Inside Asian Gaming

INSIDE ASIAN GAMING | October 2010 4 The Just War When a budget airline proposes charging passengers to put luggage in the hold to keep base fares down, most of us applaud or at least acquiesce. When a Macau casino operator proposes divesting himself of the responsibility of staffing high roller rooms in order to pass more commission to the junkets that feed him VIP players, people throw their hands up in horror and screech ‘Price war!’ or ‘Irrational competition!’ Perhaps it’s really just good business. Perhaps it’s about finding new ways to get goods and services to people at a lower cost than before. If you don’t adapt you die. Look what happened recently to Blockbuster Inc, the DVD and game rental company that for some years arguably underestimated the competitive threat fromnewcomers such as Red Box and Netflix. But there’s generally a limit to how far one can go in stripping out or remodelling a company’s costs base. Go too far and it can take one into dangerous territory. When Michael O’Leary, CEO of Irish low-cost airline Ryanair, suggested recently that for some short-haul flights passengers would be perfectly okay standing rather than sitting, there was an outcry from pilots and the aviation safety lobby. A casino divesting itself of responsibility for staffing a VIP room inside its own premises will need to be safety-conscious and ensure it still has ultimate oversight of the gaming operation. Separate staffing of VIP operations within his casinos was exactly what Western regulators castigated Dr Stanley Ho for every time he went shopping for an overseas gaming licence. When that regulatory issue is weighed, it makes the noise about a new price war in the VIP segment seem like a sideshow rather than the main attraction. From an investors’ and probably the government’s perspective, the best thing that could happen in Macau would be for the mass market to grow rapidly and overtake or at least match the earning power of the VIP segment. A big and vibrant mass market would mean Macau would no longer be as dependent on the VIP baccarat monoculture with its huge volumes but small margins. It would provide not only diversified revenue streams in terms of different games with different theoretical holds, but also diversified revenue from shopping and restaurants. For all that to happen, China’s middle class and its earning power will have to expand considerably. At the moment the lopsided nature of Macau’s casino industry with its dependence on high rollers is merely a mirror of the lopsided nature of wealth distribution in a still developing China. Like poverty, price wars will probably always be with us somewhere in some form. But there are wars worth fighting and there are wars not worth fighting. Any trade war involving pursuit of VIP business that risks a casino operator’s brand equity probably falls into the latter category. Editorial Inside Asian Gaming is published by Must Read Publications Ltd 8J Ed. Comercial Si Toi 619 Avenida da Praia Grande Macau Tel: (853) 2832 9980 For subscription enquiries, please email subs@asgam.com For advertising enquiries, please email ads@asgam.com or call: (853) 6646 0795 www.asgam.com Inside Asian Gaming is an official media partner of: http://www.gamingstandards.com Michael Grimes We crave your feedback. Please email your comments tomichael@asgam.com Publisher Kareem Jalal Director João Costeira Varela Editor Michael Grimes Contributors Desmond Lam, Steve Karoul I. Nelson Rose, Richard Marcus Shenée Tuck, James J. Hodl Andrew MacDonald William R. Eadington Graphic Designer Brenda Chao Photography Ike