Inside Asian Gaming

January 2008 • MOP 30

A New Wave Rolls In MGM Grand Macau raises the city’s coolness quotient

Online Gaming In Focus: Fresh Fruit Brickbat & Bouquet WMS’ Leap Year Aristocrat’s Righteous Assembly Growth Elixir

7 CONTENTS January 2008

A New Wave Rolls In 7

A New Wave Rolls In

13 Fresh Fruit 18 Brickbat & Bouquet 26 Chips With Everything 30 Righteous Assembly 32 Growth Elixir 36 Leap Year

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40 Casino Maketing for Dummies 42 Regional Briefs 44 International Briefs 47 Borderline Case

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Editorial

A New Wave Rolls In

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Editor and Publisher Kareem Jalal Director João Costeira Varela Business Development Manager Matt Phillips Operations Manager José Abecasis Contributors Michael Grimes, Octo Chang, Steve Karoul Photography Ike Graphic Designer Brenda Chao

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s Inside Asian Gaming has detailed since its inception in October 2005, the drought of legal gaming options in Asia is giving way to a flood.

Prior to the liberalisation of Macau’s casino industry, the city had long been characterized by a lack of options and monopoly-era complacency. Choice finally arrived in Macau in May 2004 when Las Vegas Sands Corp (LVS) unveiled Sands Macau, the first foreign-operated casino in the city, ending local gambling mogul Stanley Ho’s 42-year monopoly. Sands’ spacious and comfortable main gaming floor, along with China’s easing of travel restrictions on mainlanders wishing to travel to Macau and Hong Kong, drew a rush of gamblers to Macau.

After the opening of Sands, there was a fairly lengthy gap in the pipeline of new market-revolutionizing properties in Macau. The pipeline resumed in earnest at the end of 2006, when Wynn Macau and StarWorld joined the landscape, consolidating the critical mass of properties on the Macau peninsula—along with Sands and Stanley Ho’s ageing Lisboa—creating the city’s first casino “strip” along Friendship Avenue.

Choice exploded in 2007. First came Stanley Ho’s answer to the new competition, the Grand Lisboa, in February. Although our popular—and often caustic—casino marketing columnist Octo Chang accuses the property of being a “cheap copy” of Sands Macau in his inaugural “Brickbat & Bouquet” awarding on page 18, he does acknowledge the iconic appeal of the massive LED screen which forms the façade of its egg-shaped podium. Octo also points out that Stanley Ho’s company, SJM, has a long way to go in shaking off that monopoly-era complacency and offering an attractive alternative to the newcomers.

We have detailed the myriad teething troubles experienced by Crown Macau since it opened in May. By trumpeting itself as the city’s first “six-star” property, it arguably set itself up for a fall. Crown Macau’s latest audacious move sees it “throwing Macau’s VIP room rulebook out of the window and challenging other casino operators to what in effect is a trade war,” as detailed in “Chips With Everything” on page 26.

The Venetian Macao opened in September, becoming Asia’s largest building, the world’s largest casino (and second largest building), and employer of 5% of Macau’s workforce. The length of the walk to your suite at The Venetian, as bemoaned by Octo, is rivaled by the miles of newsprint already devoted to discussing the property, so we’ll spare you here and instead refer you to our detailed analysis of its market revolutionizing effects in the October issue, or to our “Bigger Versus Better” debate in the November issue. All content from last year can be accessed online at www.asgam.com.

For the moment, The Venetian sits by its lonesome on Cotai, while the Friendship Av. strip saw a new addition on December 18, with the unveiling of the ultra-chic MGM Grand Macau—yours truly’s pick for best looking property in the city. The only question now, as discussed in our cover story, is whether the property’s coolness will actually draw Macau’s high-end gamblers.

Even though barely two weeks had passed since the opening, analysts were already complaining of “weak results” at MGM Grand Macau by early January. The property needs time to settle in and develop relationships—particularly with junket operators, who form the backbone of Macau’s high-end gaming business. Crown Macau’s predatory move does not help.

Fortunately, MGM MIRAGE CEO and Chairman Terry Lanni made it clear to Inside Asian Gaming, even before the property opened, that “we’re going to look at this long term, and know it’s a very quickly changing marketplace.” So while the twenty-something-year-old analysts try to make prophesies based on two weeks of data, Mr Lanni knows his ultimate boss, legendary MGM MIRAGE majority-owner Kirk Kerkorian, is a “very long-term thinker”, which he adds is “pretty amazing for someone who’s 90 years old. He never asks about quarter to quarter profits. What he likes is a management team that’s making the right decisions for the long term.”

As discussed in past issues of Inside Asian Gaming, the casino legalisation wave is spreading across Asia, most notably having struck Singapore after the city-state was inspired by Macau’s recent success to develop casinos in order to give its tourism industry a boost. Last month’s issue includes a full regional roundup, “Hare and Tortoise Race”, detailing the progress of the major Asian markets in either legalising or expanding their casino industries. While some of the markets tipped to imminently allow casinos, including Japan and Thailand, appear to have lost momentum due to domestic political turmoil, there were notable surprise developments, such as Cambodia’s emergence as the next hot destination for casino investment and market growth.

The other nascent wave to hit Asia is online gaming, and there is huge potential considering less than 1% of total gaming in the region is conducted over the internet. In “Fresh Fruit” on page 13, we discuss the prospects and potential pitfalls for the development of Asia’s online gaming market. The main conclusion, as the title suggests, is that the market is ripe for the plucking.

Kareem Jalal We crave your feedback. Please send your comments to kareem@asgam.com

January 2008 | INSIDE ASIAN GAMING

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INSIDE ASIAN GAMING | January 2008

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Cover Story

A New Wave Rolls In Inside Asian Gaming takes a candid look at the coolest-looking property in Macau, and chats with MGM MIRAGE Chairman and CEO Terry Lanni about the dynamics of the high-end casino market in Macau

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GM Grand Macau’s “Players Wanted” ad campaign oozes cool. It features the trendy party set descending upon the property in search of a wild night out. Among the crowd are a playboy, a photographer and a footballer’s wife.

The last time Inside Asian Gaming visited a Macau VIP gaming area, we ran into rather more middle-aged mainland Chinese factory owners than footballers’ wives. That’s not to say we don’t fully support MGM Grand Macau’s vision. We’d love to see Macau evolve into a magnet for the chic party set. It just might take more than one property to take it there, especially when that property has yet to open any nightclubs. The development of a fashion industry and professional football league in tiny Macau, though unlikely, would also help.

The “Players Wanted” ad campaign does, however, accurately reflect the spirit of MGM Grand Macau’s ultra-cool interiors, which even “players” more interested in hitting the baccarat tables and sipping tea than hitting the dance floor and smearing their faces with caviar

in existential moments—another memorable scene from the ad— will appreciate.

We feel MGM Grand Macau is, hands down, the best looking property in town. The Venetian is a tad gaudy for our taste. The Wynn is elegant, but perhaps a touch too conservative. Crown is sleek and contemporary, but lacks any visible wow-factor, despite its six-star preten... um, aspirations.

As Macau develops sufficient appeal to convince Hong Kong’s party crowd to take an hour-long boat ride for a night out in the neighboring city, MGM Grand Macau is likely to become their destination of choice. We just wouldn’t expect the party crowd’s contribution to gaming revenue to come anywhere close to that of the uncool factory owners.

Vital stats

MGM Grand Macau is the first project from MGM Grand Paradise Ltd, a 50/50 joint venture between Las Vegas-based hotel and entertainment giant MGM MIRAGE and Pansy Ho—Managing Director of Shun Tak (a Hong Kong-listed conglomerate which boasts extensive shipping, property and hospitality interests in Macau), and daughter of Macau casino mogul Stanley Ho. When the property opened its doors on December 18, it became the final debut property from one of Macau’s six casino licensees. It is located on a prime waterfront site, in the neighbourhood of Wynn Macau, the Grand Lisboa and StarWorld. The 35-storey property features 600 guest rooms, including two duplex villas on the upper two floors, 24 villas, 99 suites and 468 guest rooms of varying sizes. The gaming area consists of 385 table games, 890 slot machines and 16 private gaming salons. MGM Grand Macau currently lacks much of a retail component, but will be connected to the sprawling One Central project (developed jointly by Shun Tak and Hongkong Land), which will realistically open in about eighteen months and feature some 400,000 sq. ft of gross retail space.

A 10-metre, 63-tonne signature golden lion statue stands guard outside MGM Grand Macau. The building itself features three sections of varying shades of gold—the structure’s shape evokes the swell of the ocean surf, while its mirrored façade reflects the hues of the South China Sea. Striking features of the property include a soaring Europeaninspired atrium, the Grande Praça (where the opening ceremony was held), a VIP hotel lobby with gold foil ceiling, and several bronze sculptures by surrealist master Salvador Dali dotted throughout in a temporary exhibition (one piece will remain permanently on show in the property).

What overcapacity?

Fears of emerging overcapacity in Macau are being universally January 2008 | INSIDE ASIAN GAMING

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dismissed. MGM MIRAGE Chairman and CEO Terry Lanni pointed out: “I’ve been in this business for 31 years and there isn’t a year has gone by that people are saying: aren’t you building one room too many and or one casino too many in Las Vegas?

“So far we haven’t and I guess you really don’t know until you build that one room too many.”

As Macau finally achieves a critical mass of attractions, demand should also rise exponentially as visitors start to stay longer. The average stay at Macau’s five star hotels in 2006 was only 1.45 days, while the October 2007 length of stay was almost double at 2.45 days. As visitors stay longer, spending and gambling rises several-fold, as discussed in “Borderline Case” on page 47.

Mr Lanni believes differentiation is emerging among Macau’s casinos, and “the high-end in the marketplace will settle for some time between the Grand Lisboa, Wynn and ourselves, along with to a degree StarWorld, and I think Le Royal Arc now.” Basically, he contends

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the high-end will be concentrated where there is a critical mass of properties—namely, on the Macau peninsula, and, for the moment at least, not on Cotai, where The Venetian sits on its own. “People in the gambling industry, if they feel unlucky in one place, they like to try their luck someplace else. You want to be close to someplace else,” he explains.

Mr Lanni believes Macau, like Vegas, will see synergistic cooperation among properties. “Steve Wynn is a great operator, great designer. He reaches out and brings in people. Just like the Grand Lisboa, because of the history of them being so long in this marketplace. And we do the same thing. And if we all are doing what we’re doing well, frankly that business will flow among us three properties. If we’re building something special—great restaurants, great spas—and Steve Wynn and Stanley Ho do the same, we can all share in that business.”

Although MGM Grand Macau is entering the high-end market

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at a time when fierce competition is pushing up junket commission rates and eroding margins in the VIP business, Mr Lanni points out that when discounts started emerging in the high-end casino business in the US in the 1980s, “the increase in volume more than made up for declining margins.” He adds: “I suspect some of that is taking place now here in Macau.”

A savvy 2007

The opening of MGM Grand Macau topped off “a year of savvy deal making and expansion” for Mr Lanni, according to Forbes. Last year, MGM MIRAGE sold a 50% stake in its US$7.8 billion Las Vegas hotel-condo CityCenter resort (opening in 2009) to Dubai World for just under US$3 billion, and later sold 4.8% of its shares to Dubai World for another US$1.2 billion.

In October, the US$800 million MGM Grand Detroit opened. Days later, the company announced plans to build a US$5 billion resort in

Atlantic City that will open in 2012 with 3,000 rooms, 5,000 slots and 200 tables. Then in November, it agreed to develop a multibilliondollar gambling complex with Kerzner International and Istithmar Hotels on the north end of the Vegas Strip.

“Lanni is also pushing the company beyond its gambling roots,” according to Forbes, with MGM MIRAGE planning to develop a multibillion-dollar hotel and entertainment complex in Abu Dhabi with Mubadala Development that will not feature casino gambling.

The project, designed to draw on the company’s experience in hotel management, will open in 2012.

MGM Grand Macau became MGM MIRAGE’s first property outside the US, and Mr Lanni is confident it will soon become one of his company’s top performers—the current top performer is the Bellagio, followed by MGM Grand and Mandalay Bay, all of which are located in Vegas.

Mr Lanni feels MGM MIRAGE’s presence in Macau is vital to its

January 2008 | INSIDE ASIAN GAMING

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future as a high-end casino operator. “If you’re going to be a significant player in the high-end business, you better be here in Macau. If a casino company is not here, it’ll be more difficult for them to attract and retain customers overseas, and it won’t be a significant player for a long period of time.” Although the evidence is “anecdotal”, he “really believes” recent reports that Wynn and Venetian in Las Vegas are seeing a big boost from establishing relationships with players in Macau, who then visit Wynn or the Venetian when visiting the US.

