Inside Asian Gaming

June 2010 | INSIDE ASIAN GAMING 17 If it was a feint on Dr Ho’s part, then Sheldon Adelson, the Chairman and Chief Executive of Las Vegas Sands Corp (LVS), certainly took the bait. Soon he was telling Dr Ho via comments to CNN and other media outlets to stay out of the competition kitchen if he found it too hot. Meanwhile, SJM-linked interests were quietly working behind the scenes on a deal that was to have far reaching implications in the commission war. The Amax deal Here’s what happened next. In December 2007, AMA International, a junket consolidator, signed a deal to supply VIPs to Melco Crown Entertainment’s Crown Macau property on Taipa in return for an eye watering 1.35% commission on rolling chip volume—nearly one third more than anything seen in the market up until then. In effect, MPEL was trading margin for volume. This had a huge impact on the profit potential of the other operators in the VIP baccarat-focused Macau market. They had a choice—either try and compete on price, or watch junkets up sticks and abandon their tables to join the AMA bandwagon. If they chose to compete on price, they would find their margins—already tight and reliant on play volume for profitability—squeezed still further. Here are some facts about that AMA- MPEL deal: * AMA International is a subsidiary of Amax Holdings (formerly Amax Entertainment Holdings), a 49.9% stakeholder in Macau’s Greek Mythology Casino. * Greek Mythology is an SJM-licensed, VIP- focused casino operation inside the New Century Hotel on Taipa. * The New Century is across the road from Crown Macau (now Altira Macau), the VIP-focused property built by Melco Crown Entertainment (Nasdaq: MPEL). * MPEL is co-chaired by Dr Ho’s son Lawrence. * After opening late and over budget in May 2007, Crown Macau was struggling to make an impact and to grab market share in its target VIP segment. * Within two months of the AMA deal, Crown Macau had gone from also-ran to grabbing 18% of the gross in the Macau VIP market. * The commission rate hike hit SJM’s VIP room business and profits as some junkets that had previously done business with SJM casino VIP rooms moved to Crown. But that migration hit the Las Vegas operators just as hard, if not harder, given they were operating on a lower volume of roll than SJM to begin with. * In early 2009, the Las Vegas operators called for talks on competition issues, including junket commissions, with the talks to be chaired by Dr Stanley Ho. Exactly who talked to whom to make that Crown Macau-AMA International deal happen is speculation, but it shows what the Las Vegas operators are up against in terms of SJM’s market coverage and connections in the local industry. If it was a victory for SJM, it was a pyrrhic one. But it also arguably saved the prospects of Lawrence Ho and his business partner James Packer in the Macau market, by generating cash to help pay for CrownMacau, and creating some leverage for the funding of MPEL’s Cotai property, City of Dreams. As Sun Tzu says: “ … when using our forces, we must seem inactive ”. In Focus Crown Macau (now Altira)—let it roll Lawrence Ho—Amax to the rescue