Inside Asian Gaming

INSIDE ASIAN GAMING | October 2011 16 D elaying any new casino projects until well after Sands Cotai Central is completed on Cotai—possibly in 2014 or 2015—would create even more price pressure if visitor numbers continue to climb at or near the rates seen in the last few years. In any case, the government faces two problems with extending the moratorium on new projects first announced by former Chief Executive Edmund Ho in April 2008. The first is that it is already publicly committed to allowing any casino project submitted to it prior to the end of 2008. That includes Wynn’s Cotai scheme and theoretically the Studio City project. The latter should have been up and running by now, but a drawn out dispute between some of the former partners in the project held it back for years. The government’s original deadline for development of Studio City was 2013. So although the original permission will expire before the scheme can be realised, it would be surprising if at this stage the government threw it out—especially as the scheme has now been taken over by Melco Crown Entertainment (MPEL), whose co- chairman is Lawrence Ho. Although the site has not yet been formally zoned for gaming, it’s also difficult to see how any resort or tourism scheme of comparable size could be viable without a gaming component to it. The second reason it would be hard for the government to renege on its agreement to allow any schemes approved before the end of 2008 is that Sands Cotai Central will be Sands China’s third property on Cotai (after The Venetian Macao and The Four Seasons Macao)—at a time when Sands’ market rivals have got at most one property there (MPEL and Galaxy Entertainment Group) or none at all (SJM, Wynn Macau and MGM China). So if a complete freeze on new building until further notice isn’t an option for the Macau authorities, what else could the government do to control the market— and protect the interests of less well-off gamblers? Allowing the operators to introduce more electronic tables with lower minimum bets in order to soak up mass- market demand at a lower price point would be one possibility. That will require political support from the Macau authorities, as we explained in our cover story‘Electric Dreams’ in July last year. At the moment in Macau, electronic tables are regulated like their live table game equivalents (in terms of odds and payouts), but their place in casino inventory is hazy. And there are currently no electronic game regulations in Macau to clarify that point. IAG has been told that at least one operator is lobbying for electronic tables to be classified in future as slots— for inventory purposes if not in terms of odds and payouts. If the Macau and mainland authorities did decide to attack the gaming supply issue at both ends—i.e. to cool not just the table supply but also visitor numbers, then that might mean a return to a rationing of the individual visit scheme visas. Even that is not fool proof, however, because mass market players can simply join a guided tour and go gambling anyway, and VIP players can get visas for business travel transiting via Macau. S ome observers suggest the table cap policy is more a guideline and a flagging to the industry of the government’s concern than something set in stone. They cite in support of that argument the fact that since the opening of Galaxy Macau on 15th May, and its injection of around 380 extra tables into the market, the running total of tables in Macau is currently 5,237. That leaves only around 260 new tables available for Sands Cotai Central between now and the start of 2013. The government may be willing to show some flexibility on table numbers for Sands China, given that the Cotai extension is slated as a US$4.2 billion scheme. But that’s not something that Sands is likely to be leaving to chance. It will undoubtedly have a contingency plan for moving some live tables from its existing properties and possibly also for increasing the number of electronic tables in its inventory. Another question raised by analysts recently is whether it will be possible for operators in need of tables to buy some of the existing quota of another operator. The operator with the most slack in the system in terms of under-utilised or currently mothballed tables is SJM, as we explained in our story ‘A Tale of Two Cities’ in August 2010. It’s a function of the fact it has more market coverage thanall theother operators combined. It has 20 venues using an SJM gaming licence, compared to a combined 13 among its five rivals. A total of 16 SJM- licensed properties are so-called satellites. They are ‘family’ in the sense that they are usually willing to cooperate commercially with SJM even though they are owned by outside parties. They also tend to get most of their turnover and their gross from VIP gaming. Even at weekends, many of them have under-used or closed tables on the floor. But industry sources have told Inside Asian Gaming that SJM has no intention of selling any of its quota—and thus its future story—to rival operators, even if the government would allow it. The fact the Macau government feels something must be done—rather than leaving things to market forces—is not surprising given the different cultural and political heritage of Macau and China compared to the West. Macau and Beijing might reasonably argue that the classic Western free enterprise model of regulation – to let a market correct itself and largely police itself—failed spectacularly in the case of the Western banking system. Put in those terms, perhaps an extension of the table cap has some merit after all. Policy or Guideline? Macau’s market rules may not be as hard and fast as those in Western jurisdictions Macau has shown willingness to be flexible on gaming policy issues Budding Cotai Macau has already committed to some new projects away from the peninsula