Inside Asian Gaming

INSIDE ASIAN GAMING | February 2012 10 create significant new demand but actually cannibalises earnings to some extent. That would mean MPEL adjusted EBITDA for 2012 of just below US$1 billion (US$930.8 billion to be precise). A one percent slice of that potentially contributed by Mocha Marina Plaza comes to US$9.3 million. That sounds modest. But Mocha Clubs’ total adjusted EBITDA for 2011 was US$40.5 million, so even allowing for a 15% growth rate in 2012, Mocha Marina Plaza would represent about a fifth of all Mocha’s earnings before interest, taxation etc., during 2012. It’s hardly surprising, therefore, that Mocha has been keen to open new venues in what it hopes will be less politically controversial parts of town to compensate for the expected loss of Marina Plaza. And as our table above shows, the trend of the recent Mocha openings is to go for bigger casino-style venues. This also appears to align with MPEL’s recent group policy of farming out to Mocha the management of the slots in its casino operation. To some observers this makes sense because slots are Mocha’s core business. Others wonder what justification there is for a discrete slots business aimed specifically at local players if that same business is then engaged in managing and tracking slot players across MPEL’s casino slot business. Couldn’t MPEL simply manage its local players as a discrete group within its casinos—in the way that Las Vegas operators do in their casinos? Between 2003 and 2006, Mocha Clubs were a much-needed earner first for Melco and then for Melco and its joint venture partner. But is there any need for Mocha Clubs and SJM Slots at all at this stage in the Macau gaming market’s development? Locals have plenty of opportunities to gamble in the casino hotels. Do they really need opportunities to do so in parlours specifically targeted at them? An argument heard against local slot parlours in Macau is that they encourage behaviour among locals—i.e. casino-style gambling—that would not otherwise take place. While it’s hard to prove or disprove the ‘behaviour encouragement’ theory in relation to Macau’s slot clubs, there is one strong argument in favour of the clubs’ retention. This is that the presence of local clubs actually mitigates the redistributive effect of locals gambling. That’s because the rate of return to player (RTP) offered by these clubs—the percentage of stake money returned to the player community, albeit on an uneven basis—is well above the RTP at some of the major casino resorts in the city. The clubs also have a social element to them. Many of the customers appear to be in the 50-plus age group, and from this correspondent’s experience many of those older people use the clubs as a place to meet and socialise as well as to gamble. But even closing one or two local slots venues won’t necessarily have an impact on levels of local gambling if the parlour operators are allowed to increase the slot numbers in their remaining venues or even add new venues. The machine numbers used in our table are a rough guide. A number of contradictory figures are given in MPEL’s own literature. And a distinction must also be made between the numbers of machines allowed by the government per venue and the numbers actually in use live on the floor. In Mocha Square, for example, discreetly tucked down a side street between Casino Lisboa and Grand Lisboa in downtown Macau, only 63 machines—includingseveralmulti-terminal machines—were in operation at the time of going to press, not the 130 listed on some consumer websites (Mocha’s official website doesn’t list machine numbers for Macau Square). With those caveats, our table does indicate three Mocha venues have each increasedtheirslotnumberssinceopening— one of them, the first ever Mocha parlour at Royal Hotel, by 114%—though that has been compensated for to some extent by a 106% reduction in machines at Macau Square and a 6% reduction of inventory at Taipa Square. If Mocha management were to argue that it is trying to take Mocha Clubs up- market by locating them in places such as Macau Tower—a venue with off-street parking on the edge of a middle class neighbourhood—then a counter argument might be that this is really a back-door way for MPEL to increase its general gaming inventory at a time when the Macau government is apparently committed to slowing the growth of the whole market. There’s a time honoured tradition in the Macau gaming market of having your cake and eating it too. The most famous example has been the ability of STDM and latterly SJM to use its gaming licence to allow numerous third-party investors to have a Macau casino. The Macau government recently hinted that the days of multiple satellites are over. Its stance on slot clubs in residential areas may be another sign that it is less willing than it was to cosy up to vested business interests in the territory. But politicians all over the world tend to operate by gesture rather than on the basis of substance. Closing one venue down in the case of Mocha and allowing two new ones with four times as much space to open in its stead—before the closure has actually taken place—looks like gesture politics; and not a very robust gesture at that. It might be better for the gaming industry and the community as a whole to have an honest and open discussion on the role of gaming targeting local players. Let the industry speak and make its case, rather than having to rely on administration by stealth or sleight of hand. Ultimately, that is the best way of safeguarding the sector’s business interests. Constance Hsu, President, Mocha Clubs, at opening of Mocha Macau Tower in September Mocha Clubs