Inside Asian Gaming

INSIDE ASIAN GAMING | August 2009 24 Dr Manuel Neves, Director of the Gaming Inspection and Coordination Bureau, the territory’s gaming regulator. From the operators’ side, the representatives were: Dr Stanley Ho, Managing Director of SJM, S.A.; Francis Lui, Vice Chairman of Galaxy Casino, S.A.; Linda Chen, COO of Wynn Resorts (Macau), S.A.; Stephen Weaver, President of Asian Region of Venetian Macau, S.A.; Pansy Ho, Managing Director of MGM Grand Paradise, S.A.; and Lawrence Ho, Co-Chairman and CEO of Melco Crown Jogos (Macau), S.A. Such a pubic show of harmony by the operators would have been hard to imagine even late last year. Back then, the operators were in a war not just for customers and revenue but also in a war of words over their respective approaches to investment in Macau. Mutual concern Now, during a recession, the operators probably have more commonality of interest—not least in keeping overheads down and margins stable or if possible rising upward. Even before the signing ceremony at the Grand Lisboa, the operators had been meeting regularly this year to discuss issues of mutual interest, including pricing and intensity of competition. One of the striking things about the association is that in those initial meetings it was the very top people such as Dr Ho and Mr Lui, or their immediate deputies, who were getting together for discussions. This suggests they had a mandate for direct policy making rather than merely acting as a talking shop. It may be that as the Association matures and broad principles are agreed among the operators, more discussion and negotiation will be delegated to subordinate executives at committee or sub committee level. This makes practical sense given that the time and availability of the top people is often limited. What the whole trade body trend does suggest is that Macau’s political leadership has in effect conceded it is willing to allow the industry to put its own house in order. The area where politics and commercial interests can sometimes overlap—such as competition over VIP commission—is an especially sensitive one for local politicians. They appear to prefer a laissez faire approach and small government as far asmanagement of the gaming sector is concerned. How much of this new togetherness by The G6 the trade association is window dressing and how much of practical benefit to the industry, workers and consumers, time will tell. Unions might argue a cap on wages helps operators and their investors but doesn’t help workers very much. The operators might equally counter that a wage war during a recession risks damaging the very industry that created the jobs in the first place. The fine print When it comes to commission caps, as one industry insider pointed out to IAG , the devil is in the detail. The purpose of the cap in the first place was to prevent so-called ‘irrational’ competition between operators to the detriment of operator margins and ultimately the detriment of local industry jobs and social harmony. That doesn’t mean the end of cutthroat competition for VIP customers and turnover. The insider told IAG : “The structure of VIP room agreements often means working capital is provided via a third party company to a betting agent who then extends credit to players. Commission on the resulting rolling chip volume need not come in whole out of the operator’s end of the deal. “It can come via incentives offered to the VIP agents via the capital-providing entity. Essentially it’s a question of ‘borrow more working capital from us and we’ll do you a better deal on price’. That way the operator can perfectly safely say to the government ‘We’re sticking to the commission cap’ when in reality itsVIP roompartners are still battling away for customers,” adds the source. Representatives of the Macau operators gathered at the Grand Lisboa to form the Chamber of Macau Casino Gaming Concessionaires and Sub-concessionaires