Inside Asian Gaming

28 centage, it is easy to see that there will be some consolidation in the industry within the next couple of years. The big operators will have deeper reserves to dig into when table revenues dive below the average break-even point, leaving the smaller operators to try and find niches for themselves. A question of survival? It would make sense for these little guys, particularly for the ones currently managed by SJM, to follow the Bavet model. Unlike the Galaxy City Club setups, most of the existing SJM sub-franchises do not bear any costs as- sociated with the operation of the casinos in theirbuildings.Underthe40:40:20model,SJM bears all the costs associated with the opera- tion of the casino, leaving only the marketing and F&B to the owners. The owners get 40% net, and now with the ever increasing labour costs, they are increasingly disinclined to ac- cept the new service agreement that David Chow of the Pharoahs casino in Landmark signed, whereby in return for control of the casino management, he gets 55% of revenue rather than 40%, but must also assume the costs of managing the casino. If they stayed under the original model,and spend minimal amount of money on marketing and only the basic F&B needs, by adopting the Bavet mod- el of inviting Junket Agents onto their main floor, they have effectively withdrawn from the advertising battle, and more importantly, have linked their marketing costs directly to the volume of business in the form of rolling commission given out. This has resulted in an unintended con- sequence. When Galaxy first introduced the 40:50:10 arrangement at its City Clubs (approximate with 40% to the government, 50% to the City Club owners, and an av- erage of 10% derived from grind and VIP play to Galaxy), the ability of the owners to have a greater say over the operations of their casino was a big draw. The owners were able to justify shouldering all the ca- sino operational expenses by rationalizing that they have the ability to maximize cost- revenue efficiencies. SJM jumped into the foray with its 40:55:5 model, which gave the owners more revenue to cover costs, thus undercutting the Galaxy management model. Pharaohs has had this contract since December, and the new contract is now available to all the other SJM, but no- body else has jumped on the bandwagon (whereas 5-6 months ago, they were all clamoring for it.). The reason—they have all seen labour and other costs go through the roof, while the market’s ever increas- ing supply of tables has resulted in sharply dropping revenue. This has resulted in the shareholdings of the Galaxy City Clubs en- ter a constant state of flux. It is likely there will soon be M&A op- portunities in the lower end of the operators market. Recently released quarterly results also show some the large operators strug- gling in the face of the capacity explosion. If the small- and medium-sized casinos in- creasingly adopt gaming commodisation, the large operators could face even greater pressure on their bottom lines. Octo Chang is the pseudonym of our regu- lar columnist, a casino marketing professional with extensive qualifications and background in the gaming industry. Please feel free to for- ward any amusing anecdotes or observations of the marketing variety to him at ka.chng@ gmail.com