Follow-up support

Among MGM MIRAGE’s future plans is a second property in Macau. MGM Grand Paradise Ltd has already located a site on the Cotai Strip for the follow-up property, and is currently working with the government on the terms for acquiring it. Mr Lanni describes the future Cotai property as “more boutique” than the other mega resorts set to emerge along Cotai—”I was lost once at The Venetian, and they found me three days later”, he quips. As for his own Cotai project: “You should think very high end, having more of a focus on entertainment, which we think is going to have ever increasing value here, in this marketplace.”

Mr Lanni is generally very sanguine about Macau’s prospects. The main potential risk highlighted by analysts when discussing Macau’s prospects is that the Chinese central government may restrict the flow of mainland visitors to Macau. Mr Lanni believes this is highly unlikely, pointing out that ensuring Macau’s prosperity is vital to Beijing’s goal of convincing Taiwan back to the fold. “The central government needs a stable Macau and Hong Kong to send a message to Taiwan that there can be rapprochement and unification—maybe rapprochement, since China always believes the unification is there anyway, it’s just a breakaway province.

“The point is, I think these [Macau and Hong Kong] are the windows to the future to Taiwan.” Beijing is aware that Taiwan will closely watch “how it deals with these two particular administrative regions.

To date, it [the central government] gets very good grades.”

Is That Cool?

One thing we don’t find particularly cool is harping on about your coolness. Log onto www.mgmgrandmacau.com, and you’ll find “The Player Test”, with such multiple choice questions as: Which makes a good companion? a. The footballer’s wife b. The Maths professor c. The sweet English teacher d. Whoever that pays the bill Perhaps the crafter of the test was too cool for school, or at least grammar class? If the correct answer is indeed the footballer’s wife, and you are not the footballer in question, is that cool? It’s all fun and games until someone gets a boot in the eye.

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Online Gaming

Fresh Fruit Asia is an obvious target for online gaming companies seeking to expand

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Online Gaming

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he collapse of the US online gaming market due to hostile pressure from the US government has focused the industry’s energy on the nascent Asian market. It sits like a young apple on the end of a branch, just waiting to be nurtured by the fertiliser of freshly laid Internet broadband connections and watered by the spending power of newly issued credit and debit cards. Under the current buoyant economic conditions in the region, with improving infrastructure, rising GDP and development of financial services, the Asian online gaming apple should soon be ripe for plucking.

“There’s a direct correlation between Internet penetration—in particular broadband penetration—and the amount of online gaming in a market. You can see this very clearly,” says Tom Hall, Business Development Director of Playtech (PTEC), the worlds largest gaming software developer, and Vice Chairman of Asianlogic (ALOG), both of which are listed on London’s Alternative Investment Market.

“Certain countries in Asia, such as Japan, Korea, Singapore and Hong Kong, have always been quite advanced as far as Internet penetration is concerned, and the rest of Asia is swiftly catching up. Asian consumers have traditionally been more focused on online sports betting, which now represents more than 80% of the online market, followed by online casinos and then a long way behind P2P games— player-to-player or peer-to-peer as it’s also sometimes known,” explains Mr Hall.

“In Asia, online gaming is still less than 1% of total gaming. So for Asia just to catch up with the rest of world in terms of online activity (where the ratio is normally 95% land based gaming and 5% online gaming), the market could grow five times,” he adds.

Fresh offer

Mr Hall thinks the gaming offer to Asian online players will need to be distinctive to build business in the region.

“In the West, 90% of all online poker games are Texas Hold ‘em.

In Asia, they are going to have to have a wider offering longer term. I think that will need to include Texas Hold ‘em, a mahjong game, and one or more of the Chinese or South East Asian card games, to be successful.”

Playtech describes itself as the world’s leading provider of the enabling software that allows established online brands such as bet365. com to operate virtual casinos and virtual poker rooms. Playtech also operates an Internet platform called iPoker—a network allowing online poker rooms to work together to build market capacity.

“It’s known in online poker as liquidity,” says Mr Hall.

“In simple terms, the more players you have concurrently on your network, the easier it is for players to find a game at whatever level they want to play and therefore the operator has a better chance of making money.”

Safe harbour

Playtech says it made US$65 million profit last year. Most of the

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companies that buy access to its software are currently making the bulk of their online gaming revenue outside Asia. The UK and its 10-15 million regular online punters is one of the most important online betting markets in the absence of the United States, though Mr Hall says the two biggest online poker companies— PokerStars and Full Tilt Poker— still take bets from the US. PartyPoker, the number three, and Playtech’s own network iPoker, the number four, do not.

As a company publicly-listed in the UK, Playtech does not accept wagers in any form from US players as it has no desire to fall foul of the long reach of US federal law enforcement.

That’s exactly what happened to David Carruthers, the former chief executive of London-listed BetOnSports.com. He is currently under house arrest in the US after being detained in Dallas, Texas in July 2006 while changing planes on a flight to Costa Rica. He was held on federal charges of racketeering and mail and wire fraud linked to allegations that the company had accepted bets from US citizens in defiance of a federal ban.

Mr Carruthers denies the charges and has so far declined to plea bargain. His sympathisers, including Marc Lesnick, organiser of the recent Casino Affiliate Convention (CAC) at The Venetian in Macau, have hailed him as a champion of free trade. Mr Lesnick reportedly plans to give him an honorary award if and when he is freed from the US justice system.

Mr Carruthers’ detractors say he brought trouble on himself by goading the US authorities to reverse the ban by claiming it is irrational and unenforceable. The heads-down brigade suggest he would have done better to say nothing and quietly get on with making money, though how effective that strategy would have been against determined US legislators is open to debate.

Hit hard

“Among the online poker operators, by far the biggest historically at their peak were PartyPoker or Party Gaming as they were known in the UK. They had a market cap of about £7 billion [US$13.8 billion].

They had up to 70,000 concurrent players with 20,000 of them playing for real rather than for fun,” says Mr Hall.

“Most of their players were from the US, so when the ban came in they had to stop taking bets from the US because they were a public company. As a result, their business initially dropped off by 80% to 90%.”

The effective closure to foreign companies of the US market in online gaming under the Unlawful Internet Gambling Enforcement Act passed by the US Congress in October 2006 makes Asia the obvious area for online growth. There are though some potential bumps in the road, as the regulatory future of online betting in Asia is by no means clear or guaranteed—particularly in China. The online industry’s ‘hear no evil, speak no evil’ tendency when it comes to regulation appears to have struck camp in the US and marched on to Asia.

Online Gaming

At the affiliates event at The Venetian Macao in November, delegates exchanged knowing smiles when discussion turned to the Chinese government’s attitude to online wagering.

At the moment, China appears to be tolerating online gaming by its citizens, so there are plenty of voices urging that if the system isn’t broken it shouldn’t be fixed. At least two companies specialising in payment processing services within China handle work for online gaming companies as well as for retail merchants, though they don’t tend to advertise the fact outside the gaming industry for fear of antagonising the authorities.

China deals

Playtech itself has recently signed software deals with a Hong Kong-listed Company, CY Foundation, which counts the Mainland’s ideological guardian of young minds—the Communist Youth League as a key strategic partner. CY Foundation holds various licenses that allow it to offer tournament based P2P gaming from internet cafes.

It has also entered into sponsorship agreements with the Government-accredited China Mahjong Association to develop the profile of the country’s traditional tile game online, both regionally and internationally.

“We’d rather work aggressively with a legal operator than aggressively in a grey area market,” says Mr Hall.

“You need to have your software approved, which is not an easy thing to do in China, and so it has been a bit slow rolling out operationally. CYF is allowed to offer online poker from Internet cafes in China, and that’s a major achievement in itself. At all stages, CYF ensure that what they are doing obtains the relevant approvals” What goes up in China can

also come down rather suddenly. Hong Kong businessman Cheng Yun Pung found the going went from good to decidedly soft after the Chinese government decided in November 2005 that his ambitious horse breeding programme at the Beijing Jockey Club looked suspiciously like a new onshore gambling industry to rival the state’s own lottery and video lottery terminals. Mr Cheng and his investors lost their shirts not to mention 600 thoroughbred horses when officials let it be known the scheme had overstepped the mark.

Protective

Mr Hall says: “Anyone who tries to compete in an unauthorized manner with China’s land-based lottery risks having the authorities come down very hard.

“In Hong Kong, the Jockey Club is also fiercely protective about it being the only licensed sports betting. You can be fined up to HK$3 million just for betting online. We don’t go anywhere near Hong Kong. We completely block all access to Hong Kong players and players from a number of other jurisdictions, where there’s is clear antionline gaming legislation.

“The second level of perceived risk as far as national interests are concerned are online casinos and the third level of perceived risk would be player-to-player or peer-to-peer games—known in the industry as P2P games.

“Poker as a P2P game is generally deemed to be less ‘offensive’ as it’s referred in the industry than an online casino or sports betting, and there are ongoing discussions around the world whether poker and other P2P games are games of skill or chance.

Plain speaking

It seems likely though that the investors who lost money on publicly listed BetOnSports.com and other listed online betting companies when the US market tanked would have appreciated the industry giving a frank and public analysis of regulatory risk beforehand rather than complaining after it had happened. Some might argue that anyone investing in online gaming firms should understand they operate in a volatile industry offering potentially high rewards but equally high risk.

Deutsche Bank said of Playtech in an analysts’ report in November 2007: “If the hypothetical scenario were to arise where a government is becoming obviously and explicitly against online gaming, then Playtech could require its licensees to block that particular market, as happened in the US.” The report added: “Although Playtech is exposed to regulatory risk to some extent, we view it primarily as an indirect revenue risk, rather than the direct legal risk that investors perceive on the online gaming operator stocks in some cases.”

DB cautioned, however: “There can be no ultimate guarantee that some form of ‘aiding and abetting’ charge could not be brought against a software provider like Playtech.”

Caution needed

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Online Gaming

proach of the delegates at the recent CAC event is exactly the right tactic when dealing with Asian regulators. Asia in general, and China in particular, is a very different beast to the United States when it comes to culture and the culture of regulation. America’s Anglo Saxon Puritanism tends to work in absolutes of black and white. Asia is a more nuanced, subtle environment, where grandstanding is rarely rewarded. Americans would probably use different words for this— at best ‘opaque’, at worst ‘corrupt’. Whatever one’s perspective, managers and investors in Asian online gaming are likely to focus on tactics that get results. It’s widely perceived in Macau, for example, that the planning for Steve Wynn’s first casino project was compromised by his megaphone diplomacy with the Macau government regarding the issuing of credit to gamblers. Mr Wynn put himself at risk of another dose of passive resistance recently when he made an insulting remark about Mao Zedong—whose portrait just happens to feature prominently on the renminbi banknotes that Mr Wynn hopes to see passing from the hands of Mainland Chinese visitors to his casino coffers in the coming years.

In another industry—real estate development—foreign investors were quietly and profitably pursuing tax-efficient offshore mezzanine finance deals in China until some bright spark at an Australian investment bank started boasting publicly about how much money his employers were making. Chinese officials—faced with this potential loss of face and authority, or perhaps disgruntled that they weren’t getting a slice of the action—clamped down on such deals.

Global Betting and Gaming Consultants (GBGC) the UKbased industry analyst, e s t i -

mates global online betting revenues for 2007 at US$15.2 billion, representing around 5% of global gaming revenues. That global online take is forecast to rise to US$24.4 billion by 2012, says GBGC. How much of that growth will be in Asia is hard to calibrate, it adds.

High stakes

The stakes are significant given that online gaming revenue globally is widely predicted to expand rapidly from its current level of 5% of global revenues (currently estimated at US$238 billion) up to 12% of all gaming revenues over the next five to ten years.

As global online revenues rise, the number of operators is likely to fall, thinks Mr Hall.

“Three years ago there were lots and lots of poker networks. Now a lot of the smaller ones have already been eaten up by the bigger ones or disappeared completely. Consolidation in the marketplace is already happening, and there will be more.

At the moment there are probably 20 poker networks out there. Give it another year or so and there will only be 25.”

MANSION, the international online casino, poker and Internet betting company, is one of Playtech’s casino software licensees and certainly seems to have faith in Asian online gaming. The firm is the kit sponsor for Tottenham Hotspur, the English Premier League club. This season MANSION arranged to have its name written in Chinese characters on the yellow shirts worn by the players for some away matches. Given the popularity of English soccer on television in China, it gives some indication of where the online gaming market may be heading.

Currently the only Asian jurisdiction formally to issue online gaming licences is the Philippines, though Macau signalled recently it may legislate to regulate online and remote gaming within two years. The absence of a formal online licence doesn’t, however, necessarily indicate active disapproval by governments.

Calling shots

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Online Gaming

to move into a new territory, it’s been a lot harder for national governments to control Internet-based gaming (with the notable exception of the US market).

Reputable online operators say they welcome licensing and regulation as a means of raising standards in the industry and potentially raising tax for national governments. The unfortunate M r Carruthers made exactly this point to US politicians in the months before he had his collar felt in the transit lounge at Dallas Fort Worth International Airport. How this civic-minded position can be reconciled though with online gaming’s fondness for domiciling business in offshore tax havens isn’t clear. The UK invited online operators to set up shop onshore, but slapped a 15% tax rate on them. It was an offer most companies have so far found easy to resist.

