Inside Asian Gaming

inside asian gaming MAY 2015 18 where players can handle the cards, with several $200 tables. There are $40 baccarat tables with cards dealt face up. Mass minimums were increased at the end of 2012, and maximum mass baccarat bets raised to $50,000. The new strategies dramatically changed revenue mix. In 2008, junket play constituted 93% of gaming revenue through a variety of commission programs. In 2011, junket play was down to 38% of gaming revenue. More importantly, after two recession-impacted years, gaming revenue had grown 10% from 2008 to $211.4 million in 2011 with overall revenue up 16% to $223.8 million, net profit grew from $40 million to $92 million and EBITDA rose from $49.3 million to $111.8 million as margins improved from 26% to 50%. “In 2012, we realized we had to step up on the VIP side,” Mr McNally says. “To be a full service property we needed to upgrade our gaming facilities and VIP amenities.” Competitive pressure from regional competitors contributed to that decision. Late that year, NagaWorld opened penthouse suites—modern duplexes with terraces overlooking the rivers that would fit proudly into Macau or even Manhattan. The suites, for players that check in $2 million and roll it six times, have attached gaming rooms. “That’s an advantage over Macau,” Senior Vice President for Casino Operations Vincent Mascio says. “We’re not as regulated on the small things as Macau. It makes life easier.” Cambodia also has no whiff of smoking restrictions on the horizon. NagaCorp has been out in front of Cambodia’s government on anti-money laundering measures. “AML is an issue because we knew it would be an issue with international financial companies and other destinations,” Mr McNally says. “As a company looking to expand elsewhere, we emphasize corporate governance and a clean operation.” NagaCorp regularly commissions independent audits of its AML procedures, including one last year. A supplementary stock offering in March 2013 raised $156 million to develop direct premium and VIP business. Some funds went toward hardware including adding VIP rooms, limousines and a private hangar under construction at Phnom Penh’s airport. But much was seed money for Naga’s Junket Incentive Program that offers promoters a 70% split of revenue, rising depending on roll, compared with Macau’s typical junket share in the mid- 40s—any more than that would not be feasible in Macau given the 40% gaming tax there. By sharing rewards and risks with junkets, NagaWorld has been able to raise VIP maximum bets to $200,000. To support the incentive program, it added VIP rooms with a total of 47 tables last year. VIP PAYOFF “VIP was our big story of 2014,” Mr McNally says. “Our VIP strategy is paying off.” After a long courtship, NagaWorld brought in its first Macau junket in August, Asian Nations, a group of agents affiliated with other Macau junkets, NagaWorld executives say. The impact was immediate, with rolling volume up 47% year on year in the second half of last year, and Asian Nations contributing $627 million in a little more than four full months of operation, according to Union Gaming Research Macau. NagaWorld, which opened a marketing office in Macau last year, is seeking agreements with other junket promoters. “We don’t have the cosmopolitan feel of Singapore, but the feedback Cover Story plans to leverage its frontier market experience with NagaWorld in Cambodia and its connections with China for the Russia project. “The idea is to reach out to 435 million Chinese living within a two hour flight,” Mr McNally says. China International Travel Service (CITS) and China Duty Free Group, also working with NagaCorp on its expansion of NagaWorld, are also cooperating on the Vladivostok project, along with architect Paul Steelman, designing the Phnon Penh property’s NagaCity Walk retail area. Flight times to Vladivostok are less than three hours from the capitals of Japan, which has no legal casinos, and South Korea, where citizens can only play at a single, remote location that’s a four-hour drive from Seoul. But NagaCorp says its Vladivostok project will focus on the China market. “It’s the China side we know, where we have the knowledge and expertise,” Mr McNally says. “How quickly we ramp up is a question of the effectiveness of our China operation.” He forecasts payback on the first phase within four years. He says the resort could open ahead of the 2018 projection, though the master plan is still awaiting approval from Russian authorities to allow construction to begin. On a visit to the region last year that featured meetings with government officials, NagaCorp CEO and controlling shareholder Chen Lip Keong said, “We are serious about the gaming zone development project, but it should be understood that the construction of a casino should be conducted in close cooperation with the public sector. We have an extensive experience in the successful development of tourist destinations in Cambodia, and we are ready to bring it to Primorsky Territory.” NagaCorp won’t be alone in Primorsky. First Gambling Company of the East, a consortium led by Lawrence Ho-controlled Summit Ascent, is scheduled to open a casino in the area later this year. Russian casino operator Royal Time Group is also building in the region. A study by Global Market Advisors Partners Steve Gallaway and Andrew Klebanow forecast gaming revenue in Primorsky to reach $1.2 billion within three years of resort openings and $5.2 billion within ten years. Bassaka Air will begin twice weekly service to Macau this month and flights to China are expected to begin in July.