Inside Asian Gaming

INSIDE ASIAN GAMING | September 2008 4 Editorial Editor and Publisher Kareem Jalal Director João Costeira Varela Business Development Manager Matt Phillips Operations Manager José Abecasis Contributors Michael Grimes, Desmond Lam, Steve Karoul, Richard Marcus Graphic Designer Brenda Chao Photography Ike Inside Asian Gaming is published by Must Read Publications Ltd Suite 1907, AIA Tower, 215A-301 Av. Comercial de Macau - Macau Tel: (853) 6646 0795 For subscription enquiries, please email subs@asgam.com For advertising enquiries, please email ads@asgam.com or call: (853) 6646 0795 www.asgam.com Printed by Unique Network Printing Factory Ltd. Tel: (853) 2828 2832 Fax: (853) 2828 2830 E-mail: unique@macau.ctm.net Lies, Damned Lies and Statistics Macau gaming operators may have found a heaven-sent excuse to justify poor or patchy performance. Airlines,shops and taxi drivers are fond of blaming oil prices for every price rise inflicted on consumers, even though most commercial fuel supplies are bought months or years in advance at fixed prices using futures contracts. Now the Macau gaming industry can blame every disappointing indicator or underperforming month on visa restrictions imposed on residents travelling from the Chinese mainland. And it seems they’re wasting no time in doing so. It doesn’t matter that an operator might have started in effect a trade war in the VIP market by raising rolling chip commission by a third almost overnight. It doesn’t matter if those same people briefly considered themselves modern geniuses of the gaming business and gave the appearance of being a little peeved if others didn’t acknowledge them as such. It doesn’t matter if their actions spurred the government to cap VIP agent commission for the first time in Macau’s history. All that matters is that if it goes wrong,someone,anyone,except the people involved,should take the rap.That, after all, is what the management art of delegation is all about. To add insult to injury, a number of investment analysts have then waded into the debate, stroking their corporate beards over the visa issue and pronouncing sagely on ‘political risk in the Macau market’. Many analysts are indeed good at analysis and make a valuable contribution to the debate about the development of the gaming industry in the region. Nonetheless, the institutions they represent have in some cases been responsible for some of the biggest global losses in modern financial history thanks to their unholy alliance with commission-chasing retail mortgage lenders and the slicing, dicing and selling on of packages of supposedly securitised debt with ultimately no clear book value. This fact was only discovered when the neighbours came knocking on the door looking for liquidity. Institutions that have helped to send North America and Europe teetering to the brink of recession cannot necessarily be relied on to provide a credible commentary on the inner workings of the People’s Republic of China, including its Special Administrative Regions. Mao’s Cultural Revolution was only half a lifetime ago.China has come a long way very quickly, but no one should be too surprised if the economic brakes get applied now and then. The Wood from the Trees Statistics are useful indicators of trends and can be an earlywarning sign of troubles in an industry.But their near-fetishisation in an age of 24-hour media coverage creates such a distraction it can be difficult to distinguish serious trend from mere anomaly.The media and commentators cry wolf so loudly and so often that if may be hard to tell when a genuine economic or political emergency is on our doorstep. Gross gaming revenue grew in Macau by more than 50% year-on-year in the first seven months of this year. If that’s failure, most industries would take it any time.Yet it only takes one negative indicator in a sea of upsides to get commentators and managers reaching for the excuses compendium. Excuses for less than pristine monthly growth in some indicator or other this year include snow, heavy rain, hot weather (in fact just about any kind of weather), the distractions of the Euro 2008 soccer championships and the Olympics, not forgetting of course our old friend the visa restrictions. Perhaps a less than spectacular November will result in someone blaming Macau’s Grand Prix entrants for making too much noise in the street and putting off the VIP gamblers. Amax Entertainment Holdings,whose junket arm has an exclusive deal to take high rollers to Melco’s Crown Macau casino, said VIP chip sales fell to HK$33 billion in August, its worst performance this year and down 17.5% from July. Amax blamed Beijing’s new round of restrictions on mainlanders travelling to Macau and also the Olympics, which it said reduced casino visits among low-tier players. It made considerably less of the fact that its offer to agents may not seem so attractive now that most of its competitors have followed suit and raised their commissions. In the near future, there will be a level playing field as the government imposes its recently-announced cap on junket commissions, brought about in an effort to end the intensifying trade war initiated by the hike at Crown Macau, where Amax exclusively takes its clients. Macau’s luxury housing market, which apparently depends on non-locals for around half of all sales (another useful statistic), has seen values fall by 30% since January this year, according to a prominent local property agent. In the world of fetishised statistics this is read not as a market correcting itself after a period of over-optimism or over-speculation, but a sign of impending doom. A reality check may be required all round regarding Macau.Investors in North America and European equity and property markets became so beguiled and bedazzled by years of robust capital growth that many forgot about the small print, stating values can go down as well as up. Economic success is not a birthright.Macau has had hard times before and it will probably have them again.It might be better to accept more measured growth within Beijing’s comfort zone than to pump up the market overnight and look for someone to blame if it all goes wrong. Michael Grimes