“Playtech is a US$1.6bn company by market cap, and like most of the major online gaming groups, I think our notional rate of tax is around 1%,” says Mr Hall.

He thinks gamblers are less concerned than they once were about where online gaming companies are registered, but says brands are important in establishing trust.

“With online casinos, people nearly always stick with one brand.

Branding is very important because you need to know you’re going to get paid by your casino, and online there’s been a lot of horror stories over the years about people not getting paid. So, basically, the big brands in online casinos get bigger and bigger. Poker on the other hand is more about ‘Can I find players? Can I find liquidity?’ And many regular poker players will have an account with PokerStars, one at Full Tilt and one with an ipoker brand. Most good poker players will generally have three or four different accounts.”

Sincere move

The industry’s desire for a compact with national governments doesn’t seem to be mere lip service. The reality though is that big online operators are in a much stronger bargaining position than purely land-based ones when it comes to determining the basic rules of their business. There is always the possibility that some—especially those not publicly listed on a stock market—will simply carry on regardless if they don’t like what governments are telling them regarding preferred rules and regulations.

For example, Japan, like the US, dislikes its citizens betting online.

It has ordered card-issuing Japanese banks to block payments to online gaming sites, but gaming operators can get round this by having the payment routed via another jurisdiction and another product code. Japan, unlike the US, doesn’t appear to have the stomach for an international fight against those companies and citizens that fail to adhere to its national legislation. Within Japan, the official ban on all but national lottery and organised sport betting is comprehensively and blatantly flouted by the highly organised and highly lucrative pachinko industry.

Given that reputable offshore online operators insist they are happy to be regulated and licensed, a protocol has developed that some licensing jurisdictions are of premier league quality and worthy

of international recognition (notwithstanding the fact they are commonly offshore and often tax free), while the licences of other jurisdictions, such as Costa Rica, are hardly worth the paper on which they are printed. An industry executive stated: “The more cowboy operators will go to Costa Rica, where you just need a business licence. You don’t even need a gaming licence. In Asia people generally like to see you have a licence.”

Island home

Some countries, such as the UK, have made it known that companies wishing to operate offshore online gaming businesses aimed at UK consumers should choose from a very short list of approved locations or face regulatory heat. The UK’s so-called ‘White List’ consists of the tiny island of Alderney, a Ruritanian community set in the choppy grey waters of the English Channel, and the Isle of Man, first colonised

by Celtic tribes around 1,300 years ago and famous like Macau for a motor race (though this time the two wheeled TT). As if living in the middle of the Irish Sea wasn’t bad enough, the island used to punish law breakers with flogging—until the European Court of Human Rights declared in 1975 that it constituted “cruel and unusual punishment”. Neither jurisdiction is considered anywhere near as soft a touch as Costa Rica.

“Alderney puts its licensees through a full due diligence and suitability process—it’s tough for licensees, but informed players and international regulators and investors recognise this, so it’s a worthwhile exercise for serious operators in the space,” says Mr Hall.

“Playtech has obtained approval from numerous jurisdictions, including Alderney and CEZA/Philippines to offer their software to licensed operators. Operators are very different and we have to cater to those that may wish to market into the UK and also those that want to base themselves in the Philippines, which is an ideal base for serving Asia. Not many Asian facing operators want to set up support operations in the Isle of Man. “In the Philippines, not only are workers well educated, computer literate and speak good English, many have also travelled and worked abroad, so operators can also find people who speak fluent Chinese or Japanese, and establish their multiple language customer support centres in a single location. First Cagayan, the master Licensor for CEZA (Cagayan Ecomic Zone Authority), now has some 38 Licensees operating from the Territory and it has really become the Asian hub for online gaming. The online gaming industry has generated a significant number of jobs and First Cagayan take their regulatory responsibilities very seriously—a recent example of this was that they decided to ban its licensees from taking bets from the US.”

Small steps

As to Playtech’s future Asian expansion, Mr Hall is cautious about making extravagant predictions.

“We look at it in terms of significant strategic licensee partners and bottom line revenues. ‘We made this much this year, how much are we going to try and make next year?’

“You can’t just say ‘Okay, there are 2 billion people in Asia so we’ll target 1%. We don’t focus on that sort of metric because online gaming’s not like selling Nokia or Coca-Cola.”

January 2008 | INSIDE ASIAN GAMING

17

Casinos Critique

Brickbat & Bouquet Straight-shooting casino marketing columnist Octo Chang looks at the best and worst of Macau casinos over the past year

I

t has been a year of activity and inactivity, events and non-events, giddy successes and flops, and most of all, lessons on what to do or not to in Macau.

Stanley Ho’s SJM unveiled its answer to the new operators, the Grand Lisboa, in February. Then came Crown in April, the gargantuan Venetian in September, followed by MGM in December.

Some readers have raised eyebrows on the lack of commentary on my part on the new SJM properties, saying that I focused purely on the new entrants to the market.

Well, that is undeniably true and for the simple reason that there is nothing to comment on. SJM don’t crow about anything, and to put it simply, their operations and properties are not newsworthy. SJM also don’t brag about anything—probably because they have nothing to brag about.

Where do we even start? To call the organization a relic of the ancient past is an insult

18 INSIDE ASIAN GAMING | January 2008

Casinos Critique

to the dinosaurs—when the latter became extinct, it was the result of a global catastrophe, not their negligence.

Despite a flood of fantastic looking properties, new levels of service and other indicators of the modern world flooding into Macau, SJM somehow managed to retain much of its antiquated management structure and operational style.

As another industry observer put it, Lawrence Ho figured it was cheaper to pay US$800m to Wynn to acquire its own casino sub-concession than have to deal with SJM in the long run. And I would have to say that he’s not too far wrong there.

Walk into any SJM managed property and the first thing you will notice is the lack of interest from the casino staff. Sure, they have all since been instructed to go through the motions of welcoming players to their tables, but beyond that, there is no real management understanding of customer needs and service. The dealers still have to throw their dirty used tissues on the carpet as they are not allowed bins in the pits. Talk about unsanitary conditions and the perception it gives customers.

Go up the ladder to the shift managers in black satin jackets—yes these creatures do exist, though rarely seen outside of their offices (red jackets are for the Supervisors/Pit Managers)—and you are looking at people

who have been with the organisation their whole lives and has probably never touched a computer in that same period of time.

There is no casino manager under the SJM system for individual properties. Rather, a regional manager controls 3-4 properties and roams between them at leisure. If your property is in the same region as another one belonging to either a buddy of Stanley Ho (e.g. David Chow of Pharoah’s Palace Casino), or, even worse, Wife No. 4 (Crystal Casino or Louvre), you are last on the regional manager’s list in terms of getting sufficient dealers or any other support.

Franchisee quibbles

There was the classic example relayed to me by a fellow colleague who was involved in one of the franchisees (property owned by individuals, casino managed by SJM under the 40:40:20 rule) where it took 8 weeks to replace a gaming table layout, a task that takes 15 minutes in any other casino. As he explained, the owner’s rep has to put in a request to the SJM shift manager to change the table layouts. The shift manager may—after several proddings—then pass on the request to the regional manager. The regional manager would, after a fashion, then recommend the replacements to head-office, which if it approves them, would then place the order with the supplier (SJM does not carry stocks,

or at least that’s what my colleague was informed). The supplier takes about 3 weeks to print out a batch, then sends them to headoffice who would then pass them down to the individual property. The story does not end there. Upon receiving the new layouts, the shift manager then has to contact another department in head-office to this time request the maintenance team to come out and install the layout, and this last activity would take another 2 weeks.

I’ve heard if you want other supplementary facilities installed like a Forex desk or a Credit Card counter, you are entering another realm altogether. Apparently, each part of SJM is controlled by a different family of Stanley Ho (read different wife). If you wanted to replace the SJM security guards with an outside independent contractor, it is possible your wish would not be fulfilled as a mysterious phone call is made to your desired external sub-contractor who will quietly inform you your business is no longer wanted. House-keeping belongs to another family member, and treasury likewise. Each arm of SJM operates almost completely as totally separate companies, and the franchisee has to have very good relationships with each and every one of the family members or have a good strong contact inside the top echelons of SJM who can lobby on their behalf.

The Grand Lisboa interiors are often accused of being a “cheap copy” of Sands Macau January 2008 | INSIDE ASIAN GAMING

19

Casinos Critique

The StarWorld may be sinking, but boasts some attractive interiors

Stanley Ho to his credit realized that his organisation was unable to deal with the new competition so he brought in Frank McFadden (ex-head of the incredibly popular Sands Macau, as COO of Venetian Macau) to hopefully stir things up a bit.

Frank went in thinking he could smarten things up a bit until he hit the old guard, and the result is a cheap copy of Sands called the Grand Lisboa. Almost every professional observer who has gone in has emerged unimpressed, and that has just been by the look of the place. On the operations side, there are reports of a dual reporting structure with the westerners on one side, and the old SJM diehards on the other.

Two virtual management structures operating in parallel with very little communication between the two, from dealers all the way up to the senior executives.

Talking about dual reports, strong rumours abound of another East meets West management schism, this time over in Taipa.

The current structure of the No. 1 reporting to Melco, the No. 2 reporting to PBL, the No. 3 to Melco, No. 4 to PBL, and so forth, sounds like a recipe for another disaster in the making.

Wonder what this portends for the last remaining East-West JV in the form of MGM Grand Paradise Ltd? Anyway, I digress. None of the other SJM properties stand out in terms of attractive20 INSIDE ASIAN GAMING | January 2008

ness to the punters, yet their ROI is another matter given the puny capital that would have been invested. The only nice thing about the Grand Lisboa is the massive external domed LED display which makes up the podium façade, and definitely catches one’s attention. Apart from that, their VIP rooms should not have been commissioned at all, and the uniforms of the dealers—someone must have drawn their inspiration from the former East German secret service (one might conclude only a family member has the clout to get that design approved).

Galaxy Gripes

Then there are the Galaxy City Clubs.

Talk about being neither here nor there.

Apart from the Grand Waldo, the others are converted office blocks and the only noteworthy thing you can say about them is the constant change in their ownership. As for the Grand Waldo with their now defunct live Thai adult performances complete with Ping-pong balls and, let me see if I can get this name right: “Topless Papaya Bar”?, the mind boggles as to their target market. Someone over there must have spent too much time in Patpong Road, Bangkok.

Grand Waldo is so quiet you can drive a truck through the main hall and not hit any real customers (we don’t count bussed in zero-cost package tourists as players).

Galaxy Starworld itself is an interesting case study in how not to rush a building without the proper engineering study. It has surfaced in a recent corruption court case that the StarWorld building has sunk below its original height after opening in November 2006, and despite that, the final approval was granted just before Macau’s former Secretary of Public Works was arrested on corruption charges.

StarWorld’s main feature attraction appears to be the lady-boys jiggling away in the ground floor lobby and the towering female hosts ushering guests into the elevators.

Best of the rest

Then there is Sands, Wynn, Crown and now MGM. Given the last has only just open, it’s still early days yet, and it appear not to have done anything wrong or of noteworthiness, so I will come back to it in a later issue.

Sands is still drawing them in, being the closest big main hall to the ferry terminal. The people who used to run from the ferry terminal to the floating palace and Jai Alai have relocated to Sands, so its biggest drawcard is its location [although the Editor believes Sands’ revolutionary stadium-style design is the biggest factor behind its success]. Sands also set new standards for high

“Sands also set new standards for high ceilings and a loud open-market like gaming hall—something which Las Vegas Sands Corp have replicated at the Venetian”

ceilings and a loud open-market like gaming hall— something which Las Vegas Sands Corp have replicated at the Venetian.

Wynn attracts the better-heeled main hall players with its more elegant yet muted interior design, and its ground floor café, despite the atrocious service (from many, many visits), is still the preferred meeting place for most international visitors as it is the most convenient in terms of access (no other property appears to have factored in a lobby café which is of decent international standard).

Crown, with its sophisticated chic, has been rated by most competing gaming managers as very ‘cool’, but then again those rival managers are not exactly the desired customers. The subdued lighting, the dark brooding elevators plus ultra-chic restaurants have attracted mainly corporate clientele, but does not appear to have succeeded too well with the players. They are the only ones to have tried local mail-drops, matchplays and free slot credits, and heavy standalone promotion of their restaurants—all tried and true mass market tools oft used in Crown’s Melbourne hometown, except the target mix here in Macau is not quite the same. Then again, the little old ladies who used to perform their daily arbitrage weren’t complaining. They would jump on the bus from the Border, go into Crown in pairs, get their HK$50 matchplay, January 2008 | INSIDE ASIAN GAMING

21

Brickbats & Bouquets

put one on Banker and the other on Player and walk away with a 50% instant profit each, then back to the border again to resume their day job. Can’t say Crown does not do its bit for the locals, can we?

