau’s casino industry in the last three years, it’s this: You better make high roller ‘hay’ while the VIP sun is shining, because ‘rain’ in the form of visa restrictions and/or a central government squeeze on credit must surely be around the corner. To give MPEL’s management its due, the company has clearly been working hard to claw back trade at Altira. The company’s co-chairman and CEO, Lawrence Ho, said that in January, Altira achieved gaming volume of approximately 30 billion patacas (US$3.75 billion). That would put it on target to match or exceed the numbers seen before the commission cap came into force. That business should also generate more profit because of the lower commission rates. Of more concern to MPEL executives is the performance of City of Dreams in the VIP segment. Although it’s still early days, since the resort only opened in June last year, in Q4 ‘09 the property managed an increase of only 3% quarter-on-quarter in its VIP rolling chip volume to US$9.3 billion. The Macau VIP market as a whole achieved 12.9% revenue growth quarter-on-quarter during that period. Reports that Harrah’s is interested in buying out Crown’s stake in MPEL have been dismissed as“nonsense”by Lawrence Ho.The fact they have surfaced at all will naturally make investors wonder about the mood in the current MPEL boardroom and whether the company’s current strategy is optimising business opportunities. The company reported a net loss of US$308.5 million for the twelve months of 2009,comparedtoanetlossofUS$2.5million for the twelve months of 2008. However, it attributed most of that to depreciation and capital costs linked with opening CoD. Commission Cap Fallout MPEL’s VIP segment comes under pressure MPEL Altira Macau City of Dreams