Inside Asian Gaming

INSIDE ASIAN GAMING | October 2012 20 In Focus transparent model through which Neptune invests in VIP room promoters in exchange for a share of the rolling chip turnover the rooms generate—a partnership model in which everyone benefits: the promoters, the casinos and Neptune. Mr Niglio’s long career was forged in the intensely competitive Atlantic City market, where he served in numerous executive roles, including vice president of casino operations and senior vice president, Eastern operations, at Caesars World and as an executive vice president at the Trump casinos, where he oversaw domestic and international marketing. Under his leadership, Neptune has grown profits more than 300% in the last three years to HK$200 million in 2011. And the company continues to expand, both through its ties to privately held Neptune Macau, which directly promotes some 220 VIP tables, and through its own profit-sharing agreements. The Group recently concluded memoranda of understanding that will add 64 tables at Grand Lisboa, Wynn Macau and MGM Grand to its existing investments in rooms at StarWorld, The Venetian and Sands Macao. These agreements will more than double its portfolio of tables and triple the total rolling chip turnover in which it shares to about HK$45 billion a month. Mr Niglio recently spoke with Inside Asian Gaming about these moves and shared his thoughts onNeptune’s plans going forward and the state of the VIP market in Macau. IAG : With these new investments at Grand Lisboa, Wynn and MGM, what will be the impact for Neptune? Nicholas Niglio : The impact will, I believe, double our earnings, because it’s doubling our capacity. It’s the same system of investment, where the return from the casino, the percentage basis, is going to be the same, 0.4%, and that’s consistent with what we’ve had for the last three to four years. The three properties, not a whole lot of difference in the turnover within the group. These three are probably our higher-end ones, which means it can even be incremental, more than a doubling, because these are our flagships. … Actually, if we had done this a year ago it wouldn’t have had the impact on our financial statements as it will today, because those three properties, the way they’re performing, they’re peaking now. And the increase in monthly rolling chip turnover, obviously that is significant as well. You’ve got to feel good about that. It’s a new start, truly a new start for this company, something that we’re very happy to see. Do you see these deals then as providing momentum for more investments along these lines? Well, it takes us almost to a saturation point. There is a little bit more room to include all the concessionaires. But you can only go as far as the concessionaires. So where do you go from here? The group for years has always had the objective to expand its total portfolio past Macau. I think at the point that we feel Macau has been systematically absorbed, as far as we can go, then I’m sure you’ll see things happening elsewhere. I’m not ruling anything out. Would this include acquisitions? We’re hearing a lot these days about consolidation in the sector, both as a result of a slowdown in VIP revenue growth and the slowdown in China that is having an effect on credit markets. There is some consolidation. I don’t think it has gotten to the point where it’s noteworthy. I mean, what we did is an investment rather than a clear consolidation. It’s a further enhancement of our presence here. It doesn’t change the nomenclature of the rooms themselves. What you’re referring to are takeovers, where you have a medium-size company like [Asia Entertainment & Resources Ltd] for instance, purchasing a small six-table junket. The impact is not noteworthy just yet. However, I’m happy to see that. It’s been very difficult for the small junkets to partake in this market because the big five control so much of the turnover. They’ve got the same problems and pressures that we have but without the capital and without the infrastructure to exercise adequate controls. It forces them to make credit decisions that they may not normally want to make, but they’re almost forced into it. And when you don’t have much, and you lend out a little bit, and it’s not property scrutinized as much as you would want it to be, then all of a sudden it slows down, next thing you know you’re looking for somebody to help you, and that’s where the slowdown has been. “It’s been very difficult for the small junkets to partake in this market because the big five control so much of the turnover. They’ve got the same problems and pressures that we have but without the capital and without the infrastructure to exercise adequate controls.” Who are the big five? Neptune, SunCity, David’s Palace, Jimei Group, Golden Resort Group. AERL has invested in about 29 tables. They’re a mid- cap. We’ll call them a mid-cap. There is no other word for them. I give them credit for listing. I don’t think they represent the industry that well. They add some confusion to the marketplace. They’ve been through several auditing firms. I’m glad they’re there rather than not there, but I wish they would tone it down and standardize themselves a little bit. Maybe as they grow they will. … I’d like to see more big ones develop. I’m talking about bigger junkets. I’d like to see a big six or big seven. I think that’s good. Nick Niglio