Inside Asian Gaming

inside asian gaming January 2016 30 T he world has been amazed by the performance of Macau’s gaming industry since the new law was passed in 2001. That year, gross gaming revenues for Macau under the monopoly concession STDM were US$2.3 billion. For just the first quarter of 2008, they were $3.7 billion. If the current pace continues for the rest of 2008, Macau will end up with gaming revenues for the year of around $15 billion, compared to $10.3 billion in 2007. Not only has Macau officially surpassed all of Las Vegas in gaming win; Macau’s gaming revenues in 2008 will likely exceed those of the entire state of Nevada — or alternatively, the combined gaming win of America’s two largest gaming cities, Las Vegas and Atlantic City. But that raises a question, because of the title of this article: Everything old is new again. We re- visit this June 2008 article published by our friends at Global Gaming Business in which Andrew MacDonald and Bill Eadington thoroughly analyze threats to the Macau then-boom. It makes fascinating reading in the context of the industry downturn of the last 18 months. “Macau – Confidence or Crisis.” Crisis? What crisis? How bad can things be with average annual revenue growth rates exceeding 20 percent? Yet many investors, analysts and observers are indeed concerned about what might be happening — and what might soon happen — in Macau. The Cs Most of the concerns of the skeptics stem from what we can call the “Cs”: Competition, Costs, Constraints (labor and infrastructure), Commission rates, Consumer profiles, Capital crunch, Credit availability, and China. The relative importance of each element in the Cs may differ from observer to observer. However, there is little doubt that all these factors are significantly contributing to a cautionary sentiment among a growing number of observers regarding Macau’s future. Consider the related issues of competition, commission rates, credit availability and costs. The Macau gaming market can be divided into mass market play, which consists of about 30 percent of the total; and premium play, which makes up 70 percent of revenues. The premium play or VIP market has been dramatically shaken in recent months by the efforts of certain companies to consolidate and aggregate the business of smaller junket agents under the umbrella of a larger, more powerful entity—with the smaller junket agents becoming subcontractors to the consolidators. The consolidators, as a result, gain considerably greater bargaining power relative to the concessionaires in delivering their players through their network of junket operators. AMA International, a junket aggregation business formed by the publicly traded company A-MAX Holdings Ltd., in December 2007, was just such a vehicle. AMA International established a “partnership” with one of the concession holders, PBL Melco and the Crown Macau Casino, and reportedly has been able to extract commission rates of up to 1.35 by Andrew MacDonald and William R. Eadington June 2008 Macau lights up at night (l. to r.), the new Grand Lisboa , the original Lisboa , Wynn and MGM Grand . Confidence or Crisis? Blast from the Past June 2008