The Supplier Awards - Inside Asian Gaming
Transcription
The Supplier Awards - Inside Asian Gaming
January 2009 • MOP 30 • ISSN 2070-7681 The Supplier Awards Our judges vote on the best performers of last year Macau 2009 Outlook: Rolling Downhill Cotai Stripped Plodding On Taiwan Gaming: ‘Casino Lite’? House on Edge Time for an Encore Slot Pick: Mocha Millions INSIDE ASIAN GAMING | January 2009 CONTENTS January 2009 The Supplier Awards 2009 The Supplier Awards 7 Inside Asian Gaming Supplier Awards 2009 14 Slot Pick 15 House on Edge 18 Rolling Downhill 25 Cotai Stripped 29 Quotes of the Week 2008 32 Plodding On 36 Time for an Encore 38 ‘Casino Lite’ for Taiwan Gaming? 25 40 Changing Face of Reform 44 Regional Briefs 46 International Briefs 48 Events Calendar 15 January 2009 | INSIDE ASIAN GAMING 2 INSIDE ASIAN GAMING | January 2009 January 2009 | INSIDE ASIAN GAMING 3 Editorial Waiting for Better Days Editor and Publisher Kareem Jalal Director João Costeira Varela Business Development Manager Matt Phillips Operations Manager José Abecasis Contributors Michael Grimes, Desmond Lam Steve Karoul, I. Nelson Rose Richard Marcus, Shenée Tuck Andrew MacDonald James J. Hodl William R. Eadington Graphic Designer Brenda Chao Photography Ike Inside Asian Gaming is published by Must Read Publications Ltd Suite 1907, AIA Tower, 215A-301 Av. Comercial de Macau Macau Tel: (853) 6646 0795 For subscription enquiries, please email [email protected] For advertising enquiries, please email [email protected] or call: (853) 6646 0795 www.asgam.com Printed by Unique Network Printing Factory Ltd. Tel: (853) 2828 2832 Fax: (853) 2828 2830 E-mail: [email protected] 4 INSIDE ASIAN GAMING | January 2009 Macau’s air quality has improved discernibly following the suspension or slowing of construction on several major casino resorts in the city. The clear skies contrast with the cloudy outlook for the gaming industry. In this issue’s “Rolling Downhill,” “Plodding On” and “Cotai Stripped”, we attempt to lift the fog by offering analysts’ forecasts for the Macau market in 2009. The overriding sentiment: Be prepared to slog through a tough year, and wait for better days ahead. Hong Kong-based Citigroup gaming analyst Anil Daswani believes “it’s not so much the global downturn that’s having an effect on Macau; it’s the visa restrictions that are having the most impact.” He adds: “Clearly there was way too much capital coming into Macau, and the mainland is trying to cool the economy.” In the first half of 2008, the world tumbled into recession but Macau’s casino revenue continued its spectacular year-on-year growth as aggressive competition for VIP players led to the offering of higher junket commissions, which in turn drove revenue higher. Even the visa restrictions in their initial form could not halt the revenue growth. China had to progressively limit the frequency with which mainlanders could travel to Macau until finally, in September, a combination of the deteriorating Chinese economy and sufficiently limiting travel restrictions turned back the revenue growth. Though the restrictions were so recently imposed, it was hoped they would soon be lifted in light of the rapidly deteriorating economic conditions and credit-crunch driven delays in the opening of several crowd-pulling mega resorts in Macau. Chinese Vice President Xi Jinping’s visit to Macau on January 10th offered the ideal occasion to announce a rollback of the travel restrictions. Unfortunately, no such announcement was made. Instead, Mr Xi urged Macau to diversify its economy away from the current overreliance on gaming. Thus, it seems unlikely that Beijing will extend a lifeline to Macau’s casinos anytime soon. In 2009, Macau’s casino revenue is likely to contract for the first time since China began easing travel restrictions on Macau-bound mainlanders in the second half of 2003. In addition to freer travel (which has now been curtailed), the mainland visitor deluge was also fed by a steady stream of new world-class casino properties coming online from 2004, following the liberalization of the gaming sector two years earlier and ending of Stanley Ho’s 40-year monopoly. Since then, growth spurts in Macau’s visitation and casino revenue have coincided with the opening of dazzling new casino resorts. Several ambitious mega resorts originally scheduled to open this year have now been shelved, which will hold back growth further in an already difficult year. The dark clouds from the current financial crisis have spread from their epicenter in the US and are creating ripple effects. The unexpected speed and magnitude of the slowdown in the US and Europe created an unexpectedly sharp impact on China’s factories. High-rollers playing high-stakes baccarat in private VIP rooms contribute around 70% of Macau casino revenues. Since many of those high-rollers are owners or investors in China’s manufacturing sector, Macau’s VIP rooms face a murky year ahead. It also does not help that an increasing number of Communist Party bosses and government officials in China have been caught pillaging state funds, company accounts and municipal treasuries in order to fund their gambling in Macau. This has become a big source of embarrassment to Beijing. A study of 99 high-rollers from mainland China conducted last year by Zeng Zhonglu, a professor at Macao Polytechnic Institute, showed that 59 had some sort of state affiliation: 33 were government officials, 19 were senior managers at state-owned enterprises and 7 were cashiers at state businesses. They were typically men, between 30 and 49 years old, and lived in mainland areas close to Macau. The government officials reported losing an average of US$2.7 million each, state managers lost an average $1.9 million each, and cashiers dropped $500,000. Most said their gambling careers lasted less than four years before they were found out. Their losses at the tables bankrupted at least 10 companies. An editorial in the Beijing Youth Daily said gambling by public officials “threatens the safety of the national treasury.” Many of the party bosses and officials caught misappropriating funds to gamble in Macau have been sentenced to lengthy prison terms. For at least 15 who were executed, there will be no better days. January 2009 | INSIDE ASIAN GAMING 5 6 INSIDE ASIAN GAMING | January 2009 Supplier Awards Inside Asian Gaming Supplier Awards 2009 A mid all the talk of the challenges facing the Asian gaming industry in 2009, it would be easy to forget the outstanding good news story of 2008— record revenue growth in multiple markets. The aim of the Inside Asian Gaming – Supplier Awards 2009 is to celebrate and recognise all the hard work that gaming suppliers across the globe have put into making that record 2008 growth possible. The prizes were based on reader nominations of gaming equipment products available in Asia in 2008 and on the votes of a panel of judges made up of industry professionals. The nominees were all products and companies with proven performance where it matters most—on the casino and club floor. The winners and those receiving an honourable mention have proven track records in terms of return on investment thanks to their ability to satisfy the demands of players and operators alike. Even those that didn’t make the nominations this time round are playing a vital role in the industry by pushing up standards through constant competition. Thank you to everyone who took part, and on behalf of the publisher and everyone at Must Read Publications Ltd, we wish you a Happy New Year and a prosperous Year of the Ox in 2009. Without further ado, the categories are: Best Standalone Game Nominees: Manufacturer Title Aristocrat Choy Sun Doa Aristocrat 50 Dragons Aristocrat 5 Dragons Bally Mega Winner IGT Davinci Diamonds Winner: Aristocrat Technologies - Choy Sun Doa Choy Sun Doa is an apt first winner, as this Chinese-themed game features something that’s a common sight in Macau and elsewhere during the Lunar New Year. This is the giving and receiving of small red packets containing gifts of money, known as lai see. In Aristocrat’s Choy Sun Doa game, red packets also spell good luck. They appear during the free game feature of this medium volatility video slot. A red packet anywhere on reels one and five results in a random prize of 50, 20, 15, 10, 5 or 2. The random prize is then multiplied by the total number of credits staked. Choy Sun Doa is our judges’ first winner thanks to its popularity