Non-kid-friendly Goliath

The winner of the Bouquet: Wynn Macau

The Venetian. Well, it may be the world’s largest but it certainly isn’t the best. Its primarily claim to fame is its pure monstrosity in terms of scale. User friendliness? Try and find a toilet when you are there for the first… or second time. Takes you at least 15 minutes to get there, so you wouldn’t want to leave it till the last minute, would you? Or try and find your room from the hotel reception, with a couple of young kids—who are not allowed to enter the casino that spans much of the ground floor access—in tow.

Insofar as the promised MICE (meetings, incentives, conventions and exhibitions) business is concerned, I believe the official response from the kind folks at the Venetian is: we are booked out for the next 6 months, but we still have space. What? As for the retail section, I believe the tenants are still waiting for the manna to drop down from the blue heavens above—albeit the spray painted version.

And now the verdict

To round it all off and in determining the winner and loser of my inaugural Brickbat and Bouquet Award, the following factors were considered by yours truly (who said this was a democratic poll?): dining facilities, easy access, innovation, customer friendliness, entertainment and overall appeal.

The Brickbat award has to go to the Grand Lisboa for the most unimaginative design and overall user-unfriendliness. I don’t even know why anyone would go in there at all.

The winner of the Bouquet has to be Wynn. It has class, easy access to its dining facilities (but I pity the hotel guests who have to walk through the throngs in their robes to get to the pool), nice gaming area and a very classy feature out front in its dancing fountain.

Octo Chang is the pseudonym of our regular columnist, a casino marketing professional with extensive qualifications and background in the gaming industry. Please feel free to forward any amusing anecdotes or observations of the marketing variety to him at ka.chng@ gmail.com 22 INSIDE ASIAN GAMING | January 2008

January 2008 | INSIDE ASIAN GAMING

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24 INSIDE ASIAN GAMING | January 2008

January 2008 | INSIDE ASIAN GAMING

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VIP Market

Chips With Everything Crown Macau makes a meal of VIP commissions

N

ow we know what Crown Macau’s six-star gaming offer really means. It means throwing Macau’s VIP room rulebook out of the window and challenging other casino operators to what in effect is a trade war.

Crown Macau’s deal with investment company A-Max Holdings is clear enough.

It is to create an impossible-to-ignore incentive for junkets by raising commissions on rolling chip volume into the stratosphere and offering daily rather than monthly settlement terms on that higher commission.

Six years ago the average commission rate on VIP chips in Macau was 0.7%. Since then it has crept up to an average of 1%. Now Crown Macau is offering 1.35%—nearly double what was on offer during the monopoly era.

Margins

Late last year in Asian gaming: Big is better, an analysts’ report from Deutsche Bank, the authors stated: “We believe Macau operators would not want to offer anything beyond 1.2% from the current average of 1.0% if they want to keep gross margins in excess of 10%.”

Crown Macau’s reasoning is that the notional losses incurred through reduction of the casino’s margin will be more than compensated for by the surge in sheer VIP business volume. And as everyone knows, in Macau, VIP play is where the money is.

It’s a gamble, but from Melco-PBL’s perspective a calculated one. The difficulty is that in poker terms it may amount to bluffing with a hand the whole table has already seen. Everyone knows Melco-PBL has been having a difficult time in Macau, as attested to in a number of less than glowing stock analysts’ notes.

First, there were the cost overruns and delays in building Crown Macau that pushed project costs up to US$583 million.

Then there was the mumbling about its location in relatively tranquil Taipa—for ‘tranquil’ read ‘out of the way’. Melco-PBL also has significant amortisation payments on the US$900 million it paid for Steve Wynn’s gaming sub-licence and the markets have INSIDE ASIAN GAMING | January 2008

VIP Market

expressed increasing concern about the venture’s financial gearing, given that it had to pay more for part of its project debt than originally hoped and that its Cotai resort City of Dreams is still more than a year away from its first phase opening.

Gamble

In that context, Crown Macau’s offer of 1.35% commission on VIP rolling chip sales made to AMA International—a company majority-owned by Hong Kong-listed AMax Holdings—looks a little more punch drunk than poker-faced. It’s clear though that Crown Macau is setting itself on a very well defined path as the VIP niche product in Macau, and aggressively challenging the other casino operators for their VIP business.

AMA’s nine junket collaborators have agreed to bring their high-roller VIP clients exclusively to the Crown Macau.

A-Max’s chief executive Ted Chan recently described his company as akin to a central bank for junkets. The basic business model is that A-Max signs up junkets and acts as their agent, using its stock market listing to raise cash from investors to buy VIP chips in bulk.

It uses its bargaining power with the casinos to negotiate competitive discounts on those chips—better rates than the junkets could manage on their own—then sells the chips on to the junkets for a commission, but at a cost that is still advantageous to the junkets.

The system also provides the junkets with more liquidity than previously, as they

do not need to tie up capital in unused chips but can operate on a ‘just in time’ model, drawing down chips as required by the high roller. The junkets can utilise that freed cash to offer extra incentives to their players if they wish, either by writing down or deferring payment on player losses or extending credit facilities. The idea is this then pushes up turnover at the table.

Good start

From A-Max’s perspective, the gamble seems to be paying off. A-Max started modestly with a share placement in December to raise cash for HK$2 billion-worth of VIP chips from Crown Macau. After just a day and a half of operation under the new system, the company said it had sold nearly HK$4 billion in VIP gaming chips at Crown Macau. This was nearly equivalent to 25% of Crown Macau’s total monthly turnover for November. If that rate can be sustained, it would mean Crown Macau turning over HK$74 billion per month in VIP chips. Chip turnover for the entire Macau VIP market is currently estimated by analysts to be US$150 billion per month. It doesn’t therefore take a genius to work out that unless a large number of new VIP customers are attracted to the market in a short time, then Crown Macau will be cannibalising the VIP business of other operators.

Faced with this challenge, the other operators may be forced to respond in kind or see large sections of their VIP business drain

away in short order. If a commission war really does begin, then it could come down to who has the deepest pockets and who is first to blink. Under those circumstances, Las Vegas Sands Corp looks in a far better position to bluff things out in Macau than does Melco-PBL. LVS already has a cash-generating machine in Sands Macao, and The Venetian Macao has gone a long way towards paying for itself thanks to monetisation of the Grand Canal Shoppes. Melco-PBL has only one functioning property that opened late and over budget, and a large packet of debt and equity to support.

Lessons learned

Relations between the junkets and operators—particularly the American operators—were already strained after the Las Vegas companies learned the hard way that it’s not so easy to bring in Asian high rollers—particularly high rollers from mainland China—without having a deep network of trusted contacts. Close personal relationships are the lifeblood of all VIP operations, but in Macau they are absolutely crucial.

The Americans may have wished many times—regarding the so-called traditional model of having independent junkets embedded within casinos—that Macau hadn’t started from here. But then the territory’s authorities took a decision years ago that at that time casino operators shouldn’t be involved in advancing money to gamblers, and the rest, as they say, is history.

January 2008 | INSIDE ASIAN GAMING

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Happy landings

Layout Change Prior to the commencement of Crown Macau’s arrangement with A-Max, Melco PBL Entertainment undertook a “reconfiguration of Crown Macau to further target the VIP gaming segment.” The reconfiguration was facilitated by the “flexibility of the multi-floor layout” at the property—a layout criticized for making Crown Macau less attractive to main-floor players.

Melco PBL said the reconfiguration would “substantially reduce mass market table game and gaming machine capacity at Crown Macau, although we do not expect a material impairment to Crown Macau’s mass market gaming volumes as a result of this reduction in capacity”—presumably because mass market volumes were so low to begin with.

According to a Melco PBL release, “following completion of the reconfiguration, Crown Macau is expected to have approximately 204 VIP gaming tables, 55 mass market gaming tables, and 230 gaming machines.” Prior to the reconfiguration, the property hosted around 80 VIP tables, 142 mass market tables and 550 gaming machines.

28 INSIDE ASIAN GAMING | January 2008

Another potential cloud on the Crown Macau horizon is that A-Max investors may not be as fully familiar with Macau’s gaming business models as they might be.

Dazzled by the spectacular early performance of the Crown VIP venture, they may have overlooked the fact that the business risk—just as with the traditional model— is being borne principally by an outside agent (in this case A-Max) despite the enticement of daily commission settlement offered by the casino. VIP gaming in Macau means baccarat and baccarat produces volatile returns. Until Dore Holdings— formerly known as Teem Foundation and operator of VIP rooms in the Wynn Macau, Sands Macao and The Venetian Macao— listed in Hong Kong in early 2007, the idea of a publicly quoted junket operator had seemed almost taboo to the investment community, given the notorious opacity associated with Macau VIP room operations during the monopoly era.

Now that taboo has been broken, the last thing investors need is a heavy landing. If A-Max has made promises to Crown Macau to deliver certain levels of rolling chip turnover every quarter, then it will have to pay up even if in some quarters the players are the ones cleaning up. Any loss of investor confidence in A-Max’s junket consolidation business model could ultimately do more harm to the long-term prospects of VIP gaming in Macau than even a commission war.

January 2008 | INSIDE ASIAN GAMING

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Slots & Tech

Righteous Assembly At long last, gaming makes a visible contribution to Macau’s manufacturing economy

M

acau’s gaming industry is frequently blamed for weakening other sectors of the economy, either by sucking in workers with the lure of above average wages or by pushing up business rents in neighbouring districts.

Now there’s a modest but timely example of gaming giving a leg up to the manufacturing sector after Aristocrat, the Australian slot machine maker, told Inside Asian Gaming it is setting up an assembly

line in Macau to build gaming slot machines for the Asian market.

The establishment, known as an order fulfilment centre, will employ local people to assemble Aristocrat machines by putting together pre-built modules imported from other parts of Asia under the supervision of technical experts from Aristocrat’s home base in Australia, and other expatriates.

Ken Jolly, General Manager-Asia Pacific of Aristocrat (Macau) Pty Ltd says: “By the end of January our aim is to build every order for the Macau market here in Macau. By March we want to have all our orders for Asia Pacific built in Macau. That’s from Fiji in the Pacific Ocean to India to the west.”

Buoyant market

The centre, based in sub-leased premises on the Macau peninsula, is likely to be turning out hundreds of machines a year for the local market alone. Up to the end of the third quarter 2007—the most recent figures available—Macau had 11,510 slots, a 75.8% increase on the number recorded at the end of 2006. Of that total, Aristocrat claims a 54% share of the market.

The total number of locals employed at Aristocrat’s order fulfilment centre is likely to be modest at first. The announcement may not do much to placate Macau’s militant long term unemployed—only the granting of lifetime stipends in return for some light desk job is likely to achieve that. Nevertheless, the company’s move represents some good economic news for Chief Executive Edmund Ho and his team to cheer. It comes off the back of figures released by the government’s Statistics and Census Service (SCS) at the end of December showing that Macau’s unemployment rate for September to November 2007 fell below 3% for the first time in ten years—to 2.9%. Macau currently has a mere 9,300 workers without jobs, and many of the remaining jobless are so lacking in skills as to be virtually unemployable. The labour force participation rate—the percentage of the active working population in work or seeking work—increased 3.6% year-on-year according to SCS, while the total labour force was estimated at 320,000.

Growing pains

Aristocrat’s news and the employment figures are a timely antidote to gripes from locals and the local media about straining infrastructure, high drop out rates among school pupils and negative publicity surrounding the trial of Ao Man Long, the former Secretary of Public Works, on corruption charges.

Mr Ho and members of his cabinet team have made a number of public speeches in support of diversifying INSIDE ASIAN GAMING | January 2008

Slots & Tech

Asian business is going. We typically didn’t serve Asia from Asia. We did it from Australia. Three years ago though we made the decision to ramp up our whole Asian business and part of that was driven by Macau’s growth as a gaming centre—the gaming centre in Asia.

“As a manufacturer we have components made in different parts of the globe and have them brought in to our integration centres to assemble.

“The facility is very typical of an assembly line,” adds Mr Jolly.“We have parts areas, storage areas, roller beds and working stations. We call them order fulfilment centres, and we have them in Las Vegas for our North American market and in London for our European market, so this centre in Macau is an extension of that policy.

Testing, testing

Macau’s economy. They have also been keen to point out that, in the long term, gaming is a partner in this process rather than a villain attempting to create an economic monoculture. Just as Hong Kong had to re-invent itself in the 1980s and 90s from an industrial city into the head office for Guangzhou manufacturing, it was never going to be possible for Macau to cling on to its postWorld War II competitive advantage in low-value manufacturing once mainland China and its bargain-basement labour came on the scene. In almost every European post-industrial economy, services, including high tech and value-adding sub-assembly work, have become the main employers.

Diversification

In Las Vegas, although gaming revenues have risen year on year in real terms, the city’s dependence on gaming revenues as a proportion of total income has declined ever since the 1980s when gaming operators began building conference and general entertainment facilities.

