Inside Asian Gaming

August 2009 | INSIDE ASIAN GAMING 23 T he ‘pile ‘em high sell ‘em cheap’ approach toVIP table gaming inMacau could get a little harder in future following a bilateral deal between Melco Crown Entertainment Ltd (Nasdaq: MPEL) and Las Vegas Sands Corp. to cap Macau VIP agent commissions at 1.25%. What this means in practice is MPEL yielding 0.10% commission to the market. This has been on the cards for more than a year following a price war started when MPEL signed a 1.35% commission deal on rolling chip turnover with the Hong Kong listed junket consolidator Amax late in 2007. In the deal MPEL took a gamble that cutting its margin on VIP play would deliver volume by creating impossible- to-ignore incentives for the agents. Those economies of scale would ultimately mean restoration of MPEL’s margin, the company reasoned. And so it came to pass—for a while—until other operators joined the price war; rolling chip volume started to drop off during the recession and the effects of baccarat house return volatility kicked in. An interesting question from Inside Asian Gaming ’s perspective is why the commission deal was bilateral and not universal among the operators. The Macau government indicated last year it would be minded to knock heads together and legislate a 1.25% commission cap if the industry didn’t put its own house in order. One possible explanation is that MPEL and LVS were currently the only Macau operators competing against each other at a commission rate above 1.25%. Another is that the other operators can’t agree among themselves on a cap and so MPEL and LVS are leading the way in the hope the others will follow. A third is that the remaining concessionaires won’t disclose to rival operators—even within the highest executive circles—what commission deals they have struck with agents, for fear of being gazumped by the competition. Price deals The prospect of some sort of price fixing arrangement on the commission issue and other topics such as casino staff pay may however have moved a little closer in Macau. At the endof July senior representatives from the six licensed and sub-licensed operators met at Sociedade de Jogos de Macau’s (SJM) Grand Lisboa property to sign an agreement that formalises the establishment of a trade body—a sort of ‘G6’ for the operators. As an indication of the significance of the new arrangement, the signing ceremony for the grouping—known officially as the Chamber of Macau Casino Gaming Concessionaires and Sub-concessionaires— was held in the presence of a who’s who of the industry. Those attending from the government side were: Edmund Ho, Chief Executive of the Macau SAR; Francis Tam, Secretary for Economy and Finance, and The ‘G6’ A bilateral deal on Macau VIP commission could spell a new era of operator cooperation