across Asian markets as one of six proven performers in Aristocrat’s Reel Power series. Best Linked Progressive Product Nominees: Manufacturer Title Aristocrat Cash Express Aristocrat Fa Fa Fa Bally Blazing 7s Hot Shot IGT Party Time Konami Fire & Ice WMS Jackpot Party WMS Life of Luxury Winner: Aristocrat Technologies – Cash Express Aristocrat’s Cash Express powered its way onto the US market back in 1992 as the company’s first linked progressive. Since January 2009 | INSIDE ASIAN GAMING 7 Supplier Awards Cash Express then, Cash Express has gained traction all over the world, including Asia, showing the benefits that come when a company gets a product right first time. In Cash Express, a random trigger signals the train whistle to blow during play on Aristocrat’s MKVI base game. The lucky player is transported into the second-screen bonus with five spinning reels. The player touches a button to stop each reel, which reveals a number. The numbers are added together to accumulate the score and the score determines which of the four levels of jackpots are won. Once in the bonus round, a player is guaranteed to win one of the four progressive jackpots. Such is the power of ‘The Train Game’, as it is popularly known among players in Macau, that it will take a very strong product to knock Cash Express off the top spot in next year’s IAG Supplier Awards. Not only is Cash Express popular on the mass gaming floor in Macau, but it has also been installed in the VIP room run by Hong Kong-listed junket aggregator Neptune at Galaxy’s StarWorld resort on the Macau peninsula. A Hyperlink version of Cash Express featuring four-level random progressive games was launched on the US market in 2005. Aristocrat’s Hyperlink progressive suite of products includes Cash Express; Cash Express Penny Train; Jackpot Carnival; and Millioni$er, which offers players the chance to win up to a US$1 million jackpot on a penny slot. It features a free spin bonus and frequent mid-level progressive wins—a highly popular feature with Asian players. Successive jackpots create player anticipation as they move through six levels. Party Time! is available on three platforms—Game King, Reel Touch, and S2000. This progressive product is linked to a variety of IGT games on the Party Time! in-house link system. The Party Time! library allows for mixed or independent theme game banks. Linked, multi-progressive game play with the IGT Progressive Controller can handle up to 63 games at once, and offers a selection of payback percentages and reset amounts. The product has as an eye-catching top box with 19-inch flat screen LCD monitor to display six progressive jackpot levels. It features the hit song, ‘Let’s Get This Party Started’. Best Multi-Player Terminal Nominees: Manufacturer Title Alfastreet R8 Aruze Dealers Angel Royce & Bach Roulette Gold Club Omega Interblock Megastar Roulette Jumbo Technology Co., Ltd Baccarat Shuffle Master Winner: Alfastreet – R8 Alfastreet’s R8 roulette proves a successful multiplayer doesn’t have to be totally re- Honourable Mention: International Game Technology – Party Time! This six-level mystery progressive is another quality product from IGT that performs well across Asian markets. 8 INSIDE ASIAN GAMING | January 2009 Vegas Star Alfastreet’s R8 engineered to stay top in its class. It has been described by many commentators as the ‘queen’ of multiplayer electronic roulette, praised for its player ergonomics and all packaged at a very competitive price. Slovenia’s Alfastreet isn’t complacent, though, about the R8. Slovenia is a world capital of multi-player roulette machine manufacture, as proven by our list of award nominees. The R8, featuring an automated roulette wheel and eight player stations, has been upgraded with new technological features and improved design. Operators have the option of player touch-pad, touchscreen or a combination of the two. Its 17inch touch screen and outstanding graphics allows quick and near-effortless betting. Industry customers also have the option of bill or coin acceptors or a ticket-in-ticket-out (TITO) system. The proof of R8’s success is in the playing. It is a real revenue generator in the Asia Pacific, one of few regions where multiplayer terminals have a higher net win than stand alone slots. In a still developing gaming machine market its return on investment can’t be disputed—especially in Indochina. Player features include: player privacy and comfort; easy touch screen betting; onetouch betting; multilingual screen menus and low or high wagering functions. The company says plus points of the R8 for operators include: three to five times greater profits in comparison to live gaming; high security and easy maintenance. Honourable Mention: Gold Club – Omega Gold Club from Slovenia has taken great care to ensure the latest ergonomics of its Omega roulette multi-player are perfect for maximising player comfort and time-onmachine. Even in its basic configuration the machine boasts an inclined touch screen monitor and arm rests in leather. The high quality wheel is RNG GLI-approved and the unit comes ready prepared for TITO, cashless gaming and player tracking. Gold Club products are a particular hit in Indochina, where operators value its reliability and ease of deployment. All the software running Gold Club’s roulettes is tried and tested, and the player interface of the Omega and its stablemates is user friendly, allowing players to enjoy their experience regardless of their level of multiplayer knowledge. January 2009 | INSIDE ASIAN GAMING 9 Supplier Awards Honourable Mention: Interblock – Megastar Roulette Interblock, yet another Slovenia success story, has justifiably been referred to in some quarters as the Ferrari of the multi-seat, multi-player market. The company’s products may not be the cheapest on the market, but operators know they’re getting quality. Megastar Roulette and its product siblings such as Dicestar in its sic-bo configuration, are popular with players and with gaming operators, and they perform well, especially in Macau. Megastar Roulette, one of Interblock’s best-selling products, is available with either American or European virtual roulette wheels and can serve anywhere between five and ten roulette players at once. Interblock ascribes its success to high quality technical research and development; careful market research; awareness of compliance issues, and a customer-driven approach to sales, service and product support. Best Asian Themed Slot Game Nominees: Manufacturer Title Aristocrat 50 Dragons Aristocrat 5 Dragons Atronic Dragonboat Bally Chinese Kitchen IGT Red Hot Jackpots/ Super Lucky Red Wins Weiki Gaming King of Prosperity quick follow up in July. Dragonboat offers the flexibility to run tournaments in a variety of formats at random or preset times for a predefined period. Among the possible structures are: • The Classic Tournament: During the preset duration, players have to accumulate as many score points as possible by using their own funds. The player ranked first at the conclusion of the tournament wins the prize and a special win animation celebrates the victory. • The Special Event Tournament: During the preset duration, players play with preloaded credits and have to accumulate as many score points as quickly as possible. Multiple heats are played to determine the top-ranking players who will qualify for the finals. The prizes (usually cash prizes) are funded from participation fees. • ‘All Winners’ Tournament: During the configured period, all players are winners: Either players collect wins through the base game, or they are awarded Dragonboat prizes. Minimum play activity is required. The ranking of the players is continually displayed on the upper TFT-screen of Atronic’s e² cabinet. At the end, the ‘first’ ranked player (with the largest loss during the tournament) wins the consolation prize. Honourable Mention: Aristocrat Technologies – 50 Dragons and 5 Dragons Winner: Atronic – Dragonboat Atronic’s recently-released Chinesethemed Dragonboat is powered by the successful Tournamania slot tournament concept. Dragonboat has been leading the way in nurturing Asia’s growing love affair with slot tournaments. The dragon boat is a powerful sporting concept in Asia. The real-life boat, used in races on rivers and in coastal areas, requires a combination of close cooperation between fellow crew members and fierce competition with rival teams. MGM Grand Macau was one of the first operators