Inside Asian Gaming

INSIDE ASIAN GAMING | January 2012 14 In Focus casino gambling directly to Chinese citizens—when they’re at home in the People’s Republic—is forbidden. But the marketing in China of casino excursions is almost as much of a political hot potato. Everybody does it. The crime is to overstep the mark. And that mark isn’t as clearly drawn as in Singapore, where for example the casinos are not allowed to provide free shuttle buses from and to the so-called ‘Heartlands’—a euphemism for public housing zones with lower income families. It’s broadly true to say the mainland China authorities seem relaxed about their rich citizens losing a lot of money at the Macau tables, but much more anxious about their poorer countrymen following suit, for fear of creating politically dangerous social unrest. But China’s administrative system is all about drawing up deliberately vague guidelines that can then be interpreted a certain way or another later, depending on the political necessities of the moment. Las Vegas Sands Corp—Sands China’s parent company—has already fallen foul of this system once before. According to the LVS earnings report for the third quarter of 2010, a company affiliate involved in non- gaming marketing activities in the People’s Republic was given notice of an RMB10.8 million fine in relation to “certain payments made by the company’s wholly foreign- owned enterprises to counterparties and other vendors in China”. So Macau operators may generally find it politically safer to focus their competitive effort on marketing to those players who are already in Macau. If, however, a mass-market rewards war were to break out among the operators during Chinese New Year and beyond, then as the likely holiday ‘bounce’ decays, such competition might succeed only in cannibalising the existingmarket and driving down gross margins on mass play. There’s some historical evidence from the VIP market to support this cannibalisation thesis. When Crown Macau (now Altira) increased the commission paid to junkets for VIP rolling chip turnover by a third almost overnight in December 2007, what it did was to expand rapidly the property’s share of the high roller market—from HK$16 billion rolling chip turnover per month in November 2007 to HK$70 billion in December—a growth rate of 337.5%. What the strategy didn’t do was to expand the whole VIP market at the same rate. The most obvious reason for Macau casinos to offer junket agents greater incentives or to offer mass-market players greater rewards is to build market share. But unless the whole market grows at the same time, the side effect of major hikes in commissions and incentives is indeed likely to be an erosion of margins and/or a cannibalisation of the market’s existing business. As Table 1 overleaf shows, while maximum rolling chip commission rates paid to Macau junkets rose incrementally and relatively smoothly up to the point of Crown Macau’s 1.35% market-busting offer in December 2007, the year-on-year growth rate in VIP baccarat gross gaming revenue Fine line—an LVS affiliate was sanctioned in 2010 for allegedly breaching marketing rules in the PRC When Crown Macau (now Altira) increased the commission paid to junkets for VIP rolling chip turnover by a third almost overnight in December 2007, what it did was to expand rapidly the property’s share of the high roller market… What the strategy didn’t do was to expand the whole VIP market at the same rate.