Inside Asian Gaming

INSIDE ASIAN GAMING | October 2012 12 Cover Story of visitation to Macau. These include: 1) a slackening in global demand for exports, mainly on the part of stagnant economies in the West; 2) falling residential real estate prices, which is where a good deal of the country’s wealth is concentrated; 3) the domino effect of the real estate slump on asset prices as a whole, which is hurting corporate profits and raising concerns about bad debt. VIP play, being almost entirely credit play, is especially sensitive to this kind of volatility. Finally, it is believed that this fall’s changeover in leadership of the Communist Party, a once-in-a-decade event, and for the moneyed elites a phenomenon always fraught with uncertainty, has induced some big players to tone down their profile. “With a global economic recession and leadership changes in China, VIPs are cutting back,” says Grant Govertsen, equities analyst with Union Gaming Research Macau. “This means that junket operations have less working capital on their hands and so they would be less able to extend credit to the gamblers. The velocity of money in Macau will slow down further and affect casino revenue.” You now have a junket operator like Hong Kong-listed Asia Entertainment & Resources taking the novel approach of offering cash-only agents a piece of the win/loss it shares with the casinos where it operates VIP rooms. “The company has recently tightened its credit policies due to the slowdown in the economy in the mainland. That, in turn, has slowed year- over-year growth of AERL’s rolling chip turnover,” it acknowledged in an August release. Such willingness to take a hit on margins tells you something, although as a relatively small cog in themassive high-roller machine, controlling only 34 of themarket’s 2,200 or so VIP roomtables, AERL’s experience canhardly be said to be definitive. The machine itself is vast, extending down through thousands of employees and agents of varying levels of wherewithal and legitimacy operating in a country where gambling marketing is prohibited and gambling debts are not enforceable in law. Its workings, therefore, are largely impenetrable. If liquidity has become a challenge for some of itsmembers, the general lack of transparency that clouds its operations makes it impossible to know with any certainty, although the machine Macau GGR and China GDP 100% 16% 14% 80% 12% 60% 10% 40% 8% 20% 6% 0% 4% -20% Macau gross gaming revenue (%yoy, LHS) China quarterly GDP growth (%yoy, RHS) Macau gross gaming revenue (%yoy) 2% -40% Jan 2005 M ay 2005 S ep 2005 Jan 2005 M ay 2005 S ep 2005 Jan 2005 M ay 2005 S ep 2005 Jan 2005 May 2005 Sep 2005 Jan 2005 May 2005 Sep 2005 Jan 2005 May 2005 Sep 2005 Jan 2005 May 2005 Sep 2005 Jan 2005 May 2005 Sep 2005 0% Source: http://www.alsosprachanalyst.com “With a global economic recession and leadership changes in China, VIPs are cutting back. This means that junket operations have less working capital on their hands and so they would be less able to extend credit to the gamblers. The velocity of money in Macau will slow down further and affect casino revenue.” — Grant Govertsen, Union Gaming Research Macau VIP revenue this year is facing its lowest rate of growth since 2009.