When two highly successful but formerly bitter business rivals with a combined age of 162 say they’re going to work together, the results have got to be interesting.
What Stanley Ho, aged 87 and Sheldon Adelson, aged 75 may lack in disco moves they surely make up for in determination, experience and sheer financial muscle.
It may be as much a sign of recessionary times as any kind of mellowing in later life that things have come to this stage. It was only a few months ago that Dr Ho, chairman of Macau casino operating company SJM, was calling for the undeveloped Cotai plots of Las Vegas Sands Corp. chairman Mr Adelson to be put back on the market by the Macau government, following LVS’s decision to suspend work during the credit crisis.
But on Tuesday the two men met in Macau for a “warm and friendly” lunch (that’s the tone of the conversation, not the character of the food) according to Ron Reese, a spokesman for LVS.
It was followed on Thursday by another meeting, this time reportedly involving representatives from other operators, though names were not disclosed.
“Everyone agreed not to compete, to have enough rice to eat and to get more taxes for the government,” Dr Ho told reporters after Thursday’s meeting, adding that another meeting will be held on May 18.
What this ‘cooperation’ will mean in practice isn’t clear. One obvious area would be on a ceiling for VIP rolling chip commission, but this has already been promised by the Macau government, which was forced to knock operator heads together last year during a period of frenzied competition following the 1.35 percent commission offer made by Melco Crown to the junket consolidator Amax.
Another area for potential mutual back scratching would be on casino worker salaries. They have mushroomed both in terms of mass and individual scale as operators competed for the best people, following the explosion in casino supply that began in 2005.
Action on either of these issues could be good news for the operators’ shareholders, but not such good news for all casino players or local workers—two of the three local interest groups (the other being the government) that were supposed to benefit from the formal ending of Dr Ho’s gaming monopoly in 2002.
The assumption behind Dr Ho’s statement seems to be that better trading conditions for operators mean more taxes for the government, but that doesn’t necessarily follow. The operators’ margin on mass table play for example is typically at least five times higher than it is for VIP play, but around 40 percent tax comes off the gross in both cases regardless. Under those circumstances, operators faced with a downturn in VIP revenue may be tempted to hammer commissions for their remaining high roller customers and create incentives for their mass players. In that scenario, one or two high rollers might reasonably ask why the people who supplied nearly 70 percent of Macau’s gross gaming revenues in the good times should have to suffer in the bad.
This part of the world has form, though, when it comes to crony capitalism. Neighbouring Hong Kong is notorious for allowing cooperation and price fixing among theoretically competing companies in other industries. In the United States and the European Union, cartels are normally considered prejudicial to consumer and public interests and are illegal, attracting large fines and even prison sentences for companies and executives involved in such measures.
Given that gaming is not a perfect market when it comes to competition (because of the limited number of licences in most markets), Macau operators splashing out huge sums of capital do arguably have a fig leaf of respectability when it comes to arguing for ‘cooperation’. Overseas-listed and regulated operators will though have to be careful not to fall foul of US or other overseas laws against cartels in any arrangements they make with their competitors in Macau.
Watch this space.
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