Inside Asian Gaming

INSIDE ASIAN GAMING | February 2012 8 Mocha M ocha Clubs—a chain of locals- focused Macau slot parlours— wereMelcoCrownEntertainment’s (MPEL’s) first toehold in its slow climb to the lofty heights of the territory’s huge gaming market. From 2003 until the opening of the Crown Macau (now Altira) casino hotel in May 2007, they were the only generator of Macau gaming revenue initially for Hong Kong-listed Melco, and subsequently for Melco PBL, the Sino- Australian joint venture run by Lawrence Ho and James Packer (now MPEL). And Mocha was a marginal toehold at that. Until 20th September 2006, the Mocha Clubs business was operated under a revenue-sharing service agreement with SJM. That was a legacy issue relating to the fact that it was only in March 2006 that MPEL acquired its own Macau gaming sub- concession from Wynn Resorts. Prior to that it had been piggybacking on the gaming licence of Dr Stanley Ho in order to operate Mocha. In 2006 it had to close Mocha Kampek, a venue inside the SJM-licensed casino of the same name, as a pre-condition of Macau government approval for the sub- concession deal with Wynn, according to a Melco PBL filing with NASDAQ that year. But by the end of 2011—with MPEL’s City of Dreams resort firmly established on Cotai and Altira Macau making a steady if not spectacular living from VIP gambling— Mocha’s contribution to the total MPEL business was proportionally much smaller than it had been in the early days. By the fourth quarter of 2011 Mocha’s net revenue accounted for only 3.4% of the net revenue earned byMPEL as awhole during the period (US$34.5 million versus US$1 billion). Yet if one compares the 4Q2011 revenue number (US$34.5 million shared among nine clubs) with the 4Q 2007 net revenue number (US$22.4 million spread over seven outlets), that’s an increase of 54% in locals- focused gaming in four years. That growth rate is tiny compared to the 222% rise in gross gaming revenue from all games of fortune marketwide in the same period, mainly driven by live table VIP baccarat—the domain of high rollers from mainland China. But the fact that Mocha Clubs have been aimed since their foundation at local players means the money they earn is essentially redistributive—taking money from lower- earning consumers and then feeding some of it back to them via the near 40% gaming tax—rather than being a net contribution to Macau GDP by taking money from mainly rich outsiders. This fact is not lost on the Macau government. It is now moving to Revolving Door The Government’s assault on local slot parlours looks more like gesture politics than substantive policy Tough spot—Mocha faces government pressure