to spot the potential of Atronic’s Dragonboat, powered by the Tournamania slot concept. The casino used the equipment in its first slot tournament in mid-May, with a 10 INSIDE ASIAN GAMING | January 2009 50 Dragons’ five-reel, 50-line product is a low volatility, high excitement video game mounted on Aristocrat’s MKVI hardware platform. It includes a ‘feature within feature’ element during free game play. 50 Dragons is also related in its medieval Chinese theme to 5 Dragons, a five-reel video slot machine first launched by Aristocrat in 2004. Best New Slot Game Nominees: Manufacturer Title Aristocrat Lucky 88 Bally Technologies S9E Stepper Quick Hits IGT Wild Wolf Stargames Pink Panther “I Ching” WMS Monopoly Big Event Winner: WMS Gaming – MONOPOLY Big Event WMS definitely passed go with the Asia launch of its community gaming-focused MONOPOLY Big Event series, based on the popular property board game. Chinese players in particular, already familiar with communal board games such as mahjong and definitely familiar with capitalism after 30 years of reform, love the mixture of personal competition and group wins offered by the series. When the Big Event bonus triggers, all qualifying players enter the bonus round and win together. A Big Event multiplier, determined by the player’s bet and speed of play, is also awarded in the bonus round. WMS says the table-game-like camaraderie, never seen before in a slot, creates a hotspot on the slot floor. Honourable Mention: Stargames – Pink Panther “I Ching” Aristocrat’s 50 Dragons and 5 Dragons—two honourable mentions for Best Asian Themed Slot Game Aristocrat is an expert at building on a winning formula in incremental ways. The company’s 50 Dragons video slot game continues in that vein, taking the excitement and game style of the company’s successful 50 Lions, which was first seen on the market in 2003, and enhancing it for an Asian audience. Quality products don’t happen by magic. They require excellence in the research and manufacturing process. Shuffle Master restructured Stargames’ product development team in Sydney Australia after acquiring the company in 2006, with the aim of building on Stargames’ already strong reputation. Shuffle Master/Stargames’ Pink Panther progressive link, and its accompanying titles, including I Ching, use a top quality PC-based platform that was diligently developed over five years. Supplier Awards Best Industry Innovation Nominees: Manufacturer Products Aristocrat Viridian technology that reads the rank and suit of each card being dealt. It also has a decksorting function. Bally Technologies i-View Display Manager IGT sbX Media Manager MEI EASITRAX Soft Count Shuffle Master i-Deal TCSJOHNHUXLEY Touch Table MultiPLAY Roulette WMS BLUEBIRD2 Slot Cabinet Winner: Bally Technologies – Bally iVIEW Honourable Mention: Jumbo Technology Shuffle Master’s i-Deal Best Asian Manufacturer Nominees: Manufacturer Country Aruze Japan Astro Crop Taiwan Cybercash Technology China Jumbo Technology Taiwan Pact Game Hong Kong Paradise Entertainment Hong Kong Weike Gaming Technology Singapore The interactive iVIEW display runs Bally Power Winners—a configurable floor-wide mystery progressive jackpot system that allows casinos to offer their guests a wide variety of player-centric bonusing events Even at a time of corporate belttightening and recession, many gaming operators are excited about the marketing potential and revenue-building potential of Bally iVIEW. Bally iVIEW, an interactive screen for slot cabinets about three quarters the size of the screens used for in-flight entertainment system, was launched in mid-2008. Bally iVIEW’s display can be fitted to all slot machines produced by the major suppliers and can be used in conjunction with server based systems for in-venue promotions, marketing messages targeted at individual players using membership databases or even live television. Honourable Mention: Shuffle Master – i-Deal The i-Deal is Shuffle Master’s third generation and fastest single deck speciality shuffler. It features several key enhancements including standard card recognition the platform: Yokoso Japan; Oriental Fantasy; Cat Safari and Circus. The company also won GLI approval for its multi-player table equipment. The testing and certification was undertaken by Australia’s BMM Compliance, one of the world’s foremost testing and certification laboratories for gaming equipment. Further games are expected to be approved during 2009. Winner: Weike Gaming Technology This small and nimble Singapore-based manufacturer looks set to give the giants of the industry a run for their money. Weike has come far in 12 months under the command of CEO David Kinsman. Serious poker players have praised the company’s Pal X electronic poker table as one of the best on the market. Weike, which has its head office in Singapore and its manufacturing base in neighbouring Malaysia, particularly impressed the industry with its product line up at G2E Asia 2008. Now it looks forward to translating that into significant sales success in 2009. The company is tipped to sign at least one deal with a Macau casino operator early in the New Year. The exceptional quality of its game graphics enables Weike to use a standard off-the-shelf Pentium motherboard for its systems, keeping its finished product costs highly competitive without, it says, compromising system security. Weike passed an important milestone recently when it achieved GLI-11 (Gaming Laboratories International ) Certification for its Infinity platform and gaming machine range, as well as for four individual games on The Taiwan-based manufacturer has built a strong reputation for well-engineered products in many different formats that are highly popular with players. Jumbo has developed the good habit of excelling at key game categories popular in Asia, whether it’s baccarat, sic bo, roulette or bingo. It has also produced some outstanding and innovative configurations that offer high tech alternatives to live human dealers—a resource that can be expensive in a market such as Macau or even banned in some Indochina slot club markets. Jumbo’s 3D Virtual Dealer, Jessie, the ‘star’ of the Baccarat Queen series unveiled at G2E Asia 2008, includes state of the art graphics. Jessie’s realistic facial expressions were simulated using a real model and motion capture technology, then transferred to 3D animation. The company tips its Genetic Sic Bo product as another potential hit in Macau. Unlike competing products from European manufacturers, Genetic Sic Bo uses normal sized dice. Also true to the traditional version of the game, the dice are covered when they are being rolled. Jumbo’s Robot Baccarat uses a robotic arm to turn cards, getting around the restriction on dealers being employed in gaming venues in Vietnam, for example, and allowing it to be placed in some amusement arcades in Taiwan, where casinos are being considered but have not yet been legalised. Jumbo’s 3D Virtual Dealer, Jessie January 2009 | INSIDE ASIAN GAMING 11 Supplier Awards Editor’s Pick Winner: TCSJOHNHUXLEY – Touch Table MultiPLAY Roulette Supplier of the Year Nominees: Manufacturer Alfastreet Angel Playing Cards Co., Ltd Aristocrat Bally Technologies Gold Club GPI TouchTable MultiPLAY Roulette Touch Table MultiPLAY Roulette has earned praise from operators and players alike for taking the best elements of live roulette and combining them with the best features of touch screen technology, producing intense, exciting play. It’s a formula that provides operators with robust return on investment. Touch Table Roulette also looks good, and is engineered to stand the rough and tumble of non-core gaming venues such as hospitality lounges. It’s a top performing game at Genting City of Entertainment in Malaysia. Touch Table MultiPLAY Roulette’s new spin on the traditional live version means that instead of standard loose gaming chips, stakes are placed and bets made via a plasma touch screen laid out like a standard roulette table. It has four separate stations for players, but as with traditional roulette, friends and onlookers can gather round to encourage the players, cajole them or even place their own bets. The whole system is linked to a live roulette table so that players can experience the excitement of real time betting. Results are captured directly from the live wheel via the company’s trade marked ‘Saturn Wheel’ wheel reading device. To make sure players don’t miss the action, a fixed camera focused on the roulette wheel feeds live images back to the table. The equipment playing surface has been deliberately designed to be tough and drink proof so that spillages will not cause damage. In the event of a drink being knocked over, a temporary screen lock function can be quickly activated to allow for cleaning of the surface without affecting active bets or losing any customer credits. 