Inside Asian Gaming

October 2010 | INSIDE ASIAN GAMING 23 or sub-concessionaire retains over that VIP business. Dr Ho has certainly been accused in the past by some Western regulators of allowing a ‘casino within a casino’ situation to develop in some of his properties because of an arms-length approach to VIP room management. The advent of a 40:57:3 model is seen in some quarters as an attack principally on Wynn Macau. Wynn reportedly offers a 42% profit share to its junket partners. While Wynn is retaining significantly more of the profit (18%) from its VIP baccarat operation than reportedly does the competitor mentioned in our newsletter, it’s important to point out that Wynn retains responsibility for the staffing costs and other overheads associated with its VIP rooms. Loophole “As a result of the rolling chip cap, a notable portion of Macau’s junket business has shifted to win-rate (aka profit share) deals in order to circumvent [commission] caps,” said Union Gaming Research in Las Vegas in a recent note to the investment community regarding Wynn Resorts. “This loophole once again allows for ‘price-base’ competition in Macau, and it appears that three casino operators with varying motivations are temporarily capitalising on the dynamic. This is creating profitability concerns for all concessionaires, and particular market share concerns for Wynn Macau who will not likely chase commissions higher,” added the research company. It stated, however, that Wynn should benefit when what Union thinks will be a temporary price war comes to a halt— possibly through government action. “Wynn should benefit from a quick unwind of win-rate commission increases and the eventual gazetting of win-rate commission caps in our view,” said the research note. Changing picture The competitive landscape certainly seems to be shifting in Macau. According to unofficial figures from Portuguese news agency Lusa , Melco Crown Entertainment (Nasdaq: MPEL) leapt from fourth place in the Macau revenue share league table in June when it had 13.5% of the market, to third place in the list in August, with a market share of 16%. That meant it overtook Wynn, which fell back from 17% in June to 14% in August. MPEL initiated the first VIP price war back in 2007 when it offered 1.35% commission on rolling chips at CrownMacau (now Altira). MGM Macau has also shown signs of stepping up its game in the VIP segment. MGM Macau has been the runt of the concessionaire litter in terms of share of gross revenue (mainly on account of its VIP performance) since it opened in December 2007. At one stage part way through August, some analysts were predicting MGM Macau was going to fall to an all time record low of 6% of market share for the month. In the end, it recovered to end on 8% for the month—a gain of 1% on July’s performance. One obvious incentive for MGM Macau to seek a rapid improvement in its performance is that within months it is likely to float a MGM Macau—floating its local unit soon VIP Market Outlook