Inside Asian Gaming

August 2010 | INSIDE ASIAN GAMING 15 The source said:“A lot of high rollers travel regularly around the region for business and may have a home in more than one city. For them, it may not be a choice of playing either in Macau or Melbourne, or either Macau or Singapore. It may be a case of the more the merrier. The more destinations they have to try their luck, the better.” From the operators’ perspective, however, it’s clearly potentially more profitable to have direct players doing most of their rolling in a low tax destination such as Singapore, than in a high tax destination such as Macau. On $100,000 of bets placed (roll) via a junket in Macau, assuming a theoretical house win of 2.75% and less 40% government tax on the win and 1.25% of the roll going to the junket, the casino would be left with $400. LVS said in a note to investors in June 2009 that its direct VIP play in Macau was 1.0 to 1.5 times more profitable than junket originated play. That would suggest LVS could retain from $800 to $1,000 in the above scenario were the bets placed under direct play. In Singapore, when a direct VIP player places $100,000 worth of bets, assuming a house theoretical of 2.75%, 12% tax to the government (5% VIP gaming tax plus 7% Goods and Services Tax) and 1.2% rolling chip commission rebated to the player on his or her ‘roll’, the casino would be left with $1,220. Singapore also has typically lower dealer overheads than Macau. It’s clear, therefore, that the economic benefit to a Singapore-based casino of direct VIP play is considerably greater than either Macau- based junket VIP play or even Macau-based direct play. That might be why Mr Adelson said during the earnings call that his company was re-examining its strategy of heavily promoting direct play in Macau. “We are in active discussion right now since we terminated Steve Jacobs about the wisdom of accentuating the effort for direct premium play [in Macau],” said Mr Adelson. “We are certainly not going to eliminate it. The question is, how aggressive we are going to be to try to get it? We certainly have a lot of it in, I mean all that we have in Singapore is direct premium play.” One good reason for cutting back on direct VIP business in Macau is credit risk. As our story ‘Carrots and Sticks’ points out elsewhere in this edition, although in theory Macau law allows gambling debts to be pursued in its courts, in reality if the debt belongs to a resident of mainland China the courts there may not be willing to assist in the recovery process. Mr Adelson has further reasons for falling out of love with direct VIP play in Macau. He said during the conference call that the assumption that direct VIP business could be acquired in Macau at a lower cost than junket-driven VIP business was not always correct in practice. He didn’t mention that it was his own company that had set up that expectation in the market in the first place. “The idea of getting [Macau] junket play with the expectation of lower cost has not been completely met amongst the various strata of direct premium player. Some of them are very high, and we may bifurcate part of the [Macau] direct premium play, keep some and not keep others, because the cost of this is very high. Well, in some cases, it’s high. So we are reconsidering as to whether or not it’s going to be worth it to keep all strata of direct premium play because I have seen several analyst reports that say, well the scuttlebutt [rumour] is that as sales chases direct premium players, a lot of the players, a lot of the junket reps are bringing their business over to Wynn.” Mr Adelson said he was surprised by the source of some of direct players coming to MBS in Singapore. “I looked at the top 20 players yesterday and we have countries that I didn’t believe we would get them from. We even get customers from Macau. “We have Hong Kong, China, Indonesia, Vietnam, Taiwan, Korea, of course, Malaysia and Indonesia, and Thailand.” Lion City factor Rob Goldstein, Executive Vice President of LVS, added during the earnings call that the respect in which Singapore is held regionally and internationally may also be a factor in ensuring (in the first few months of operation at least) no default by VIPs on direct credit. “It[Singapore]isaveryimportantcountry and city state. And the customers have a lot of respect for it. I have been pleased to find that people pay pretty quickly. We haven’t had a credit issue yet,” said Mr Goldstein. Mr Adelson said in some of his closing remarks that industrypredictions suggesting junkets may successfully register for licences in Singapore in the second half of the year were unlikely. “I am still convinced that the Macau style junket reps will not submit to the probity checks and provide the information that the [Singapore] government will need to put them through the investigatory wringer. And even if they do, and even if there are some Macau style junket reps that will do that, I don’t believe its going to be done this year at all,” stated Mr Adelson. The Singapore VIP split Theoretical house win 2.75% 2.85% 3.00% Total amount bet by player (roll) $100,000 $100,000 $100,000 Gross amount won by casino $2,750 $2,850 $3,000 Singapore govt tax @ 12% $330 $342 $360 (5% VIP tax & 7% GST)* Commission (rebate) paid by $1,200 $1,200 $1,200 casino on player roll @1.2% Singapore casino net win $1,220 $1,308 $1,440 (after tax and commissions) Note * (Corporate tax is also levied on casino profits in Singapore at 17%) In Focus Sheldon Adelson—reducing direct VIP play in Macau?