12 INSIDE ASIAN GAMING | January 2009 IGT Shuffle Master TCSJOHNHUXLEY WMS Winner: Aristocrat Technologies Aristocrat’s name kept coming up again and again when the judges asked operators for comment on Supplier of the Year. Aristocrat’s winning games such as Cash Express are as popular across Asia as they are in North America, proving that if a game’s good it can translate across cultures and languages. Almost as important as Aristocrat’s strong product range is the reported quality of its after sales. As long ago as 2007, Aristocrat made the decision to set up an assembly line in Macau to build gaming slot machines for the Asian market. The establishment, known as an order fulfilment centre, employs local people to assemble Aristocrat machines by putting together pre-built modules imported from other parts of Asia under the supervision of technical experts from Aristocrat’s home base in Australia and beyond. This helps to shorten supply lines and speed up delivery times. By employing local people in the centre, Aristocrat is also helping to create a group of future experts able to speak to local gaming managers in their own language and on their terms. That helps to create a virtuous circle of trust vital to sales and marketing success in Asia. Honourable Mention: Bally Technologies Bally made strong progress in Macau in 2008, and is slated to provide a healthy portion of the slot machines at Melco Crown International’s new Cotai resort City of Dreams when it opens later this year. Bally already has a major contract to provide gaming equipment and management services to Las Vegas Sands Corp’s Asian venues in Macau and Singapore. This is part of a global deal with LVS worth US$56 million signed in 2007 and covering slot, casino management and bonusing systems. Bally’s impetus is provided by its quality slot products, including the highly popular Hot Shot and Quick Hits series. In 2008, Blazing 7s Hot Shot Progressive maintained its position as Bally’s most popular standalone slot game world wide, and has been issued in Hot Shot Classic format as a tribute to its staying power. At G2E Asia 2008 Bally launched Chinese Kitchen, the first slot to come out of Bally’s product development centre in India. Bally also offers innovative marketing tools such as Bally iVIEW and Bally Power Bonusing, and industry-leading systems such as floor networking. Last, but by no means least, the company’s gaming management tools include Bally Business Intelligence Solution. It aids operators in the analysis of dense operational data by allowing them to visualise what’s happening on the casino floor on a minute-by-minute or even a year-by-year basis thanks to thermal imaging-style visualisation of traffic and usage. Honourable Mention: Gaming Partners International (GPIC) GPIC supplies all the casino operators in Macau with gaming security equipment and has a 90% share of the market. With such a strong market presence the company was a clear contender for top prize in the Supplier of the Year category. At G2E Asia 2008, GPIC displayed an unrivalled range of chips, including the Bud Jones, Paulson and B&G brands. The company also featured on its stand some exclusive security features to fight counterfeiting and a new collection of its famous state-of-the-art plaques. The company also held a demonstration of its leading RFID applications in both 125 KHz and 13.56 MHz frequencies. Cover Story January 2009 | INSIDE ASIAN GAMING 13 Mocha Millions Slot Pick A tailor-made solid gold pick will be awarded to the first 100 players who win the mystery jackpot on Mocha Millions. The picks, which can be stuck into slot machines’ ‘play’ buttons to stick them on auto-play, cost about HK$4,000 each Despite a worsening global economy, Mocha Clubs President Constance Hsu believes the company will continue to register “sustainable growth” in 2009. The company has also become the frst casino operator in Macau to tailor-make a slot machine according to its valued customers’ preferences M ocha Clubs President Constance Hsu officially unveiled the Mocha Millions stand-alone mystery jackpot slot machine at the company’s flagship Mocha Marina Plaza branch early in January. The new Mocha Millions slot machines will be available to players at Mocha Clubs’ locations in Macau and Taipa, including Mocha Marina Plaza, Mocha Hotel Taipa Square and Mocha at Crown Macau. “Mocha Millions are the first slot machines in Macau especially tailor-made to meet the evolving needs and preferences of our Mocha players. As one of the leaders in electronic gaming in Macau, we are committed to bring innovation to the industry—and to create a new level of exciting Mocha experiences to all,” said Ms Hsu during the launch. “The launch of Mocha Millions demonstrates our creativity and deep understanding of customer needs and preferences in today’s electronic gaming industry. These new and interactive machines were developed based on Mocha Clubs’ years of experience in Macau slot machines and proactive outreach to our customers—to establish what they look for in new and exciting gaming experiences ” added Ms Hsu. Mocha Millions offers three unique features offering players the chance to win a million Hong Kong dollars or more on a single standalone slot machine. Mocha Millions also offers a higher probability to players of winning free games and multiplying wins, with the hit frequency greatly increased on the feature games. Mocha Clubs maintained its share of Macau slot machine revenue in 2008, at around 13-14% of the market, according to Ms Hsu. “In 2008, we recorded a double digit growth when compared to 2007,” she revealed. “We foresee that in 2009, we will still have a sustainable growth because of our different composition and customers segmentation.” Ms Hsu pledged that in the year ahead, the company would focus on “superior customer service in the way of product offering” as well as its “unique club atmosphere where we know what our customers like and why they like it”. That club atmosphere also provides more privacy than playing slots on the main floors of the 14 INSIDE ASIAN GAMING | January 2009 city’s sprawling new casino resorts. At the end of 2007 there were about 13,000 slot machines in Macau, and in 2008 the figure was “about the same”, said Ms Hsu. Although Venetian Macao and MGM Grand Macau were opened in the second half of 2007, greatly adding to the city’s slot machine capacity, Mocha Clubs managed to maintain its market share at 1314%, pointed out Ms Hsu. “That means Mocha has the ability to keep having customers return,” she claimed. “We don’t target one-time visitors but loyal customers who are looking for good service and intimate interactions with our staff.” Although Mocha Clubs is owned by Melco Crown Entertainment, whose Crown Macau casino recently implemented cost control measures including pay cuts and more non-paid leave for its employees, Ms Hsu said Mocha had no plans to follow suit right now. At the Mocha Millions launch ceremony, the company also presented a 100,000 pataca cheque to Caritas Macau to support its community projects and social service development. Constance Hsu (left) presents a cheque for 100,000 patacas to Ms. Helle Sou, Director of the Asilo de São Francisco Xavier of Macau Caritas, during the Mocha Millions launch In Focus House on Edge There’s no silver bullet to deal with table hold volatility M acau’s VIP gamblers may love baccarat, but it’s a game that can occasionally give casino executives sleepless nights. It’s likely to give them even more hours of restless sheep counting in 2009. This is because of baccarat’s welldocumented volatility. Volatility does, though, work both ways. It can hugely benefit casino operators at times, but it can also put a severe crimp on the bottom line if the house has a run of bad luck. In Las Vegas, Harrah’s got out of the high roller baccarat market after losing money in that segment. CEO Gary Loveman was quoted as saying “it didn’t make sense” to have 10,000 to 12,000 people enjoying themselves in your property but be nervous that one ‘whale’ in the high limit room could undo it all. A shellacking In light of Las Vegas Sands Corp’s recent troubles in Macau, a losing streak in VIP baccarat is probably the last thing on its executives’ minds. Nevertheless, the US$48.5 million net loss recorded by LVS in Q3 2007 was attributed in part to a run of bad house luck on its VIP tables in Macau. “We got shellacked. It is what it is,” is how LVS President and Chief Operating Officer Bill Weidner memorably put it. One of the reasons the nonnegotiable chip system was introduced to VIP table gaming was to deal with the potential threat to junket operator liquidity posed by high-rollers walking away after big wins. Too many of those runs on the bank in a short space of time can threaten not only the working capital of the junket operators, but also wipe out casino profits. Rolling chips do not, however, deal with the wider issue of smoothing table hold volatility. To achieve that effect, other mechanisms are needed. In that context, Deutsche Bank analyst Karen Tang found things to praise in Melco Crown Entertainment’s Macau strategy in a recent report on the outlook for the territory’s economy in 2009. By special arrangement Ms Tang mentioned in particular that MPEL had “mitigated” volatility risk to highend table games by signing a “volatility hedge arrangement” with Hong Kong-listed A-Max Holdings Ltd, the junket aggregator that feeds MPEL most of the VIP players that attend Crown Macau. In case ‘volatility hedge arrangement’ sounds like a silver bullet for dealing with VIP Rolling chips do not deal with the wider issue of smoothing table hold volatility January 2009 | INSIDE ASIAN GAMING 15 In Focus volatility risk in the baccarat-heavy Macau market, it’s worth making a few points. The first is that one cannot change the laws of probability or the laws of mathematics. If a game of chance has a certain theoretical house edge, that house edge ‘will out’ in the long run. As IAG has said enough times to risk boring our readers, the mitigation of volatility risk in table games such as baccarat is to a certain extent an illusion designed by casino managements to smooth returns and placate the mood particularly of institutional shareholders who tend to prefer quick and smooth returns over short investment cycles. School of hard knocks A second point worth making is that if the recent meltdown in the financial markets proves anything, it’s that there is no such thing as complete mitigation of risk in any market. Some of the financial derivatives products sold to Hong Kong’s high net worth community as hedges against equity price volatility were themselves so oversold that they created a mini bubble that burst spectacularly when the markets crashed in the fourth quarter of 2008. These ‘accumulator’ derivatives have now been bitterly nicknamed ‘I’ll kill you later’ products by some of those who lost out. A third point to make is the ‘volatility hedge arrangement’ mentioned by Ms Tang isn’t exactly an innovation. Simon Dewhurst, MPEL’s Executive Vice President and Chief Financial Officer, was talking about volatility management as long ago as MPEL’s Q1 2008 earnings conference. He pointed out that hedging against volatility is standard practice for casinos with high-roller operations. Here’s what Mr Dewhurst said: “In our business, risk mitigation straddles a wide array of concern, including table hold volatility. There are a number of things that we can do to mitigate the impact of table hold volatility and we believe that this is especially important for us given that we have one property [Crown Macau] that currently delivers the vast majority of our revenue and earnings. And that property caters to the most volatile segment of the market [the VIP sector] with respect to luck. Pump up the volume The headline-grabbing offer of 1.35% rolling chip commission helped Crown Macau grab around 18% of Macau’s entire VIP baccarat business by the end of the first quarter of 2008 16 INSIDE ASIAN GAMING | January 2009 “The most effective way to reduce table hold volatility is to increase volume. Since the commencement of operations by AMA in mid-December [2007] and the commensurate increase in rolling chip volume, the volatility and our daily rolling chip table hold percentages dropped as expected,” added Mr Dewhurst. In Focus So there we have it from the horse’s mouth. A ‘volatility hedge arrangement’ with a junket consolidator is only the second best way for a casino operator to mitigate volatility risk in high stakes baccarat. It will have to do for the time being though. Maintaining high volume of play to create a smoothing effect in liquidity doesn’t look such an easy option when the Macau government has effectively outlawed a price war on VIP commission. It was, after all, the headline-grabbing offer of 1.35% rolling chip commission that helped Crown Macau grab around 18% of Macau’s entire VIP baccarat business by the end of the first quarter of 2008. Maintaining or building VIP play volume is also going to be tough at a time of global recession and when visa restrictions are still in place for visitors from China. During the Q1 2008 earnings call, Mr Dewhurst went into more detail about MPEL’s hedging arrangements with AMA. “We’ve also always offered a revenue shared base junket compensation model, which shares the impact of table hold variation between the casino and the junket operators,” explained Mr Dewhurst. “Some of the tables allocated to AMA have recently been included in this programme,” he added. “Last we have constructed a win rate sharing arrangement that allows us to smooth the peaks, and [that] rallies the table hold within our commission based junket business with AMA. All this is designed to make our cash flows and earnings more stable and predictable.” This is all good stuff, but a fourth point worth making is that MPEL and A-Max are a lot closer than is typically the case in a conventional customer-supplier relationship. Ted Chan, the current President of Crown Macau, was until November 2008 CEO of A-Max Holdings. And before joining A-Max, which started trading in December 2007, Mr Chan was head of Mocha Clubs, the Macau slot club unit of MPEL. There is nothing illegal about all of this, and Inside Asian Gaming and its publishers would like to point out we make no suggestion of impropriety in the arrangement. This closeness between customer and supplier does, though, arguably make it harder for investors to assess the effectiveness of MPEL’s VIP gaming business model as set against its competitors, and to judge how transparently the volatility hedge arrangement will be implemented. One thing seems clear. Table hold volatility will remain a topic of intense interest for all operators as long as Macau remains a baccarat focused market. Global recession, regional economic slow down and a mini-credit crunch among Chinese high rollers may all work to make it harder for those operators to smooth the effects of this volatility on behalf of their investors, but it won’t stop them from trying. After all, many of them are likely to have searching questions posed by analysts on the hunt for upside in what’s likely to be a challenging 2009. January 2009 | INSIDE ASIAN GAMING 17 Market Outlook Rolling Downhill ItIt will will be be hard hard to to improve improve on on the the 2008 2008 performance performance of of Macau’s Macau’s high-roller high-roller segment segment during during 2009 2009 C hina’s manufacturing sector is on the brink of technical recession, according to an influential monthly report produced by CLSA, a provider of brokerage and investment services. Deutsche Bank was already predicting a 14% contraction in Macau’s gaming revenue for 2009, but that forecast was based on a more bullish assessment by its regional economist that the Chinese economy would keep growing, but at a slower rate. An actual technical recession is likely to have gaming analysts reaching for their calculators to make a fresh and possibly gloomier assessment of Macau’s prospects for 2009. The reason for special concern about the CLSA report is that Macau’s gaming industry is heavily dependent on VIP players (they account for around 70% of all revenues). Many of these VIP players are owners or investors in the manufacturing sector now reportedly threatened not just with a much-heralded downturn but a fullblooded recession. Down and down CLSA’s snapshot of local business conditions is based on a survey 18 INSIDE ASIAN