Inside Asian Gaming

August 2010 | INSIDE ASIAN GAMING 13 room for offering incentives to players. More on that later. Non-negotiable First, here’s a brief rundown on the rolling chip commission system in Macau as it relates to junket play. The VIP room contractors purchase ‘dead’ chips (non- negotiable chips that can only be used in play) from the casino concessionaire to be resold to VIP player representatives (let’s call them ‘agents,’ though sometimes their relationship with the room operator is so close as to be virtually part of the same organisation). The room contractors receive a percentage commission on the volume of dead chips they purchased. The junket agents then sell the non-negotiable chips to players who use them in actual play. When players win a wager with non- negotiable chips, they are paid off in live (negotiable) chips, which can be redeemed at the casino cage for cash. In reality, they are usually bought back by junket reps in exchange for dead chips. This is the ‘chip rolling’ process often referred to by casino executives and industry analysts. Theoretical casino win is calculated by dividing actual win by dead chip sales. Most VIP chips are rolled on average two-and-a-half to three times per session. In Macau, rolling chip commissions are operating on a ‘pull’ principal. Junkets pull them from the operators as reward for bringing in the VIPs and for mitigating risk on credit settlement, and then share them with their players. In Singapore, because the VIP players (officially so far) all have a direct credit relationship with the operators, the casinos ‘push’ the rolling chip commissions to players as rebates to incentivise more play. That commission ‘push’ can vary depending on the size of roll of the player, but LVS says it typically expects to pay 1.2%. In Macau, junkets ‘pull’ a maximum of 1.25% commission from casinos on rolling chips and pay most of it straight back to the players either in additional roll or occasionally as rebates on player losses, in the end keeping between 20 to 35 bps of the 1.25% commission originally earned in order to cover their margins. In Singapore, because MBS isn’t dealing with junket middlemen, it ‘pushes’ the whole of the 1.2% commission it charges on VIP chips as an incentive to players. It’s likely, however, that MBS is also absorbing the cost of player ‘comps’ in its VIP business model so that in effect the resort is paying slightly more than 1.2% to the player. In Macau, the rolling chip commission that an operator can pay a junket is currently fixed by law at 1.25%. The Macau junkets can’t give the whole of that maximum 1.25% to the player because they need to make some margin. No doubt one or two of the biggest high rollers have at some time pushed them close to surrendering their margin outright. In February, we reported some Macau junkets were offering 0.2% of a player’s rolling turnover to third parties in order to convert Macau casino direct players into junket players. That doesn’t leave much left for junkets already working on 0.2% to 0.35% net commission. Over in Singapore, anecdotal reports suggest Genting at Resorts World Sentosa (RWS) is rebating as much as 1.4% to 1.5% to VIP players, including some from Japan. IAG sources also suggest Genting’s motive in attracting direct players from Malaysia to Singapore is the high gaming tax in Malaysia (25% for VIP and for mass play) and political uncertainty regarding Genting’s Malaysian gaming licence, which is currently being renewed by the Malaysian government on a rolling basis every three months, whereas its Singapore licence is guaranteed for at least ten years. LVS’s Sheldon Adelson said in his company’s second quarter earnings call in late July that he couldn’t personallypinpoint Push versus pull—different commission incentives in Singapore and Macau Resorts World Sentosa—paying up to 1.5% rebate to VIPs? In Focus