Inside Asian Gaming

inside asian gaming September 2014 18 company with successful casino ventures in Australia, Macau and London, we’ve always kept our eye on Las Vegas,” Mr Packer said when the Strip purchase was announced. “You can’t be in the gaming industry and not have a special reverence for Las Vegas—that’s where it all began.” Crown expects to break ground on its as-yet unnamed Strip resort—news reports have it tentatively priced at $1.9 billion—in the latter part of 2015 and open the doors in 2018, about a year after Genting is slated to open its $4 billion Resorts World Las Vegas just up the street at the site of the old Stardust. By then, Crown will be even bigger and stronger. Melco Crown is opening its US$1.3 billion City of Dreams Manila later this year with 1,000-plus hotel rooms, 1,900 machine games and 350 table games. Next year will see the opening of MCE’s $2.9 billion Studio City megaresort on Macau’s Cotai Strip with 2,000 rooms, 1,000 EGMs and a hoped-for 400 tables. Plans for a $350 million resort in the Sri Lankan capital of Colombo have hit political and social headwinds and haven’t gone so well, but not because Mr Packer’s vision of being the first to market with a major casino to serve a potentially explosive South Asia market lacks for boldness and isn’t eminently sound. His vision for Australia’s potential as a destination for China’s new wealth class is no less bold and is driving him to pursue a winner-take-all strategy in a rivalry with Echo Entertainment stretching from New South Wales to Queensland. In Sydney he’s successfully dismantled Echo’s longstanding monopoly and won approval for a A$1.5 billion luxury hotel and casino on the last significant developable acreage on Darling Harbour. He expects to replicate the feat in Brisbane, where he began lobbying hard against Echo’s exclusive license long before the Queensland government put three new gaming licenses on offer last year. He’s partnered in Brisbane with China state-owned property giant Greenland to counter Echo’s billion-dollar IR bid and he’s likewise prepared to commit to seven figures to win. Edward Tracy President and CEO Sands China The vision was Sheldon Adelson’s, the execution, that’s been Edward Tracy’s, and it’s a tribute to his tenure as CEO, recently extended another three years, that Sands China stands today as not just the largest cash-generating casino operator in the largest casino revenue market in the world, it’s been the market’s foremost innovator, the clear leader in its evolution as an all-around destination for the masses. It’s also been a strikingly efficient company, a fact that’s less well-known perhaps, but it may well be Mr Tracy’s single greatest contribution, and it’s going to become increasingly important in an operating environment where revenue growth is decelerating and a tight, and restive, labor market is driving up costs. How efficient is Sands China? In the first six months of 2014, Sands’ operating expense was the lowest of the six gaming concessionaires’ as a percentage of revenue—this despite the fact that its staff costs are higher than everybody else’s because it runs more casino floor space, more hotel rooms, more restaurants, more entertainment and more MICE business than everybody else. Its resulting EBITDA margin of 28.1% was the highest in the market. Sands posted a record-breaking US$1.74 billion in EBITDA in the first half, a 35.7% increase year on year, and delivered a 45.7% increase in net income on that to $1.37 billion. In a period that ended in Macau’s first monthly decline in gaming revenue year on year in five years (the first of what would be three successive months of YoY declines), gaming revenue was up 25.2%, driven by double- and triple-digit percentage increases in mass-market play, which is where Sands consistently outperforms the market and where Mr Tracy and his team really shine operationally. In the first half, 48.5% of the company’s gaming revenues came from non-VIP play. That’s the most in the market by far. And the period ended with Sands building on its historical dominance of the competition in terms of mass revenue, with 30.4% of the market’s revenue from cash table play and 32% of revenue from slots. The period was notable as well for a superb ramp-up of the business at Sands Cotai Central, where cash table drop was up 62.7% year on year. Revenue per available room, the principal indicator of hotel profitability, was up 47%. Total revenues grew by 85.2%. Conversely, Sands tends to rank in the middle of the pack in VIP revenue. But that’s by design. Its 17% of the market during the first half was good for third place, which is where it consistently ranks also in terms of rolling chip volume. But it’s been astutely managed. The company significantly outperformed the market average in hold/win rate, which is interesting because it has exceeded the market average