GAMING | January 2009 of the intentions of manufacturing purchasing managers, and known as the PMI. “With five back-to-back PMIs signalling contraction, the manufacturing sector, which accounts for 43% of the Chinese economy, is close to technical recession,” said Eric Fishwick, CLSA’s chief economist, after the latest index was published on 2nd January. Another PMI issued two days later on 4th January by a Beijing-sanctioned body, the China Federation of Logistics & Purchasing, rose slightly to 41.2 for December, compared with 38.8 in November. The trend, however, is still recessionbound. A PMI reading above 50.0 indicates manufacturing growth, and a reading below 50 indicates decline. Both the CLSA index and the CFLP gauge stayed below 50 in the fourth quarter of last year. China’s share market indices reportedly ended the year down 65% on average, adding further gloom to the regional economic picture. Market Outlook revenue to fall at least 14% next year, dragged by a 25% fall in VIP revenue,” she explains. Rolling—but not everywhere Karen Tang, an analyst at Deutsche Bank, issued an overview report just before Christmas on the Macau market and its prospects for 2009. The report, though written without the benefit of the latest PMI data, pointed out that during an earlier downturn in 1998, Macau’s gaming revenue declined 18% and then a further 10% in 1999, dragged initially by a contraction in VIP rolling and by a fall in mass revenue. “A year ago, for every HK$100 million of working capital, junket operators could typically generate HK$400 million to HK$600 million in VIP rolling per month. Now, many can generate only HK$300-400 million,” she adds. “Hence, the multiplier on VIP rolling is down 30%. The reason is that VIPs are delaying repayments. Longer credit cycles tie up working capital, and slow the process through which junket operators can lend to the next customer,” she asserts. Macau gaming revenue growth by segment (1995-2010F) Soft landing? “This time around, the decline might be slightly less, as in recent years new resorts have put Macau on a spectacular growth path,” says Ms Tang. However, she had a caveat. “…with travel restrictions likely to remain for the next six months, we expect gaming revenue to fall 14% in 2009, in line with comments made by Macau’s Chief Executive in early November. For 2010, we expect industry growth to fall a further 6%,” she adds. Macau gaming revenue yoy growth (1995-2010F) Source: Deutsche Bank, Macau government In December, Jun Ma, Chief Economist for Greater China at Deutsche Bank, lowered his China GDP forecasts for 2009 and 2010. He did it because of a sharper slowdown in China’s exports than economic analysts had generally predicted. He suggested GDP increases of 7% and 6.6% respectively over the next two years, from the 7.6% and 7% tipped previously. The latest economic picture painted by CLSA and the CLFP is even bleaker than the bank’s assessment. Because of Macau’s dependence on VIP gaming, the loss of a small number of players or a reduction in their rolling is likely to have a disproportionate impact on the local market compared to mass play. “Our recent conversations with junket operators suggest that the market is still underestimating the downside for Macau,” says Karen Tang of Deutsche Bank. “First, junket operators are cutting their lending to VIPs as their customers’ net worth is falling. Second, and more importantly, the amount of VIP rolling which can be generated for the same amount of lending is now 30% lower than a year ago, and can get much worse. We expect Macau’s gaming Source: Deutsche Bank, Macau government Celeste Mellet Brown and Thomas Allen, analysts at Morgan Stanley, make broadly similar points in their overview of the Macau and Las Vegas markets, published just before Christmas. “Macau was able to thrive in 2008 because of junket consolidators and operators offering large amounts of credit to both players and junkets,” they state. “While the impact of less credit from junket consolidators is at least partially understood by the market, we believe reduced credit from some operators is not. We believe the reduced credit will have a more significant negative impact on VIP gaming revenue and now model Macau VIP gaming revenue down 17% in 2009. While we expect mass-market revenue to increase in 2009, we have lowered our estimate to 10% year-on-year growth (from 20%).” Macau VIP Gaming Revenue Source: Morgan Stanley Research Morgan Stanley says its conservative estimate reflects the impact of an economic slowdown in China and the rest of the world; lower spending per Mainland visitor as more come on whistle-stop package tours rather than using Individual Visit Scheme visas, and lower growth in the second half of 2009 as City of Dreams will now be the only new venue to open this year, following the suspension of Las 19 Market Outlook Vegas Sands Corp’s Cotai plots five and six, and the postponement of the opening of Galaxy’s Cotai IR until 2010. The points made by Ms Tang of Deutsche Bank about the mathematics of the VIP market apply to all operators and their agents. They are likely to be of particular significance to any VIP venues that were already underperforming relative to the Macau market’s general growth in the first eight months of 2008. In this context, Galaxy’s CityClubs immediately come to mind. Survival of the Fittest Macau’s legacy casinos are likely to face particular pressure in a tougher VIP market Group, another early entrant to the new-look Macau market, was the ability of a new venue’s ‘buzz factor’ to build margin through volume of play. Although SJM and Galaxy already had plans of their own for new resorts, they realised that in the short term, they needed to organise refurbishment of legacy properties in order to hold or build market share. There was, though, an important problem. The sheer scale of a purpose-built new venue such as Sands Macao gives an operator the chance to offer a wider range of facilities than legacy casinos, thereby boosting the mousetrap effect. Old versus new L egacy casinos are so-called because they were built before Dr Stanley Ho’s Macau casino monopoly ended in 2002. All of them operated on SJM gaming licences, though other companies managed a good number of them. Another thing they all had in common was a relatively uniform approach to provision of facilities. To have seen one legacy casino prior to 2004 was pretty much to have seen them all. They had the same smoky gaming rooms, the same style of rather tired furnishings and the same unrelenting focus on VIP play. The few mass-market players there were at the time mainly came from Hong Kong and Taiwan—the players’ tired and pinched faces often hinting more at financial desperation than leisure and relaxation. The liberalisation of the gaming market, the relaxation of travel rules for Mainland Chinese citizens and the introduction of Las Vegasstyle casinos dramatically changed the picture. First on the scene in May 2004 was Sands Macao, a mass-market focused casino operated by Las Vegas Sands Corp. The culture shock caused by Sands Macao’s arrival and the fact it generated enough cash to recoup its US$265 million initial investment within a year did more to raise product quality standards across the Macau market than anything that had happened in the previous four decades of monopoly. Eye opening One of the things that made a particular impression on the incumbent SJM and on Hong Kong-listed Galaxy Entertainment 20 INSIDE ASIAN GAMING | January 2009 The Grand Lisboa towers beside the legacy property Here’s what Karen Tang of Deutsche Bank said about legacy versus non-legacy venues in a report released before Christmas on Stanley Ho’s casino operating company SJM Holdings. “Grand Lisboa [a new property] has proven that, under new management, EBITDA margin at new properties can be substantially higher than at legacy casinos (1H08: 18% vs. 2%).” Revenue mix from legacy and new casinos Source: Deutsche Bank, SJM data Core EBITDA margins at legacy and new casinos Source: Deutsche Bank, SJM data The same logic appears to apply to Galaxy Entertainment Group, when the performance of its purpose-built StarWorld resort on the Macau peninsula is compared to its loss-making CityClubs, three of which are refurbished buildings aimed at the VIP market. Since StarWorld opened in October 2006, as a mixed VIP and mass-market casino resort, its performance has been solid, enabling that one venue alone