Inside Asian Gaming

INSIDE ASIAN GAMING | September 2010 14 Asian Gaming 50 – 2010 baccarat revenue rose by more than 111% in the first half, outstripping the average Macau VIP market growth of 85% during the period. The company’s total revenue rose 79% to HK$26.72 billion in the first half. Analysts point out that while SJM remains Macau’s market share leader thanks to its continuing grip on the VIP market (which remains geographically concentrated on the Macau peninsula), in order to safeguard its long-term position, the company needs to come up with a more detailed development plan, including expansion into Cotai. SJM currently has no properties operating on Cotai, and though it does own two plots of land there, they do not occupy prime positions. The company has since expressed an interest in acquiring either the Macao Studio City site, which has sat idle for over three years while its investors remain locked in dispute, or Sands China’s sites 7 and 8. SJM is in an unparalleled financial position among Macau casino operators to purchase and develop any prime plot that becomes available on Cotai—it is on track to have accumulated close to US$2 billion in cash reserves by the end of this year. If the company succeeds in courting the mass market on Cotai, Stanley Ho’s legacy will be having endowed it with the resources to leverage any market opportunity that presents itself in Macau. 4 (4) Steve Wynn Chairman and CEO Wynn Resorts The opening of Wynn Cotai can’t come soon enough for Steve Wynn. After four years of Wynn Macau punching well above its weight in the Macau market (relative to the US$1.2 billion capital initially invested and the modest footprint of the gaming, shopping and hotel facilities), there are signs at least among the VIP agents and their players that the wow factor may be wearing off a little. The counter to that argument is that China is a big place, and there are plenty more visitors who have yet to sample Wynn Macau’s delights. The counter to that counter argument is that the lifeblood of all the territory’s casinos is the high roller players—and they are generally directed to the Macau casinos that offer the junkets most support. On occasion, that can even trump the importance of rolling chip commission levels. In terms of infrastructure and service, Wynn Macau was undoubtedly a standard- setter in Macau. The care with which it was conceived and the way the project was executed andmanaged are evidence of that. But rival operators are beginning to catch up. The market pretenders may not yet all have the six-star service that Wynn Macau proudly boasts of, but they are hungry for success. Those rivals also have boards and institutional investors breathing down their necks, which has a tendency to concentrate minds rather wonderfully. Anexampleisthewaythatneighbouring MGM Macau, an underperformer in the VIP baccarat segment since it opened in December 2007, is going very hard after some of the same VIP business as Wynn Macau. Reports suggest MGM has scored some recent success at Wynn’s expense. Whether MGM can maintain that success is another matter. One of Wynn Macau’s virtues when it opened in September 2006 was that high quality had been firmly concentrated in a relatively small piece of real estate. The US$600 million Encore at Wynn Macau extension to the property that opened in April this year was designed to provide extra capacity for the cream of high rollers in that rapidly expanding segment and to excite the palates of existing VIP players interested in a change of surroundings. But for all the undoubted quality and club-like feel of Encore at Wynn Macau, its success may ultimately depend on how good the company is at persuading junkets to stock it with players. The direct premium play route—where credit is issued direct to the player by the casino—is in theory the preferred route of the Las Vegas operators, because it ought to provide better margins than working via agents. In practice, because the agents and sub agents are in fierce competition with each other and with the casinos for VIP roll, they are willing on occasions to cut their margins to almost nothing to retain VIP business. And with around 70% of Macau’s VIP players coming from mainland China, and courts in the People’s Republic not recognising gambling debts, the direct premium route is a culturally demanding as well as high risk enterprise. To retain the love of the junkets, and therefore to keep bringing in VIP players, Mr Wynn may need to think about sharing some more of his profits with them. If he doesn’t do it, his rivals might. MrWynn’s suggestion that hemaymove his corporate headquarters to Macau (he says he currently commutes to the city at least once a month) may speak precisely to the point about the need for Wynn Resorts to refocus its Macau strategy. The opening of Wynn Cotai is a clear opportunity to do that. It will be resolutely upscale, says Mr Wynn, despite its location in mass-market Cotai. Unlike the crampedMacau peninsula, Cotai offers sufficient space to allow Mr Wynn to build on a Las Vegas Strip scale, giving more Chinese people more reasons to sample the Wynn experience. But Wynn Cotai is unlikely to open until 2014 at the earliest. Short of buying someone else’s Macau casino and refitting it—an approach to business expansion that Mr Wynn hasn’t tried in Las Vegas for decades—he will have to wait for organic company growth via Wynn Cotai to broaden his coverage in Macau. Fans of Wynn Resorts must be patient and keep the faith until then.