Inside Asian Gaming

INSIDE ASIAN GAMING | August 2013 18 Clearly, the fundamental dynamics of the market are shifting in ways that say a lot about the impact of China’s burgeoning middle class and the returns that are likely to accrue on the massive amounts of capital being invested in new resort construction on Cotai specifically to target it. It’s important as well for what it says about the operational demands required to make all this meaningful to the consumer. Because the thing about this surging mass market is how it is revolutionizing the way the industry thinks about profitability. As cash gambling is conducted directly between the player and the casino— no junket intermediaries and VIP room promoters to be cut in for 40-45% of the win—after-tax margins are around three to four times greater than on VIP. It’s impossible to overstate what this means for the bottom line in a market as capacity-constrained as Macau is as a result of restrictive government policies affecting imported labor and the supply of new table games. The casinos have had to get very good very fast at identifying and segmenting players on the basis of their value and tailoring marketing and service levels to maximize the yield on each, especially as this concerns the biggest bettors, the prized “premium mass,” as they’re known, the elite of the elite whose high-rolling preferences deliver three to four times more yield per table than the average cash player. Galaxy Entertainment Group joined the vanguard of this movement two years ago when it opened Galaxy Macau, its US$2.1 billion Cotai flagship, and began to fine-tune a premium-mass strategy distinguished by its “VIP” approach to delivering service and rewards. This has continued into 2013 with the result that growth in mass table win and mass tables and slots combined had handily outpaced market-wide growth in both sectors in the first quarter. J.P. Morgan is looking to Galaxy Macau for HK$87,211 in daily win per table this year (a 32% increase over 2012) and a 24% increase in win per slot to $2,729. With revenue up 23% to HK$8.9 billion in the first quarter—EBITDA was up 48%—the property appears to be well on the way to achieving both. The strength of its mass business saw Galaxy Macau running at a comfortable 22% operating margin in the first quarter (30% under US GAAP rules), and the story is only going to get better as a government allocation of 50 new tables for 2013 is fully distributed across the group along with 38 tables acquired with the recent purchase of the Grand Waldo on Cotai, previously licensed as one of GEG’s City Club-branded casinos. In June, the property entered the lucrative live-dealer electronic table market with a 150-seat stadium installation. This will prove important in balancing out the offering at the lower bet ranges with the three exclusive areas carved out of the main floor for higher-limit players, the Pavilions, as they’re called. The property’s biggest slot players also have an exclusive gaming room of their own, elegantly designed by Las Vegas-based Steelman Partners, the architect behind all of Galaxy Macau’s distinctive interiors, and outfitted with about 110 machines. June saw the unveiling of another Steelman creation, the Pavilion Club—a 4,000-square-foot baccarat salon reserved for Pavilion Black and Pavilion Platinum members, the highest tiers in Galaxy Macau’s popular loyalty program. Pavilion Club houses nine tables in a setting as luxurious as any VIP room, complete with amenities and service levels normally INSIGHTS Gabriel Hunterton Pavilion Club entrance “It’s no secret that this is where the market is headed. And we believe that we’re in a good position now—actually, we believe were in a very good position now—to service those customers.”