In the latest burst of infrastructure development in the Nevada city, MGM Mirage is spending US$7.4 billion to build a collection of 3,600 luxury apartments called CityCenter, due to open in late 2009.

In the second quarter of 2007, gaming accounted for only 37% of the company’s total revenues.

In Macau, Mr Jolly cautions against any suggestions that Macau could become the world manufacturing base for Aristocrat.

He says: “At this stage it is still one step at a time. It makes more sense to do assembly on a regional basis in today’s world.

“In this particular case it comes down to looking at where our

“We started with some test orders here. In 2007, we built a couple of big orders in Macau for The Venetian, for Crown Macau and for Ponte 16.

“We are doing less and less manufacturing in Australia. We are building cabinets in China, some components for sound packages in Taiwan, other parts from Malaysia and other places, and they are then sent in module form to our order fulfilment centres around the world and from there it’s an assembly line system. Globally we have order fulfilment centres in Las Vegas for the American market, in London for our Europe market, and Japan for that market,” he explains.

“An important issue was obviously ensuring that we could maintain Aristocrat quality standards and we’re very happy with the results.

“We have an expatriate running the Macau facility and the rest of the staff are local with some trainers that have come in to teach the locals what to do. Our aim is to become very self-sufficient for Asia in that facility, and that will help to develop our local staff and create further opportunities for the local employment market,” says Mr Jolly.

“We have made Macau our Asian headquarters and will use it as the base for developing all our regional markets, including strong businesses in the Philippines, Singapore, Malaysia and Cambodia.”

January 2008 | INSIDE ASIAN GAMING

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Slots & Tech

Growth Elixir Elixir Gaming Technologies, Inc. is rapidly spreading its revenue sharing tonic across the region

E

lixir Gaming Technologies, Inc. (EGT) became focused on placing gaming machines on a revenue share model

across Asia in September 2007. By the end of the year, EGT had already secured commitments to place 4,494 electronic gaming

developed this Star Wars attraction for the Almond VIP Club, set to open in February in Manila INSIDE ASIAN GAMING | January 2008 32EGT

machines on a long-term participation basis at 24 facilities around the region. “These properties are three, four and

Slots & Tech

five star hotels, a lot of them,” explains EGT Executive Director & SVP Joe Pisano. They don’t know gaming. They come to us and say: ‘We have a room this size, can you turn it into a slot club?’”

Mr Pisano’s answer is a resounding yes, but only if the venue gives EGT a 100% share of the floor and a share of revenues generated. “The guidance we give to the market is a minimum of 20% share,” says Mr Pisano, but in reality, EGT secures an average of just over 25% of net win (i.e. after any taxes) across the properties. Furthermore, EGT has secured

“Atlantic City” - “The Vegas Strip”

EGT’s Current Installed Base of Electronic Gaming Machines Venue

Location

Units

Commencement Date

Premier VIP

Manila, Philippines

200

August 2007

Casablanca

Clark, Philippines

120

August 2007

Almond

Manila, Philippines

246

December 2007

Macau Clubs

Phnom Penh, Cambodia

190

December 2007

Star City

Phnom Penh, Cambodia

150

December 2007

Angkor Paradise

Siem Reap, Cambodia

120

December 2007

Hotel Caraba

Siem Reap, Cambodia

100

December 2007

Lucky Diamond

Phnom Penh, Cambodia

95

December 2007

Alibaba

Phnom Penh, Cambodia

89

December 2007

Long Beach

Phnom Penh, Cambodia

80

December 2007

Tin Tin

Phnom Penh, Cambodia

80

December 2007

8th Wonder’s

Phnom Penh, Cambodia

72

December 2007

30% on its last ten deals, so that average will soon creep up.

In return

Mr Pisano is insistent on having 100% control of the slot clubs EGT helps set up. “I want to be able to determine what games go on the floor, and if there games that aren’t working, I want to be able to change those games. If you have other product on the floor, it’s a bit difficult to manage the complete floor mix.”

In return for total control and a share of slot revenue, EGT assists the property owner with the licensing process, casino design, construction management, slot and game floor design layout, purchases the machines and management systems from top manufacturers (IGT, Aristocrat, Bally, Melco, etc.) for the venue, installs the gaming machines and systems, and provides on-site mainte-

nance.“I employ one engineer per site,” adds Mr Pisano, and EGT currently has teams in Macau and the Philippines to handle installation and maintenance, and is also building a Cambodia team.

Owning the players

The agreements with the property owners are valid for five years, and are automatically renewable. Importantly, EGT retains ownership of the machines and management systems, as well as the data.“At the end of five years, if you don’t want to continue with us, we pull out the machines, the system, and the players’ club. We own the players. So what happens is I then make their [the players’] cards valid at one of our other properties, if a property doesn’t want to continue [with the arrangement].”

It’s highly unlikely the property owners would not want to continue, however, conJanuary 2008 | INSIDE ASIAN GAMING

33

Slots & Tech

Inside Asian Gaming caught up with Mr Pisano in December, EGT was making some final changes to its prototype cabinets.

The long case

On investor website Seeking Alpha, Scott Stevens outlines “The Long Case for Elixir Gaming Technologies”, highlighting the potential of Asia, where huge demand for gaming is coupled with under-penetration of gaming devices, as shown in the tables below. According to Mr Stevens: “Adjusting for GDP differences across nations, it is still likely that the current addressable market is approximately 300,000 to 350,000 slot machines. This does not include any new markets which are likely to open such as: Laos, Nepal, India, Singapore, Malaysia, Taiwan, Sri Lanka, Papa New Guinea, Myanmar.”

sidering all the benefits EGT offers. EGT also brings its property-owner partners its valuable insights about “what works for what market.”

Mr Pisano himself is a fount of information, with 30 years experience in gaming technology, and having served as former head of Asia Pacific business development for IGT. EGT’s secured commitments to place 4,494 machines also exceeds the company’s market guidance, which was that “we would do 3,000 by the end of next year [2008], so we’re really blowing that out of the water,” remarks Mr Pisano. The commitments include 2,364 placements in the Philippines at 10 venues, 1,230 in Cambodia at 10 venues, 400 in Vietnam at 2 venues and 500 aboard two cruise ships (300 aboard the MV Jupiter, which operates out of Hanoi, and 200 on Kolonwel, out of Hong Kong).

By year-end 2007, EGT had already installed 1,542 of those machines—again exceeding market guidance. The units were installed across 12 venues, with 566 installed at 3 venues in the Philippines and 976 installed at 9 venues in Cambodia.

Early days

All this had been achieved within a mere 70 days after Elixir Group’s takeover of US-listed VendingData Corporation (subsequently renamed Elixir Gaming Technologies, Inc—ticket symbol EGT), which was completed on September 10. As Mr Pisano points out, it’s still “early days” for the company, and EGT is now moving into India, Sri Lanka and Nepal.

EGT’s new target is to have 5,500 ma34 INSIDE ASIAN GAMING | January 2008

chines in operation by the end of 2008. “Our plan is to continue to roll out 1,000 per quarter,” says Mr Pisano, though from the company’s performance so far, that target could well be exceeded.

EGT will also start to roll out its own server-based slot machines in the first quarter of this year, and plans to unveil its first 100% server-based venue at a 200-machine venue in Manila, at a boutique hotel. When

People per Slot Machine in Asia Philippines

16,175

Cambodia

9,035

Vietnam

490,000

Australia

111

United Kingdom

223

United States

432

People per Slot Machine in Other Markets

Source: World Count of Gaming Machines 2006, TNS consultant.

Estimated Slot Potential of EGT’s Current Markets

Philippines Vietnam Cambodia Total

2006* 5,299 170 1,662

Potential** 182,155 170,525 27,992 380,672

* Taylor Nelson Sofres April 2006 gaming research ** Assumptions based on 500 machines per capita

EGT’s revenue sharing arrangement is unique in Asia, and Mr Stevens outlines six factors which make it very difficult for any significant competitors to emerge: 1. Elixir Group has deep and well-established relationships across Asia.

2. Elixir Group is the largest purchaser of slot machines in Asia (outside of Macau). EGT receives preferential pricing on their purchases of slot machines.

EGT buyer status provides the company access to the best seller themed slot machines such as Wheel of Fortune and Star Wars. The differentiated slot games create differentiation, which leads to higher then average win per day.

3. Elixir Group has also a very thorough understanding of regulatory, political and social issues associated with gaming venue development which is complicated and varied by country. For example, in the Philippines you must get approval from the City Council, Local Government, Philippines Amusement and Gaming Corporation (PAGCOR) and the Church to even establish a venue.

4. Melco (EGT’s parent company) has a very strong pedigree and is recognized throughout Asia for the success of their Mocha slot chain in Macau.

5. Elixir Group is also the only recognized operator that offers a full turnkey casino solution.

6. IGT and Aristocrat are unable to do a similar revenue share deal due to their U.S. gaming licenses. This is a key point as EGT buys both IGT and Aristocrat games for its gaming locations.

Regional Roundup

Exceeding guidance

EGT has made a knack of exceeding its market guidance, and is a refreshingly conservative forecaster among Asia’s often overbullish gaming companies.

EGT management estimates that net win will average $125 per machine per day in the first year of a venue’s operation and net win/ day will grow to $200 as the venue matures.

The average win/day per machine in Philippines is currently $200 per day on older obsolete machines. The average win per day in Cambodia and Vietnam is over $200.

Mr Stevens observes: “A newly opened gaming venue takes time to mature. Hence, it is conservative to gradually scale up to $200 win per day per machine over the first 12 months of the venue’s operations.

“As a reality check, there are currently venues in the Philippines that are averaging over $400 per day. Hence, one could logically conclude that the average net win/day for a mature venue with top-quality gaming machines could well exceed $200.”

EGT’s business model means its revenue is entirely recurring, and any increase in its installed base of machines will feed through directly to its profits. Given EGT’s solid start in quickly ramping up its installed base over its first three months of operation, expect revenue to keep pace.

About Elixir Gaming Technologies Elixir Gaming Technologies, Inc. (EGT) is a member of Elixir Group, an innovator of gaming technology solutions and a wholly owned subsidiary of Hong Kong-listed Melco International Development Limited. EGT, in collaboration with Elixir International (which is also a member of Elixir Group), secures long-term contracts to provide comprehensive turn-key solutions to 3, 4 and 5 star hotels, cruise ships and other well-located venues throughout Asia that seek to offer casino gaming products.

Elixir International assists the venue and venue owner with the licensing and regulatory process, physical casino design, construction management, slot and game floor design layout, purchases the gaming machines and systems from the industry’s leading gaming equipment suppliers and installs the gaming machines and systems such that the casino is delivered in a fully operational state. EGT retains ownership of the gaming machines and systems and receives a recurring daily fee of at least 20% of the net gaming win per machine and provides on-site maintenance.

About Elixir Group Elixir Group is an important strategic component of Melco International Development Limited’s gaming and leisure entertainment focus. Elixir Group designs, develops and supplies gaming machines and technology solutions (surveillance, LEDs, ATMs) for the Asian market.

With gaming research and development centres in Macau and the Philippines, proximity to key growth markets provides Elixir Group with a competitive edge. Elixir Group’s wholly-owned subsidiary, Elixir International, delivers solutions, sales advice and professional gaming support. Elixir International has forged alliances with leading gaming and technology companies, and by accessing its partners’ manufacturing capabilities, focuses entirely on innovative product design and customer service. Elixir International has also secured several strategic agreements in the provision of gaming technology infrastructure for various gaming concession holders in Macau.

January 2008 | INSIDE ASIAN GAMING

35

Vendor Profile

Leap Year WMS pushes slot technology forward––with or without its customers’ help

I

magine you’re a senior sales executive for a carmaker and your company has just sold or leased a fleet of vehicles to a car hire company.

Imagine then telephoning the purchasing director of the car hire company to enquire about the performance of the vehicles and how the hire customers are responding to them.

“I’m sorry,” says the car hire boss, “that’s confidential information.”

It sounds bizarre, but that’s the sort of

scenario facing Stuart Gribble, Sales Manager South East Asia for the Chicago-based slot machine manufacturer WMS. Mr Gribble says: “Some operators keep their figures pretty close to their chest and we respect their need for confidentiality. We need to play the cat-and-mouse game occasionally, but it is essential intelligence our game development team needs to keep coming up with the games players want. So I would like to know as a sales executive which of my games are performing and which ones aren’t.

When I don’t get that feedback, I have to spend a hell of lot more time on the floor to get that intelligence. I guess it’s such a competitive market here in Macau that everybody is cautious.

Innovation

“With those operators that are prepared to share information, every month we talk to them, look at the results, find which games are performing and feed that back to our game development team so they know which trends to follow to develop games for each specific market.