to maintain a 6% share of the entire Macau market. EBITDA margins of flagship properties by concessionaire (1H 2008) President Casino—one of Galaxy’s underperforming CityClubs Clubbed By contrast, Galaxy’s CityClubs, consisting of three refurbished buildings and one purpose-built resort, all aimed at the VIP market, have been going into reverse. City Clubs recorded a HK$4 million loss on fee income stream in Q3 ’08. In Q2 ’08, they made a HK$1 million loss. Part of the problem with CityClubs may be that they have outlived their purpose. It’s possible to argue that at least part of the reason for that is faulty strategy and execution on the part of Galaxy. Three of the four CityClubs were supposed to be an instant foothold in Macau’s lucrative VIP market, refurbished quickly and opened in advance of Galaxy’s purpose-built venues StarWorld and its integrated resort on Cotai. In the event, CityClubs were delayed and opened only months before StarWorld, which made its debut in October 2006. The revamped President Casino and the Rio Casino didn’t open under the CityClubs banner until the first quarter of 2006. The purpose-built Grand Waldo Casino, with accompanying hotel and spa, joined the party in May that year. The Waldo Casino & Hotel was the only one to open well in advance in July 2004. Jumbo junket Source: Deutsche Bank, SJM data StarWorld’s Q3 ‘08 revenue was up 2% quarter-on-quarter to HK$1.71 billion. VIP rolling was up 12% quarter-on-quarter to HK$19 billion per month (a 2.2% table hold), while mass table win was up 5% quarter-on-quarter to US$4,400 per table per day. In Q3 ’08, StarWorld’s EBITDA was up 21% quarter-on-quarter to HK$136 million due to slight margin expansion from 7% in Q2 ‘08 to 8% in Q3. Galaxy’s long-term commitment to the CityClubs concept must now be open to question, given the company’s decision in the second half of last year to open a jumbo-sized 100-table VIP facility at StarWorld with junket aggregator Neptune. If the VIP market stands still or even contracts in 2009, then there is a distinct chance that the StarWorld VIP facility could cannibalise some of the CityClubs’ business. “While management guides that three of the company’s [CityClubs] properties have now been moved to top-line revenue agreements, the effectiveness of this strategy in generating positive January 2009 | INSIDE ASIAN GAMING 21 Market Outlook earnings over the near term remains uncertain, in our view,” says Deutsche Bank’s Karen Tang. Although Grand Waldo has facilities that compare favourably with the foreign operators, it has suffered to some extent from its location, being on the border between Taipa and Cotai but physically isolated from the growing buzz factor of the Cotai Strip™ by a piece of no man’s land. While visitors to Las Vegas Sands Corp’s Venetian Macao and Four Seasons Macao properties will soon have the option of making a short walk to Melco Crown Entertainment’s City of Dreams site if they want fresh entertainment options, anyone wanting to go to the Grand Waldo must take a taxi or make a ponderous and circular 10-15-minute journey by foot using the local vehicle service roads. Grand Waldo—so close, yet so far away from the Cotai Strip Job cuts Even before the global financial disaster, Galaxy was laying off workers at its CityClubs. In the first round of redundancies the company cut 140 mid-level foreign workers at the Grand Waldo and President casinos. Then, in July, Galaxy let go of 270 local casino staff, mostly dealers. While there may have been solid commercial reasons Progress update on cost rationaization initiatives Source: SJM company presentation 22 INSIDE ASIAN GAMING | January 2009 for the decision, it attracted a lot of negative publicity and censure among legislators. The fallout was so great, in fact, that it appears other operators seeking to cut costs in the downturn are effectively protecting local employees from redundancy, regardless of their qualifications or competency. On the plus side for CityClubs, the A-Max inspired junket commission price war seen across the market in the first half of 2008 now seems to have abated. Anecdotally, it appears that the net effect of that price war was to push up junket commission rate averages across Macau, which must inevitably have put further pressure on any VIP venues that were already underperforming. Light in the tunnel? During 2009, Galaxy will need to show investors that it has turned the corner with CityClubs and re-established the business model for the unit on strong foundations even if it cannot immediately return them to profit. One method will be to expand the volume of VIP turnover, although as Karen Tang points out, this is a big ask during a regional economic slowdown and credit crunch. Another method is to dramatically cut costs. Galaxy may try to follow the formula adopted by SJM to improve the efficiency of its legacy properties. “For self promoted casinos, it [SJM] will reduce the dealer-totable ratio to lower labour costs; 2) For third party-promoted casinos, it will increase its revenue share, or reimburse more expenses; 3) For VIP operations, it will consolidate underperforming VIP rooms,” says Ms Tang of Deutsche Bank in her report on SJM issued before Christmas. “We estimate that cost savings [to SJM] could amount to HK$280 million,” she adds. If such measures are impractical for Galaxy’s legacy properties, then the company could as a last resort seek government approval to sell one or more of the CityClubs to an outside promoter to run as a cheap and cheerful junket venue. But the property would need to operate under a licence from Galaxy or one of the other existing operators or sub-operators. Galaxy cannot sell on a sub-licence, as that went to LVS as a compromise deal organised by regulators when the original plan to pair Galaxy with LVS in a joint venture in Macau fell through. One thing seems sure. With the opening of Galaxy’s new Cotai integrated resort now put back to 2010, Galaxy must be wary of reducing its already slender footprint in a highly competitive VIP market. January 2009 | INSIDE ASIAN GAMING 23 24 INSIDE ASIAN GAMING | January 2009 Cotai Stripped Yet another Macau casino operator may be forced to halt building work in 2009 because of the global credit crunch G alaxy Entertainment Group may need to suspend construction of its flagship integrated resort at Cotai in 2009 because of a likely funding gap, according to Deutsche Bank. If the cause of Las Vegas Sands Corp’s Cotai work suspension was too much bullishness, then the cause of any Galaxy suspension could be excessive caution. By deciding to put back the opening of its Cotai IR until 2010 in the name of cash conservation, Galaxy is arguably robbing itself of the very moneygenerating machine it needs in order to maintain its liquidity and help pay back its debt. Instead, Galaxy has opted to drain cash from the business by paying off some debt first. DB says it has identified a capital shortfall of approximately HK$2.1 billion (US$270 million) in Galaxy’s plans. At least a third of that is accounted for by the cash DB estimates Galaxy will spend this year in the debt buy back. After the offer closing date on 29th December, GEG said it had received acceptances from investors for 48.6% of the bonds it offered to repurchase. The company will pay US$86.35 million (HK$670.1 million) for fixed and floating-rate notes with a combined face value of US$170.22 million. DB says that could leave Galaxy short of cash for the Cotai project. Cold water “Given prevailing market conditions, it in unlikely that the company will successfully raise the required funds, in our view,” says Deutsche Bank analyst Karen Tang in a review paper on the Macau market in 2009 published just before Christmas. In essence, DB says the ‘cure’ of improving the medium term integrity of Galaxy’s balance sheet by clearing debt could be worse than the ‘disease’ of continuing to hold the debt. This is particularly the case because of the delay to the Cotai IR. DB does, though, acknowledge there will be one time and recurring benefits from the debt buy back in the form of reduced interest payments. A number of analysts at various institutions had flagged as long ago as last November that Galaxy was likely to have a gap in its project financing. DB appears to be the first institution to state openly that Galaxy is unlikely to be able to plug the gap by going back to the money markets. Vivian Fu, Senior Investor Relations