Inside Asian Gaming

INSIDE ASIAN GAMING | September 2010 24 Asian Gaming 50 – 2010 13 (8) James Packer Chairman, Crown Ltd Co-Chairman, Melco Crown Entertainment 14 (15) Vincent Tan Chee Yioun Chairman and CEO Berjaya Corporation His name may be on the deeds, but James Packer could best be described as semi-detached when it comes to the day- to-day business of running his portion of Macau’s gaming industry. Mr Packer was notably absent from the first anniversary party in June for City of Dreams (CoD)—the second offspring from the marriage of his Australian casino operating company Crown Ltd and Lawrence Ho’s Hong Kong-listed Melco. His absence did little to dispel rumours—circulating earlier this year but strongly denied by Melco Crown—that Mr Packer would like to exit the Macau gaming market. Any doubts Mr Packer may have about his overseas gaming investments were probably lessened this summer after Crown Ltd recorded A$292 million profit in its 2009- 10 annual results published in August. That was in part due to a narrowing of operational losses in Macau (Crown’s share of the loss was A$64 million) now that CoD is open and generating cash to service the debt raised on its US$2.4 billion cost. In 2008-09, Crown was hit with A$1.7 billion in write offs on its North American casino investments, leading to a loss of A$1.2 billion for the year. Mr Packer and Mr Ho’s Macau tie up was initially billed by the media as a kind of Chris Tucker and Jackie Chan double act for the gaming industry. It involved two ambitious In June, Malaysian gaming entrepreneur Vincent Tan Chee Yioun missed out on a chance to add US$161 million to his already considerable fortune. The group he founded, Berjaya, was due to pay him that equivalent in Malaysian ringgit (RM525 million) for a 70% stake in a Malaysian sports betting operator called Ascot Sports. The company had previously won government approval for its operations. But the authorities changed their mind and instead withdrew Ascot’s permit at short notice. and relatively young entrepreneurs who were going to shake up the status quo with their ideas and energy. With two MPEL productions in the can in the form of CoD and Altira Macau, it’s clear with hindsight things turned out less like ‘Rush Hour’ and more like ‘Big Trouble in Little China’. Their first effort, Crown Macau (now Altira), opened massively over budget— 203% over, in fact—in May 2007. It had a final price tag of US$583 million, compared to its original estimated budget of US$192 million. Even worse, it was six months late. After the belated opening, it limped along in its chosen segment, the VIP market, until the cavalry came to the rescue in the form of a prominent marketing executive who has worked extensively with Lawrence Ho’s father, Dr Stanley Ho. He in turn introduced Crown Macau to AMA, a junket consolidator subsidiary of Amax Holdings (a company that was already an investor in the SJM- licensed Greek Mythology casino next door to Crown Macau on Taipa). Thus was born the now legendary 1.35% rolling chip commission deal for junkets that reversed Crown Macau’s fortunes. The reversal was temporary, however, with the business case for the AMA deal unravelling following the Macaugovernment’s cappingof commission rates at 1.25% in September last year. Project cost control has not been MPEL’s strong suit. When CoD opened in June 2009, the final bill came to over US$2.4 billion— 12.5% above the US$2.1 billion estimated cost MPEL gave in a filing to the US Securities and Exchange Commission in October 2007 and 37.5% above the original US$1.5 billion estimate submitted in a 2006 filing. To be fair to the company, all the Macau operators were affected in 2007- 08 by cost overruns or pressures relating to commodity inflation linked in part to China’s fast economic growth. On the upside, although CoD has lagged inperformance in the fast growingMacauVIP segment, it has been generating significant cash to support the Macau operation, to the extent that MPEL has felt sufficiently confident to go back to the money markets to strengthen its balance sheet. InMay, MPEL said it was offering investors S$600 million worth of senior notes (due in 2018) via the Singapore stock exchange. The company said the exercise would reduce its debt burden on CoD. That could be another good reason for Mr Packer to stick around for the Macau ride. Ascot’s licence was designed to offer a legally sanctioned and properly taxed alternative to Malaysia’s illegal sports betting industry. Some Malaysian media reports said the withdrawal of the permission was due to ‘public pressure’ against the legalisation of sports betting in the majority Muslim country. Inanunusuallycandidpressstatementfor a Malaysian business, Berjaya said it “deeply” regretted the government’s decision on Ascot and was“extremely disappointed”. The country’s media also reported that shortly after the Ascot setback, Berjaya cancelled a proposed rights issue intended to raise RM614.5 million for business expansion. Berjaya’sgamingbusinessisbasedchiefly on its Sports Toto operation, Malaysia’s only national lotto operator, with around 700 outlets. The company has also been looking at opportunities in neighbouring countries. In April, Vietnam issued decrees on possible regulation of sports betting as well as a national lottery. Expressions of interest in tendering to provide such legal services were reported both from Berjaya Group and Italy’s Lottomatica Group.