Inside Asian Gaming

inside asian gaming MAY 2015 34 FAMILIAR DIVERSIFICATION Star Vegas will serve as a bookend to Donaco’s Aristo International casinohotelinLaoCai,Vietnam,whereplayersfromneighboringYunnan Province walk in from China with their ID cards and play in Chinese renminbi. For Donaco, the acquisition is about diversification—a Thai- facing property complimenting a China-facing one—not synergies, but there are key similarities between the properties. “Operating conditions are very similar to what we know in Vietnam,” Mr Reichel says. “It’s an area that Thai players can cross over to without a visa. Even though they’re in Cambodia, they gamble using Thai baht, so don’t have to change money. Star Vegas cage and casino staff are all ex-Genting, Genting trained, so the operating procedures are the same as Aristo.” On the regulatory side, Mr Reichel concedes Cambodia’s regime is “pretty ad hoc. Licenses are issued annually, but if you pay your taxes, there’s certainly no issue of getting the license renewed.” Casinos are exempt from the 20% corporate income tax, and levies are per gaming device only, not revenue. “One key thing is that the government doesn’t tax you on a percentage of profits,” he says. “Our assumption is that taxes will increase gradually. From such a low base, it’s still going to be very minimal.” On money laundering, Mr Reichel says, “Cambodia has been a focus country for Financial Action Task Force, the inter-governmental group that looks after money laundering. They’ve acknowledged Cambodia has made significant strides in recent years. They’ve got the right laws in place. They’ve got a regulator in place. There may be some issues in terms of enforcement but at least they’re getting there in terms of the structure.” He adds that Donaco will monitor the issue closely and ASX, the Australian stock market, didn’t raise concerns about the deal. Donaco rightly calls the acquisition “transformational.” From a single-asset enterprise—Donaco completed selling off gaming technology assets last year—the deal gives it geographical and market diversification. The deal is also the equivalent of a minnow swallowing a whale. Donaco estimates the deal will increase its 2015 revenue nearly five-fold toA$228.3million ($177.3million) fromA$38.8 million, quadruple EBITDA to A$99.9 million and boost net profit to A$80.7 million. Looking at it another way, with the completion of the merger, Star Vegas would account for 84% of Donaco’s estimated 2015 revenue, 77% of EBITDA and, after deducting interest costs related to the acquisition, 80% of net profits. BIG DEAL “The Star Vegas deal is a lot bigger than a lot of people were expecting,” after the company announced last year it was negotiating an unspecified Cambodia acquisition, Mr Reichel says. “A lot of people in the industry didn’t realize how much money Star Vegas makes. The total deal size is $360 million, but it’s important to remember one-third of that is in Donaco shares.” Cover Story Everyone Wins With Revenue Share It’s a casino floor truism that someone wins and someone loses. But revenue share arrangements on gaming machines or tables can create a win-win-win situation for operators, service providers and players. Revenue share happens throughout the gaming world but is particularly attractive to operators in smaller markets. Casinos get machines for the floor without capital outlays and an opportunity to see which games customers like. Machine providers get steady revenue streams and product exposure. And players get a wider range of game choices. “The distributor brings in the machine, pays the capex cost, installs it, maintains it,” Donaco International Executive Director Ben Reichel says. Australia-based Donaco is buying Star Vegas in Poipet, Cambodia, where nearly 1,000 of the 1,300 machines are on revenue share deals. “From the operators’ perspective, it’s an opportunity to see which games work, and then to buy them. They make much more money that way.” “We get more varieties of machines for players,” Holiday Poipet Slot Manager Halim Lim says. “For machines not proven in the market, we try them and have the option to buy.” Revenue share deals take many forms. Where regulations permit, casinos with excess or underperforming table capacity can offer tables to outside operators, usually with an exclusive on a particular game, on a percentage or lease basis. NagaCorp reported receiving a $15 million “EGM Entrance Fee” in 2013 from an operator for placing 200 revenue share machines at NagaWorld in Phnom Penh. EGM net win splits are typically 70% to the casino, 30% to the provider. Rates vary depending on whether the casino or share operator staffs the slot area, casino traffic and types of games. Spectrum Asia CEO Paul Bromberg says there are two major risks faced by Poipet’s casinos: “First, Cambodia-Thailand border conflict: border skirmishes could close the border overnight as has happened before. Second, the Thai government could legalize casino gaming in Thailand. That is unlikely to happen in the foreseeable future, but it would kill Poipet overnight.” >>