Inside Asian Gaming

INSIDE ASIAN GAMING | January 2008 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 challeng- ing 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 incen- tive for junkets by raising commissions on rolling chip volume into the stratosphere and offering daily rather than monthly set- tlement 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%.NowCrown Macau is offering 1.35%—nearly double what was on offer during the monopoly era. Margins Late last year in Asian gaming: Big is bet- ter , an analysts’ report from Deutsche Bank, the authors stated: “We believe Macau op- erators would not want to offer anything be- yond 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 per- spective a calculated one. The difficulty is that in poker terms it may amount to bluff- ing 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 lo- cation in relatively tranquil Taipa—for ‘tran- quil’ 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 Chips With Everything Crown Macau makes a meal of VIP commissions VIP Market