“If we see the same trend across a number of different markets we can tell we’ve got a hit. You can see in our 2008 releases a lot of follow on from great game ideas that the players loved in 2007. An example of this is our first Community Gaming product, ‘Monopoly Big Event’, launched in Genting Highlands last year. It was such a hit across the world our design teams got back to

36 INSIDE ASIAN GAMING | January 2008

work & developed a completely new game called ‘Press Your Luck Big Event’ using the same Community Gaming concept, which puts all eligible players into the bonus round at the same time.

“The Big Event series also introduced the innovative concept of increasing the bonus multiplier based on velocity of play. The faster a player bets, the higher the bonus multiplier goes. The concept was so successful that several new forms of games were created, including Happy Days & The Great Wall multi-level mystery progressives, introduced at G2E 2007 in Las Vegas. Instead of awarding jackpots, players are randomly awarded 1 of 5 free spin amounts. Players contribute to the number of free spins that can be awarded, just as in a typical progressive, but these games also allow them to increase their winnings during the free spins through the velocity multiplier.

“Thanks to the information we do get from some operators, we know exactly which games are working and that helps us to max our edge with these ideas.”

Scrutiny

Mr Gribble is too loyal to his customers to mention names of operators who decline

Vendor Profile

to share intelligence, but his dilemma highlights an apparent fact of life about slots.

Although many of Asia’s casino operators are publicly listed companies, the business model for slots appears to be subject to much less shareholder scrutiny than that for table games, with operators using the catchall of ‘commercial confidentiality’.

Even when operators are willing to supply feedback to slot makers they may still invoke confidentiality clauses. While in the short term this may serve to protect operator interests, in the longer term the dearth of shared market intelligence on slots could actually be holding back development of the market and even of the products themselves.

Mr Gribble says: “I think non-disclosure agreements are a fair trade off. We get the helpful information we need to develop the products, and the operator gets the security of knowing that a competitor won’t have access to their numbers.”

Advantage operators

Operators are also reluctant to reveal information on house advantage. When Lawrence Ho—wearing his Melco executive hat—was asked recently what the return to player (RTP) rate was on his slots operation, the most he would divulge was “90% plus”.

“Payback will vary from operator to operator,” says Mr Gribble. “Some might look at their customers as being a transient crowd and some might look at them as being a local crowd. They will vary their floors based on their marketing strategy. Most of us as manufacturers would try to cater to fit their requirements.

Gamblers versus players

Stuart Gribble thinks that while the bulk of operators’ slot revenues in Macau may currently be coming from gamblingfocused customers who are playing machines aggressively, he believes an increasing number of players are there for general entertainment.

He says: “People talk about Macau being a volatile gamblers’ market, but I don’t necessarily agree with that. Yes, the bulk of slots’ earnings may come from top end players, but my feeling is that the bulk of players can’t afford to do that and instead they play for entertainment—time on device. That’s why we see such great utilisation on WMS products.

“Across the board our products are with-

out a doubt among the most played games in Asia. We know that from the games played analyses I do get to see that show our game play utilisation is continually at the top of the list.

“I think the growing part of the slots market is the time on device entertainment seeker. There’s no doubt in my mind that players have accepted WMS as an entertainment brand and one they want to spend time on. However, WMS has also focussed on higher game volatility in order to attract the top end players. That’s why we developed & released the highly successful Gambler Plus (G+) and Wrap Around Pays series.

Games like Brazilian Beauty, Zeus & Great Eagle are performing well above floor average.” he adds.

Differentiation

While one can clearly detect a strong sales pitch in Mr Gribble’s statement, he may have hit on an important element in the future of slots—not just in Asia but around the world. This is the differentiation of casinos’ slots offer—possibly through January 2008 | INSIDE ASIAN GAMING

37

Vendor Profile

exclusive deals between slot machine makers and operators.

“The challenge in Asia is that at the moment everyone’s got similar floors in terms of slot product. At the recent G2E (Global Gaming Expo) show in Las Vegas the main question from customers was: ‘What have you got that’s different?’

“At WMS we have a good offer in terms of point of difference products. We now offer Community Gaming, Sensory Immersion, Transmissive Reels and Adaptive Gaming. In 2008 we will be placing these throughout Asia.

“What I mean by point of difference is something other than your traditional fivereel video slot machine. It means something that can grab a player’s attention and allow them to feel the brand rather than just experience the ‘same old same old’ available from every manufacturer.

“We have point of difference products like Top Gun—a Sensory Immersion game where the player feels that they’re flying a jet fighter. We also have Community Gaming with products such as Monopoly Big Event & Press Your Luck Big Event. They’re all about getting away from traditional mystery jackpot machines,” he explains.

Technology

Another innovation on show at G2E and soon to be introduced to the market is ‘Adaptive Gaming’ says Mr Gribble.

“Players can earn medals to unlock new, unique Star Trek ‘episodes’ and save their state so they can pick up where they left off during their next visit.”

Top guns

Another new Sensory Immersion release is a shoot ‘em up-style game based on the Clint Eastwood movie character ‘Dirty Harry’.

“I think it would definitely work very well.” says Mr Gribble. “It’s a real guys’ game.

It will do well in slot lounges throughout Asia which have quite a young demographic and customers who like time-on-device entertainment.

“We have enough products in the range to offer exclusivity to different sites with 38 INSIDE ASIAN GAMING | January 2008

different products.

I don’t think there’s going to be a scramble for these sorts of deals, but we would certainly be willing to negotiate something that’s good for the customer and good for us. Our Transmissive Reel™ Bruce Lee game for example would certainly stand out on any floor as something different.

Dragons enter

“The Bruce Lee game is going to be our leading theme at G2E Asia in June 2008. It is an iconic game for the Asian market. This new Transmissive Reels™ gaming product marries the best of video and mechanical reels utilizing Lava Technology, a thin film process.

The graphics are really strong. Bruce Lee actually comes out across the TFT screen in front of the mechanical reels and does kung fu kicks. It makes the game unbelievably graphic rich,” says Mr Gribble.

“As a 3 level progressive product with wide area capabilities, I think there are only two or three operators in Macau that could effectively use the Bruce Lee game from an exclusivity point of view,” he adds.

He suggests though that as more gaming licensees in Macau become operators of multiple sites, the opportunities for exclusive deals could increase.

“Even on the single large site where the space is so big, one could install a number of machines around the floor to draw in customers to that cluster.

Smaller operators with only one or two sites wouldn’t really look at exclusivity deals—unless perhaps they were prepared to pour a lot of money into it.”

Pragmatism

Mr Gribble stresses that although WMS embraces innovation, the ultimate test is what works with operators and their players.

“I don’t think any manufacturer will move away from the traditional offering of the five

reel video with free games. The bottom line is that I don’t focus too much on things I can’t sell. I love selling what players want.

“For WMS in Asia, 2008 is about opening our new offices in Macau to fully support our customers and our distributor RGB, and present our complete product range for the Asian market.

Purely and simply, that’s our goal.”

January 2008 | INSIDE ASIAN GAMING

39

Casino Marketing

g n i t e k r a M o n i Cas advice roul offers

Steve Ka

I

recently took up digital photography and wanted to learn more about how to improve my photos. I went to the book store to look for an instructional book. I looked in the photography section and I purchased a book titled “Digital Photography for Dummies”, because it was written for an inexperienced new user. I have used the “Dummies” books before to learn about many new subjects.

Having worked in the casino industry for thirty years primarily in casino marketing, I realize that most of what I know today came from “on-the-job”, hands-on experience. I am currently self-employed as a casino consultant specializing in all aspects of casino marketing. I have written and published numerous articles over the years about casino marketing. Nevertheless, I still feel that I am always learning new things about casino marketing and try to share them openly.

I receive numerous requests every month for help from young people who want to either break into the casino marketing field or who want to learn more to improve their present skills. As a result of this, I now realize that there is not a great deal of information available to young people who want to learn about casino marketing.

I hope to offer some helpful recommendations and suggestions.

First, I think it is important for people to realize that it is often very difficult and frustrating to break into casino marketing in one of the better positions unless you have some unusual skill set, past work ex40 INSIDE ASIAN GAMING | January 2008

est

on how b

perience or speak a desired foreign language. Most of the larger casinos around the world usually try to promote from within in order to develop career paths for their own hard working, dedicated, loyal employees. Marketing seems to be one of the more glamorous desirable positions. Consequently, one strategy is to just get hired first by your company of choice—hopefully for a lower ranked position within the marketing division— and watch for any postings or listings of new open positions that the casino wants to fill. It is a great way to learn from within and to climb the corporate ladder to a higher, more desirable marketing position.

Second, I strongly believe that one of the more important things to do once on the “inside” of a new casino is to begin to assess who is who and who does what. In other words, look for the leaders in the marketing department. I also strongly believe in the mentoring process. Most successful casino marketing executives or casino operations executives can usually attribute part of their success to having found a good mentor who helped them early on in their career. A mentor is someone who takes you in under their wing as a protégé or just because they like you and then they make an extra effort to help you, guide you and advise you. Finding a good mentor is very important. You need to take the time

eting

sino mark

bout ca to learn a

to research this area very carefully and select someone who you think will be receptive to your request for help and that will be willing to make the effort to actually help and guide you. This is not an easy task so view it as a challenge. As a challenge, you have the right to be selective and to change your mind should you find a better or more qualified mentor.

Remember, you are the only one who can really control your own future so manage your efforts carefully and selectively.

In addition, I strongly advise all new casino marketing career seekers to read

Casino Marketing

everything they can get their hands on to either stay current on casino industry happenings or to learn from the experts.

My favorite web site, which I often contribute to with educational content, is www. urbino.net. It was developed by Andrew MacDonald from Australia and he has worked extremely hard over the years to solicit articles from some of the best talent in the industry. It is a great resource and contains a lot of helpful information.

I think it is also important for young people to try to narrow their focus early in their careers so that they can take advantage of the help of a good mentor who has either special skills or considerable experience in their desired subject or area. Marketing is a huge area and can cover many different sub-segments ranging from slot marketing, table game marketing, direct marketing, advertising, public relations, casino promotions, special events, ethnic marketing, international marketing, etc.

There are a couple of good text books available about casino marketing. The two authors are John Romero and Michael McNamee. Both have considerable experience and have written some good casino marketing text books which can help give one an initial overall awareness of many subjects under the casino marketing umbrella. However, these are text books and should be treated as such. You will still need to get hands-on experience to really understand how and why things work in a casino environment. You also need to learn a little bit about human psychology and emotional intelligence.

I think it is important to also briefly mention casino ethics. Ethics are unwritten rules that differentiate good from bad, right from wrong and honorable versus dishonorable methods. The casino industry is very highly regulated and structured in all areas except for casino marketing.

Some people may argue and claim that all areas in the casino industry are regulated and controlled, but from my personal experience this is not true and definitely not true in many countries around the world.

This is the reason that I mention it here.

Many people reading this article may live and work in fairly unregulated areas around the world, but I firmly believe that ethics are important for the overall success of both the casino and the employee,

wherever they are located. Always strive to do the correct or proper thing in all of your efforts. Don’t take the easy way, don’t take short cuts and don’t cheat in your work efforts. Your reputation will follow you forever.

Ethics covers subjects such as honesty.

I once wrote an article titled “Thou Shalt Not Steal Except in the Casino Industry”.

The article was related to stealing customers and increasing market-share. However, there are ethical ways to steal casino customers from a competitor casino and there are unethical methods. The ethical methods include promotions, incentives, advertising, and direct personal contact.

The unethical methods include walking into a competitor’s casino and passing out your business cards or inviting customers on a competitor’s casino floor to come visit your casino. Another unethical method is to try to entice people to steal information such as player lists or other confidential information from a competitor casino.

Always be ethical in everything that you do. This is important.

Another hot topic in casino marketing today is ethnic marketing. In the past, casinos did not pay much attention to ethnic or niche marketing, but as competition increases globally we are seeing more and more casinos beginning to focus new interest on ethnic marketing efforts. One of the biggest ethnic markets is Asian marketing, but one also has to be careful not to generalize too much.

There are many different areas of Asian marketing. One size does not fit all and your efforts may even be offensive if not handled properly. I have lived in several different Asian countries and there is an expression that basically says “Asia is not Asia”. Asia is a blend or a melting pot of many different cultures, languages and customs. Therefore, do your homework first before you begin to market.

Seminars and conferences are also important vehicles for both learning and for networking with your peers. G2E in Las Vegas is the largest annual gaming conference with over 30,000 attendees each year from over 100 different countries around the world. It is a great conference that is split between educational seminars and a vendor trade show highlighting all new equipment or services. One of the

best casino trade shows is the ICE (International Casino Exposition) which is held in London each year and is a great event to view new releases of equipment or other related casino products.

Another favorite of mine are the Raving Consulting seminars by Dennis Conrad. Dennis and Steve Brown run a series of marketing seminars that get right down to the real nitty-gritty of how to manage a casino host department, how to develop great casino marketing promotions, how to develop a player development program, etc. These intensive seminars are well worth the money and also afford a great networking atmosphere with other aspiring casino marketers. It is very helpful to be able to discuss marketing related problems or issues with fellow marketing managers working at other casinos.

