Inside Asian Gaming

18 (27) Andrew MacDonald Executive Vice President, Casino Marina Bay Sands Asian Gaming 50 – 2011 City of Dreams on Cotai. In 2008, Jimei took over the oldMandarin Oriental Hotel next door to Sands Macao, rebranded it as Grand Lapa, and opened an entire high roller casino of its own—Jimei Casino—under an SJM operating licence. If Dr Lam straddles the gap between old Macau and newMacau, he also understands that the junket trade is evolving rapidly, in terms of its capitalisation, development of margins, customer service and also in its engagement with external scrutiny and controls. Chief among these changes is a process of ‘corporatisation’ where junkets are taking on more of the management techniques and controls of modern financial services—such as formal monthly statements of account for players. Some cynics think this is largely window- dressing. They would argue that in the end what underpins the credit-based gambling system in Macau is that if a player can’t or won’t pay they will have to be leaned on quite heavily by someone somewhere. The junkets’ counter-argument is that their high-volume but low-margin business means they covet their liquidity. Bad debt is simply bad business, they say. Any theoretical junket working with agents or sub agents that have to consider physical intimidation of debtors has actually failed in its risk management, they argue. The licensed junkets further argue that rare violent incidents such as false imprisonment,kidnappingand,onoccasions, murder happen only in the murky world of unlicensed, freelance moneylending— aimed at clients who wouldn’t be able to get credit lines at regulated casino junkets. Don’t blame the whole‘reef’for the fact that sharks can sometimes be found in the ecosystem, say the licensed junkets. The same thing can happen in Las Vegas, they point out. WikiLeaks cables and lurid newspaper headlines notwithstanding, the US-based operators in Macau have been under pressure for some time from their home regulators to ensure as much transparency as possible in their dealings with Chinese junkets. Some operators such as Sheldon Adelson, Chairman of Las Vegas Sands Corp, has made no secret in the past that he would like to dispense with junkets where possible—though recently he has been more conciliatory toward them after his Macau VIP market share fell. Dr Lam’s response to change in the junket business is to move with the times, in terms of improving the marketing of the businessandimprovingtheprofessionalism of its accounting and auditing. He has also developed strategic relationships within the Macau segment. He recently joined forces with Macau junket organiser CCUE to buy Neptune Group’s casino cruise ship. Jimei and CCUE will jointly market the ship to their respective casino customers in Macau and beyond. Jimei has also shown some interest in acquiring a Singapore junket licence. The stringent requirements set by the Singapore authorities regarding licensing and personal and corporate financial disclosure, however, leave doubts as to howmany of Macau’s licensed junkets would pass muster. The fact Marina Bays Sands (MBS) is neck- and-neck with Resorts World Sentosa (RWS) in Singapore in the battle for gross gaming revenue is in part a tribute to Andrew MacDonald’s casinomanagement capability. In theory, RWS—operated by one of Mr MacDonald’s former employers, Genting Group, a Malaysian Chinese company— should have the kind of competitive advantage in understanding its customers that Galaxy Entertainment Group and SJM Holdings arguably have in Macau over some of their Las Vegas-based rivals. Mr MacDonald’s achievement in helping to tame the ‘local’ competition is all the more impressive given that MBS has had less continuity in its senior management team than has RWS. Sixteen months in, Mr MacDonald is already reporting to his second CEO. His first casino marketing boss is also gone. The property also has a new chief operating officer.Yet thecasinobusinessMrMacDonald has helped build over this time has far surpassed the most bearish projections for the market, and come close to some of the most bullish. At US$5.5 billion, MBS is the second- most expensive gambling resort ever built. (The most expensive is MGM Resorts International’s CityCenter in Las Vegas, which came in at US$9.2 billion and nearly cost that company its life.) MBS was one of the hardest casino projects—technically- speaking—to finish. Its architectural daring was a problem by itself. No-one had ever attempted to put a deck with that size and weight of park and swimming pool on not one but three skyscraper towers before. The reclaimed land on which MBS sits also proved harder to stabilise than at first had been hoped. Added to that were headaches relatedtoleapsincommoditypricesandlocal materials shortages in an economic boom, followed by a squeeze on the company’s global liquidity in a world-wide economic bust. That was the background to the project when in December 2009, Mr MacDonald, a 30-year casino industry veteran, left a plum job in New York with investment bankers Macquarie Capital Advisors, to return to his first love—managing casinos. By 1st July 2011, Mr MacDonald’s gambling floor was entering the third quarter with arguably the most profitable gaming inventory that LVS owns. The property’s EBITDA nearly doubled from the first quarter to a company-best of US$405.4 million on net revenues of US$737.6 million—80% of it driven by the 600-plus table games and about 2,400 slot machines and electronic table games. Never mind that Marina Bay Sands has only one competitor in themarket, as opposed to dozens in Macau, and much lower tax rates. Those rates in Singapore are 22% on the mass (15% gaming tax plus 7% Goods & Services Tax) and 12% on the VIP (5% gaming tax plus 7% GST). In Macau, there’s an effective rate of 39% (35% gaming INSIDE ASIAN GAMING | September 2011 34