Inside Asian Gaming

INSIDE ASIAN GAMING | May 2012 46 S JMHoldings Ltd, Macau’s largest casino operator by revenue, said net profit in the first quarter of 2012 was HK$1.7 billion (US$219million), up 22% fromHK$1.4 billion in the same period last year. The company’s gaming revenue for the first quarter increased 8.5% to HK$19.7 billion, lagging overall market growth of 27%. SJM’s share of total Macau casino revenue stood at 27% in the first quarter. This compares with a market share of 31.9% for the same period last year. Purporting to offer insight on SJM’s steady market-share decline, media reports often conclude that the erstwhile monopoly casino operator is struggling to stay ahead of the new foreign competition. The market share figures do not, however, offer a true measure of SJM’s competitiveness, which should be measured on an apples to apples basis—performance at casinos developed by the new operators vs. performance at SJM casinos built after the market was opened up. Instead, the market share figures offer an apples to oranges comparison; the oranges comprising an SJM property portfolio saddled with a large number of ageing and third-party-owned legacy casinos. Although SJM operates 20 of Macau’s 34 casinos, 14 of those are owned by third-party promoters. These so-called satellite casinos contributed 51.4% of SJM’s total casino revenue in the first quarter of this year. The satellites pay SJM anywhere from 20% of the gross (the traditional 40:40:20 model, whereby 40% goes to the government in tax, 40% to the satellite owner and the residue to SJM), to as little as 3-5% to SJM on a profit-share basis. It is, therefore, grossly misleading to count all the revenues generated by the so-called satellite casinos towards SJM’s tally in compiling market share data. Although Galaxy Entertainment Group also has satellite operations, Galaxy’s satellites make a much smaller contribution to its overall earnings, especially following its major capacity expansion with the opening of Galaxy Macau on Cotai in May last year. SJM’ssatellitecasinosaremostlylocated within modestly appointed hotels, but through a combination of long-established networks and possibly a willingness to go after clients neglected by the bigger operators, are able to generate significant VIP baccarat volumes. In 2011, the satellite casinos actually held up pretty well against the market as a whole, reporting revenue growth of 34.9%, against the market-wide 42% increase. They are inexorably losing share to the glitzy new resorts, however, and will no doubt bear the brunt of any market downturn. The satellites got off to a disappointing start this year, reporting a 5% year-on-year revenue decline in the first quarter of 2012. On the bright side, because SJM only pockets a small portion of the revenue from the satellites, its overall profit has been less impacted by their declining fortunes. SJM directly owns and promotes seven properties. The flagship, Grand Lisboa, is the only one that can be fairly compared with the new breed of casinos that have sprouted up in Macau since the May 2004 unveiling of Sands Macao. The others are a motley collection, including three slot halls, the iconic Casino Lisboa (which opened in 1970, and until Sands Macao opened in 2004, remained Macau’s gaming hotspot), Casino Oceanus at Jai Alai (a converted shopping mall) and the crumbling Casino Jai Alai (which shares the Oceanus license, keeping SJM’s total count of licensed venues at 20). SJM treats Grand Lisboa as a category Apples to Oranges Macau’s market share figures provide a misleading measure of SJM’s competitiveness SJM