Spending two or three days together studying casino marketing in a closed environment helps to build trust and friendships that last for years.

In summary, there is no one simple solution for learning casino marketing.

I wish there was a book titled “Casino Marketing for Dummies”, but there isn’t.

Therefore, smart people will learn to make the most of a variety of different options available to them. Successful casino marketing executives tend to multitask numerous functions at the same time, with many of the functions operating in sync or in tandem with others. As a result, a good casino marketing manager learns to think quickly and react properly when under pressure or stress.

Casino marketing can be a very stressful occupation. It can also be one of the most exciting areas in a casino. Therefore, whatever time and effort that you invest now to prepare for the future will be well worth it. Good luck.

Steve Karoul is one of the world’s top casino marketing consultants, with almost 30 years of experience with the best casinos both within the US and internationally. Steve has conducted casino marketing activities in over 90 countries around the world. He is a contributing writer to several different major casino publications. Steve can be reached at tel: (1-860) 536-1828 or by email: skaroul@ comcast.net, or via his website: www.euroasiacasino.com January 2008 | INSIDE ASIAN GAMING

41

Briefs

Regional Briefs

Wynn Macau Expansion Opens

Macau Fund Raising Flurries

According to Reuters, “a US$1 billion IPO planned by tycoon Stanley Ho’s Macau flagship gives investors a rare chance to bet on a casino boom that has been funded mostly by loans, and more public markets capital-raising is on the cards.”

“There’s still probably a handful of US$2 billion or so projects coming, if not more, and that can’t all be digested in the loan market,” said Chris Gammons, managing director in Citigroup’s financial entrepreneurs group. “I expect to see some of these financings to also come via the debt and equity markets,” he said.

Stanley Ho’s Sociedade de Jogos de Macau (SJM), the former monopoly operator whose market share is shrinking at the hands of US heavyweights Las Vegas Sands Corp (LVS) and Wynn Resorts, plans to build up its warchest with a long-expected initial public offering set for February 1, a fund manager said.

SJM would join a small handful of listed Macau casino firms that includes Hong Kong-listed Galaxy Entertainment Group Ltd and Nasdaq-listed Melco PBL Entertainment (Macau) Ltd, a venture between Stanley Ho’s son Lawrence’s Hong Kong-listed Melco International Development Ltd and Australia’s Publishing & Broadcasting Ltd. Major Macau projects currently under construction include Melco PBL’s City of Dreams, the GalaxyWorld Resort, and Macao Studio City, which is backed by Hong Kong’s eSun Holdings Ltd. Wynn is building a second resort, Wynn Diamond Suites, and last June doubled the size of a loan facility to US$1.55 billion to fund expansion of its existing resort and finance the second property.

Citigroup has been among the most active financiers of the Macau boom. It helped arrange two syndicated loans worth a combined US$5.8 billion for LVS’ huge Venetian Macao casino resort, and sponsored Melco PBL’s US$1.3 billion IPO and was also part of the firm’s US$1.75 billion loan raised in September.

The Melco PBL loan showed that even soaring Macau is not immune to the perils of global credit markets. The firm had hoped to raise US$2.75 billion but cut the deal’s size and sweetened its price by 50 basis points, sources told Reuters Basis Point.

The volume of syndicated lending from Macau more than doubled last year to US$9 billion from six deals, according to Dealogic, but equity volumes from the territory were halved from a year earlier to just US$658 million.

Bond issuance from Macau has also been scarce, with Galaxy’s US$600 million offer in 2005 the only global public markets issue since Stanley Ho’s 40-year gaming monopoly lapsed in 2002.

Macau has also attracted the attention of private equity. In October, UK buyout firm Permira paid US$838 million for 20% of Galaxy, which is building what will be the world’s second-largest casino in Macau.

Heavy cash flows give casino operators in Macau funding flexibility. LVS expects to recoup its US$2.4 billion investment in the Venetian Macao, the world’s biggest casino, within three to five years.

In 2004, it paid off a US$120 million five-year loan for its first Macau casino, the Sands, within a year.

42 INSIDE ASIAN GAMING | January 2008

Wynn Macau unveiled an expansion in December, including 85 additional tables and 551 new slot machines, bringing its total to about 390 table games and 1,190 slot machines.

The property, which opened in September 2006, also boasts a new rotunda entrance. Meanwhile, a larger retail promenade including 11 new stores such as Hermes, Gucci and Versace is set to open in January 2008.

In addition, Wynn Resorts announced construction had started on a planned Wynn Macau tower called Wynn Diamond Suites. The tower, which will house 400 suites and villas as well as restaurants, retail and gaming space, is estimated to cost up to US$600 million.

The project is targeted to open in a little over two years.

Wynn’s expansion efforts are not limited to Macau, as the company plans to open its US$2.2 billion Encore casino-resort next to Wynn Las Vegas in early 2009.

Wynn Macau won our columnist Octo Chang’s vote for best property in the city, as detailed on Brickbat & Bouquest on page 18 of this issue.

Lisboa to Get Torn Down and Rebuilt

Macau casino tycoon Stanley Ho’s company Sociedade de Jogos de Macau (SJM) announced that it will tear down and rebuild the landmark Hotel Lisboa. According to SJM, the project will commence in 2009 and is expected to be completed in 2012. SJM announced it will hold an international architectural design contest, in a bid to select the best architects for the project.

Hotel Lisboa opened in 1970, and is one of Asia’s longest-serving major casino hotels. SJM opened the towering new Grand Lisboa adjacent to the old Lisboa in February 2007.

LVS Announces Completion of Marina Bay Sands Financing

Las Vegas Sands Corp (LVS) announced in early January that it had entered into a credit agreement which provides financing of up

Briefs

to S$5.44 billion (US$3.8 billion) for the development of the Marina Bay Sands in Singapore.

LVS President William Weidner stated, “We are pleased to have completed this important financing for our Marina Bay Sands development. The completion of this Singapore Dollar-denominated facility, which is the largest private Singapore Dollar-denominated financing in Singapore’s history, was accomplished on very favorable terms in a challenging global credit environment.

“The vote of confidence we have received from the international financial community, including leading Singapore-based financial institutions, is a testament both to our track record of successful Integrated Resort development worldwide and to the significant economic benefits the Marina Bay Sands, South Asia’s first Integrated Resort, will deliver to the economy and people of Singapore,” continued Weidner. “Our Marina Bay Sands development remains on track for a late 2009 opening, and we look forward to continuing to work closely with the Singapore authorities as we complete the final design components of this iconic development in the coming months.”

Hong Kong Jockey Club Faces Macau Threat

According to an Associated Press report, the 124-year-old Hong Kong Jockey Club is facing a mounting threat from new casino development in Macau.

The new competitors are draining away at least HK$20 billion (US$2.4 billion) a year in betting revenue, or 20% of its annual take, estimates Chief Executive Officer Winfried Engelbrecht-Bresges.

“Our customers are definitely their prime targets,” EngelbrechtBresges said in an interview with The Associated Press. He said that Hong Kong gamblers account for about 40% of gaming revenue in Macau, just an hour away by high-speed hydrofoil ferry. The Jockey Club holds the monopoly on legal gambling in Hong Kong.

Horse racing has been part of Hong Kong almost since it was colonized by the British in 1841. The original Happy Valley Racecourse was built on malarial marshland five years later, and the

Royal Hong Kong Jockey Club started taking bets in 1884. The “Royal” was dropped from the name after Britain returned Hong Kong to China in 1997.

The club, which gives all its profits to charities and community projects, holds horse races on two tracks, takes bets on international soccer matches and overseas horse races and runs a lottery.

It pays a heavy tax on betting profits—72.5% for horse racing and 50% for soccer. Last year, the club paid HK$12.6 billion (US$1.6 billion) in betting taxes and donated HK$1.1 billion (US$134.6) to its various causes.

Local regulations limit horse racing to 78 days a year and off-track betting to 10 overseas races annually. Engelbrecht-Bresges is lobbying the government to loosen those rules, especially in response to increasing competition from Macau.

Macau is not the only competitor for the racetrack’s 1.3 million gamblers. Illegal bookmakers siphon off business, offering higher odds because they don’t pay taxes or incur the cost of running horse races, said Rob Hart, an analyst with Morgan Stanley.

The Jockey Club estimates the underground market for horse betting is between HK$50 billion to HK$60 billion (US$6.4 billion to US$7.7 billion) a year. That’s more than half the Jockey Club’s total revenues of HK$100 billion (US$12 billion) in 2007.

Last year, the club managed to reverse a slide in gaming revenues after the government allowed it to offer 10% rebates to gamblers losing on bets of HK$10,000 (US$1,280) or more, just as the illegal bookmakers were doing.

“We have hit the illegal market in a really hard way,” EngelbrechtBresges said, adding that there had been a significant increase in bets in the over HK$10,000 segment.

Analysts agreed that the rise of Macau’s mega-casinos poses a new challenge, particularly in the battle for new customers.“It’s much harder to get people interested in horse racing, which is a specialized skill, than in playing baccarat, which is really based on a lot of luck,” said Grant Chum, an analyst at investment bank UBS.

AsianLogic Launches on AIM

Hong Kong-based online casino developer AsianLogic, founded by former Playtech executive Thomas Hall, made its initial public offering (IPO) to the London Stock Exchange in December, becoming the first major online gaming company to do so since the passage of the Unlawful Internet Gambling Enforcement Act (UIGEA) in America over a year ago.

The Telegraph newspaper stated that the company floated with a market capitalization of US$245 million after raising US$81.17 million to fund its expansion plans, which include capitalizing on the massive popularity of betting in Asia and the growing penetration of the Internet.

The company generates three quarters of its revenues from online casino games but also owns a small chain of sportsbetting shops in the Philippines. The majority of its customers are based in Malaysia and Singapore, where broadband Internet access is relatively widespread and gambling laws are more liberal.

“I’ve been involved in a couple of listings and, in what was a pretty tough market, we got support from a wide range of institutions,” said Hall, Executive Vice Chairman for AsianLogic. “Asia is growing rapidly as a gaming environment both on land and online, and we are one of the first major online gaming groups in Asia.”

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Briefs

International Briefs Nevada, A.C. Casino Revenues Decline

and its success will lead to the establishment of additional casinos throughout the country. As a former law enforcement official, I can tell those who oppose the idea that a casino would downsize the extent of the illegal gambling operations in Israel as well as the related criminal activities,” said Aharonovitch, putting the number of illegal gambling facilities in Israel in the hundreds.

“Another important goal is promoting tourism in Eilat, which is losing tourists to neighboring cities like Aqaba, Taba and Sharm elSheikh, which have casinos. There is no doubt that building a casino in Eilat will bring economic growth and give a serious boost to the city’s tourism,” he added.

US Urges Antigua to Delay WTO Sanctions

A. C. Casino

Nevado Casino

Nevada casinos won US$981.1 million from gamblers in November, a 14% decrease from the same month a year earlier, according to figures released by Nevada’s Gaming Control Board. The drop was the largest year-on-year decline since January 2002.

The take for casinos along the Las Vegas Strip—the heart of Nevada’s casino industry—fell by a steeper 19.1% to a total of US$519.7 million for the month.

UBS analyst Robin Farley called the results “less than encouraging,” while noting that they follow a robust 20% increase for Strip properties in October and a high base of comparison set by November 2006 growth of 22%.

“Regardless of potential mitigating factors, this decline in November will likely pressure the Las Vegas-focused stocks and place more emphasis on December Las Vegas results and the 2008 outlook when gaming operators begin reporting fourth-quarter 2007 results in several weeks,” Farley said.

Meanwhile, casinos in Atlantic City won US$371.2 million in December, a 10.6% year-on-year decline.

The 11 casinos in the second-largest U.S. gambling market collected $251.1 million at slot machines and another $120.2 million at table games, the New Jersey Casino Control Commission said.

Slot revenue dropped 14.4% to US$251.1 million, while table game winnings fell 1.4% to US$120.2 million.

Atlantic City casinos are trying to transform the oceanside resort into an entertainment destination like Las Vegas but have faced competition from new video lottery terminals in nearby Pennsylvania and New York.

Several casino companies, including Harrah’s Entertainment,Trump Entertainment Resorts, and a joint venture between MGM Mirage and Boyd Gaming Corp, are upgrading properties in the city.

Israel’s First Casino Coming

Tourism Ministry officials have recently closed a deal with the Israel Land Administration to apportion 12 acres of land on Eilat’s northern shore for Israel’s first legal casino. Hotels, commercial trading centers and other tourism venues are expected to be established in the area.

Tourism Minister Yitzhak Aharonovitch expressed his faith in the project and said further casinos could open in Israel following the first one at Eilat. “A casino in Eilat is one of our main objectives for 2008 44 INSIDE ASIAN GAMING | January 2008

The US urged Antigua to hold off on imposing sanctions authorized by the WTO in a dispute over online gambling, saying Washington was revising its WTO commitments.

US Trade Representative (USTR) spokesman Sean Spicer advised Antigua to delay any action after an arbitrator for the Geneva-based World Trade Organization allowed the Caribbean nation to impose sanctions worth US$21 million a year.

Spicer said Washington has initiated a formal process at the WTO to revise its commitments and is in talks with Antigua and six other WTO members that have claimed to be affected.

“We would expect that Antigua would not suspend its WTO commitments to the United States while that process is underway,” Spicer said.

“Once the process of clarifying the US schedule of commitments is complete, any issues in our bilateral dispute with Antigua will be moot, and there will no longer be any basis for suspending WTO commitments.”

The action marked the latest twist in a dispute with Antigua and Barbuda, a tiny Caribbean nation that complained in 2003 that the US ban on Internet gambling violated WTO rules.

Antigua has prevailed in its bid at the WTO to have the US ban declared improper. But US officials said earlier this year that Washington was not bound to change its laws to open its borders to the Internet gambling industry because of an “oversight” in a decade-old trade agreement.

Antigua had asked for sanctions worth US$3.4 billion, while Washington argued this was “patently excessive” and more than three times the size of the Antiguan economy.

Antigua, with a population of about 70,000, is a centre for offshore Internet gaming operations and attracts large numbers of US residents to its online casino-style games and betting services.

In December, US officials said Washington would widen access to some of its services to compensate the European Union, Japan and Canada to settle the WTO dispute on Internet gambling with those members.

Atlantic City to See Huge Investment

At least four companies are investing a combined US$9 billion to help Atlantic City catch up with Las Vegas as a place to come—and stay—for more than just gambling.

In early November, Revel Entertainment Group unveiled drawings of its new US$2 billion casino-resort, to be called simply Revel. Due to open in the second half of 2010, at 710 feet, it will be the tallest build-

Briefs

Borgata Casino

ing in Atlantic City.

It will feature two thin towers standing perpendicular to the ocean, with as many as 3,900 rooms, and even Atlantic City’s first casino wedding chapel. The interior complex, between the towers, is curved and rounded so that it looks as if it has been shaped by gentle ocean waves.

Revel is partnering with investment bank Morgan Stanley on the project.

It will become Atlantic City’s 12th casino, and the first new one to open since the Borgata Hotel Casino & Spa debuted in 2003 and redefined the public’s image of what the Las Vegas experience should

look and feel like in New Jersey.

Hot on the heels of Revel will be other mega-casinos to be built by Pinnacle Entertainment on the site of the former Sands Hotel Casino, opening in late 2011 or early 2012.

The most ambitious of the projects will be a US$5 billion casino resort planned by MGM Mirage in the marina district next to the Borgata, becoming the largest project Atlantic City has ever seen when it opens in 2012.

The burst of new investment is the largest in Atlantic City since the start of casino gambling in 1978.

MGM Atlantic City will have three hotel towers with a combined total of more than 3,000 rooms, the largest casino floor in Atlantic City with 5,000 slot machines, 200 table games and 500,000 square feet of retail space, among other attractions.

MGM is a partner in the Borgata with Boyd Gaming.

A possible fourth new casino to be built on land near the Atlantic City Hilton Casino Resort by Curtis Bashaw, the former Casino Reinvestment chairman, and Wally Barr, the former chief executive officer of Caesar’s Entertainment, is also on the drawing board.

The new casinos will join an already-expanding skyline: The Borgata, Trump Taj Mahal Casino resort, and Harrah’s Atlantic City are all building second hotel towers.

Harrah’s Clears Last Buyout Hurdle

Harrah’s Entertainment Inc. has tentatively cleared the last remaining regulatory hurdle to the largest casino buyout ever.

Harrah’s announced on December 24 that the National Indian Gaming Commission has approved the company’s US$17.7 billion purchase by private equity buyers Apollo Management and Texas Pacific Group, pending final commission review. That conditional approval means Harrah’s can go forward with the deal, which is expected to close in early 2008.

No further regulatory approval is required.

Harrah’s and the buyers received the go-ahead a week earlier from the Nevada Gaming Commission, capping a 10-week campaign to obtain approvals from state gambling regulators in New Jersey, Pennsylvania, Louisiana, Iowa, Missouri, Illinois, Indiana and Mississippi.

Harrah’s, which had nearly US$10 billion in revenue in 2006,

operates more than 50 casinos including Caesars and the Imperial Palace in Las Vegas and Bally’s in Atlantic City. Indian Gaming Commission approval is needed because Harrah’s operates several tribal casinos as well.

Ritzio Plans European Expansion

Ritzio Entertainment Group, Russia’s largest gaming company, plans to expand its presence in Germany and Italy and enter other European countries before gambling is restricted in its home market.

Ritzio spent about US$100 million in 2007 buying 80 slot-machine halls in Germany, gaining from 1-2% of the local market, according to a company spokeswoman Larisa Shishkina. The company is targeting as much as 15% of the German gaming market and plans to add to its business in Italy, where it has a venture with a local operator.

The government passed a bill in December that will allow gambling only in four areas of Russia from July 2009, including one in the Far East and the exclave of Kaliningrad, sandwiched between Lithuania and Poland. The bill was proposed by President Vladimir Putin following concern across the nation that gambling was undermining morals.

“We have always aimed to diversify geographically and become Eastern Europe’s largest gaming holding,” Shishkina said.“The new law has pushed us to work faster and more dynamically.”

Ritzio, whose chains include Vulcan, Million and City Casino, is controlled by billionaire Oleg Boiko, Russia’s 43rd-richest man, according to Forbes magazine. The company generated US$1.2 billion in sales in 2006 and has about 900 gaming venues in Russia, Germany, Italy, Belarus, Ukraine, the three Baltic states, the Czech Republic, Romania, Peru, Bolivia and Mexico, Shishkina said.

Crown Buys Cannery Casino

In December, Crown Ltd., Australian billionaire James Packer’s gaming company, agreed to buy Cannery Casino Resorts LLC for US$1.75 billion in cash, doubling its gambling investments in North America.

Crown’s purchase of Cannery’s three casinos in Las Vegas and a racetrack in Pittsburgh comes soon after Packer, Crown’s biggest shareholder and Australia’s richest man, split his media assets into a separate company to focus on the faster growing casino business. The 40-year-old led more than US$3 billion of gaming acquisitions in North America in 2007, adding to assets in Australia, Macau and the UK. January 2008 | INSIDE ASIAN GAMING

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Visitor Stats

Borderline Case Does Macau really need so many visitors?

Most people are familiar with the famous quotation about ‘Lies, damned lies, and statistics’. So the news that Macau’s visitor arrivals exceeded 27 million in 2007—widely trailed in advance of a New Year press conference attended by Macau Secretary for Social Affairs and Culture Chui Sai On—should be treated with just a sprinkling of caution. It would though be churlish of this magazine not to acknowledge the achievement, which represents a 22.7% increase on 2006 arrivals even without the inclusion of December’s statistics which had not been announced at the time Inside Asian Gaming went to press.

Raw numbers is one thing, but benefit per head to the economy is another. Macau currently has volume, but that doesn’t necessarily equate with quality. Using the third quarter of 2007 as an example, a staggering 26% of Macau’s 6.85 million visitors during that period described themselves as ‘unemployed or economically inactive’, according to Macau’s Statistics and Census Service (SCS). There is nothing in the previous surveys to suggest this was a statistical anomaly.

The self-categorised jobless included housewives, students and retired people. Another 21% defined themselves as ‘clerks’. A total of 22% of arrivals claimed to be professionals of managerial level. Only 3% of all visitors stated they had come to gamble, though it’s safe to assume that figure is massively understated—in particular by the responses from the 54.6% of Q3 visitors who came from Mainland China and probably feared too much candour would get them into trouble with the authorities back home.

visitors there are, but one useful indicator may be the proportion of people who arrive by air. They accounted for 352,900 visitors in Q3 2007—just 5.1% of all arrivals. That number in likelihood can be further adjusted down to account for non-VIP transit passengers and those Pearl River Delta residents returning from long haul destinations aboard budget airlines.

At any rate, VIPs are likely to make up only a tiny fraction of Macau’s visitor numbers and must take up only a minute amount of space and resources. In other words, the ‘yield’ from those VIPs far outweighs the yield from the mass-market visitor. If every mass market visitor to Macau (for the sake of argument 6.85 million visitors minus 352,900 air travellers) had gambled in a casino in Q3 2007, their contribution per head— based on mass market gaming revenue for the quarter of MOP6.6 billion (US$0.82 billion)—would have amounted to MOP1,016 (US$127) each.

Huddled masses

Common sense suggests many massmarket visitors (presumably the unemployed) are spending considerably less than this on gambling. It’s difficult therefore to escape the conclusion that a significant segment of Macau’s current visitor industry is actually given over to what can only be described as ‘junk tourism’—poor people who don’t stay overnight and hardly spend any money (even in casinos) and simply come to gawp at the skyline. In other words, many of Macau’s visitors may literally be more trouble than they are worth. The amount of employment they actually create for shops and service industries is likely to be miniscule when set against the time and cost of processing them at immigration and the strain they place on the territory’s infrastructure. In Q3 2007, day trippers, who made up around half of all visitors, spent on average just MOP570 (US$71) on non-gaming goods and services—barely enough to pay for a single meal with wine at one of Macau’s chic new casino restaurants.

One way to deal with this, of course, may be simply to price day trippers out of the market, in the way that Monaco, the

VIP power

Considering that gambling is the chief revenue earner for Macau’s tourism industry (it brought in a total of MOP58.9 billion [US$7.36 billion] in the first three quarters of 2007), a tiny number of visitors are providing the majority of that revenue. VIP baccarat players accounted for 67.1% of the MOP20.3 billion (US$2.54 billion) income from games of fortune in Q3 2007. It’s difficult to be sure exactly how many VIP January 2008 | INSIDE ASIAN GAMING

Visitor Stats

casino principality in the south of France, has priced out mass market visitors by making its hotels and restaurants so expensive that only the well-heeled can afford to visit. Of course, for political reasons this is unthinkable for the Macau government, because one of the key reasons casinos are tolerated by Beijing is so the territory can act as a playgroundcum-safety valve for China’s passionate mass market gamblers. The point is, though, it’s not really up to the government.

Price sensitive

In the commercial world, creating consumer incentives and disincentives through pricing is a perfectly legitimate tactic. This is why many restaurants and cafes around the world have a policy that patrons must order food rather than just drinks during peak trading times. The person that hogs a table at lunchtime nursing only a cup of tea is causing the restaurant to under-utilise its valuable, cash-generating resources. The uncharitable might describe some of Macau’s

current visitors as the equivalent of ‘table hoggers’, which may account for why stories are rife of tour guides trying to extort money from their clients by charging them for visiting free attractions or tricking them into visits to high pressure souvenir sellers instead of to famous sights. In a recent incident before Christmas, police in riot gear were called to a stand off between tour guides and 100 enraged visitors from Hubei who claimed they had been kept virtual prisoners at Hac Sa beach on Coloane.

The day is likely to come, and quite soon, when the commercial interests that run Macau’s tourism industry frankly no longer need ‘junk visitors’. If Las Vegas Sands Corp succeeds in driving up the demographic profile of Macau’s arrivals through its conference and entertainment facilities and gets more people to stay overnight (a proven driver of visitor spending as Hong Kong has shown), then the incidence of coaches filled with shouting grannies from neighbouring provinces of China may fall dramatically.

Nostalgia

There are, though, well-documented social and economic risks with a headlong rush to modernity. In the long term, Macau residents and visitors of all income groups may rue the loss of the rather ramshackle

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old Macau, which despite its obvious failings had a variety of services to suit every price point.

Perhaps Macau should learn a lesson from Hong Kong, which manages thanks to the size and diversity of its economy not only to attract quality visitors but also to maintain a diverse service sector. Data from the Hong Kong Tourism Board indicates its visitors are on average richer and better educated than Macau visitors (and that includes Hong Kong’s arrivals from the Mainland). Of the 2.19 million visitor arrivals in Hong Kong in October last year, nearly half—1.08 million— were from China, and of those, more than three quarters—765,000—stayed at least one night. On average last year, overnighters in Hong Kong spent HK$5,100 (US$653) on goods and services (up 6/% on 2006), compared with the day trippers’ spend of HK$1,100 (US$140).

Just because Hong Kong visitors may have more money, doesn’t mean they turn their nose up at a bargain. When tourists come to Hong Kong, even the well-off head to Kowloon to hunt for bargains at the night markets, or even to find brand name goods at discounts in small shops, rather than buying them at the fixed prices of the flashy flagship stores in Central district.

When the last of Macau’s pokey, haphazardly-stocked shops with their occasionally idiosyncratic trading hours finally close down—chased out by high rents, lack of staff or because the economic action has followed the casinos—then people may start with misty eyes to talk about the good old days.

Psychological Warfare

January 2008 | INSIDE ASIAN GAMING

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