Manager at GEG, told Inside Asian Gaming the company had no comment to make on the DB report. Played down Back in November, Galaxy played down the chances of the company needing further cash to complete the Cotai project. Some analysts remain sceptical of those assertions. They’re worried that the decision to delay the opening of the Cotai IR until 2010 from 25 Market Outlook Perspective of the future GalaxyWorld Resort in Cotai: Will Galaxy Entertainment Group need to suspend construction of its flagship integrated resort because of a possible funding gap? its scheduled first phase opening of mid2009 will starve the company of much needed new revenue. They say such income is necessary, given that Galaxy’s other Macau gaming assets have underperformed relative to the boom times witnessed in the first eight months of 2008. Galaxy says its decision to delay the opening of the Cotai mega resort and buy back debt is a sign of its commitment to responsible management and determination to control costs and maintain in the medium term the integrity 26 INSIDE ASIAN GAMING | January 2009 of its capital funding. Galaxy’s original plan had been to open the first phase of its HK$10 billion Cotai resort, including a 1,500-room Galaxy-branded hotel tower, in the third quarter of 2009, followed by a 400-room Okura hotel and a 254-room Banyan Tree hotel by the end of that year. It’s been reported recently that Galaxy still needs to spend HK$7.8 billion (US$1.01 billion) to complete the Cotai IR project. The rescheduled opening spreads that spending over a longer period, in the expectation that revenues from Galaxy’s existing Macau venues can support the balance sheet. Opportunity knocks In early December, Galaxy seized the opportunity presented by a collapse in regional bond prices by announcing a US$180 million offer to buy back some of its fixed and floating rate bonds bearing a face value of US$350 million. This consists of all of its US$250 million guaranteed senior floating rate notes due in 2010 and up to US$100 million of the principal on its US$350 million guaranteed senior fixed rate that investors originally paid—will drain the company of cash in the short term, without the prospect of a quick regeneration of liquidity now that the Cotai IR has been delayed. Back to market “If Galaxy is successful in repurchasing a significant amount of its outstanding debt, the reduced cash position further reinforces our view that Galaxy will need to go back to the market to raise new financing to close the funding shortfall,” says Ms Tang in her report on the economic outlook for Macau in 2009. “Given prevailing market conditions, it in unlikely that the company will successfully raise the required funds, in our view. “Hence, we continue to attribute zero value to the GalaxyWorld Resort Galaxy—funding needs Source: Deutsche Bank StarWorld got positive reviews from the public but will that be enough to weather the rough conditions widely expected in 2009? notes due in 2012. Deutsche Bank estimates that if half of all the bondholders accept the offer, it will save Galaxy HK$128 million per year in interest charges. “If 50% of the bondholders accept the offer, we estimate the annual cash interest savings to be HK$128 million, and there would be a one-time non-cash gain of HK$644 million in 2009,” says DB analyst Karen Tang Ms Tang and others say buying back Galaxy’s bonds—even on favourable terms amounting to nearly half the price 27 Market Outlook as we believe Galaxy may have to suspend construction in Cotai,” explains Ms Tang. In November, Galaxy described the decision to delay the opening of its Cotai integrated resort as a “tactical response to wider market conditions”. This was widely interpreted as a coded reference to the negative impact on Macau’s gaming revenues of China’s visa restrictions and of a regional economic slowdown influenced by the recession in North America and Europe. Galaxy Entertainment Group performance indicators Macau casino executives are seeking to put the best gloss on tough market conditions Ratings scrutiny Deutsche Bank isn’t alone in its scepticism regarding the state of Galaxy’s project funding. Moody’s Investors Service said in late November that GEG’s gaming unit, Galaxy Casino SA, was having its B1 corporate family rating and senior unsecured debt rating put under review for possible downgrade because of the company’s decision to delay the opening of the Cotai project. Moody’s analyst and Assistant Vice President Kaven Tsang explained that while the delay could lower Galaxy’s overheads and spread out its capital outlays to some extent, it will also reduce cash flow. “As a result, Galaxy’s key financial metrics will remain weak for the next two years and this situation could pressure its ‘B1’ ratings,” added Mr Tsang. The essential concern for analysts is that despite a positive showing from StarWorld, Galaxy’s flagship property on the Macau peninsula, the company has had some difficulty gaining traction in the Macau gaming market in order to produce the kind of revenues that will allow rapid pay back on its project debt and on its amortised gaming licence fee (though HK$7 billion of the latter debt owed to the company’s founder was effectively written off late last year). Underwhelming Galaxy found it tough going in the Macau gaming market in 2008, even during the bullish first half of the year where the territory’s gaming revenues saw unprecedented 50% year-on-year growth. StarWorld, Galaxy’s Macau peninsula flagship, has had positive reviews from the public. It managed to capture a revenue share of around 6% of the entire Macau market all by itself soon after opening. However, it has been treading water since then and could do no more than hold its 6% market share in Q3 ‘08, points out Deutsche Bank. In the context 28 INSIDE ASIAN GAMING | January 2009 Spin Doctors Source: Deutsche Bank of the soaring growth of the Macau market in the first eight months of the year, that has to be viewed as underperformance. StarWorld’s Q3 ’08 revenue was up 2% quarter-on-quarter to HK$1.71 billion. VIP rolling was up 12% quarter-on-quarter to HK$19 billion per month, representing a table hold of 2.2%, pointed out Deutsche Bank. The venue’s mass table win was up 5% quarter-on-quarter to US$4,400 per table per day. DB adds StarWorld broadly maintained a 6% market share in Q3 ‘08, with earnings before interest, taxation, depreciation and amortisation (EBITDA) up 21% quarteron-quarter to HK$136 million. DB adds the property enjoyed a slight expansion on margin from 7% in Q2 ’08 to 8% in Q3 ‘08. But some of the company’s other assets have performed less well. At group level, Galaxy’s building materials unit has been hit by the rising cost of commodities and the rising cost of bulk transport. And as we explain elsewhere in this edition, Galaxy’s CityClubs in particular have struggled to establish a niche audience and a clear marketing identity in the VIP market. That will need to change if Galaxy is comfortably to weather the rough conditions widely expected in 2009. The possible scenario of Galaxy being forced to suspend work on Cotai would have seemed shocking just a few months ago. Given what’s been going on in the Macau market since the final quarter of 2008, it now looks perfectly rational—normal even. In any case, since Las Vegas Sands Corp’s decision to halt work on its new Cotai projects in November, few events retain the power to shock. The terms ‘phased opening’ or ‘soft opening’, when applied to one of Macau’s new integrated gaming resorts, used to be accepted by industry observers as a practical solution to a genuine logistical problem—i.e., how to organise the smooth transition of a massive project from building site to paying attraction. Now, following the global meltdown of debt and equity markets, ‘phased opening’ seems to be a term used increasingly to cover the backs of casino executives as they scramble to meet their massive capital commitments in order to avoid having their stocks and bonds classified as junk because of missed payment deadlines on debt. An awful lot of casino executives were busy in the final weeks of 2008 making a virtue out of necessity, with phrases such as “realignment with existing market conditions” to explain away their embarrassment on funding. Such talk may not be entirely selfserving. A consensus view appears to be forming that oversupply of product in an immature market has been at least one contributing factor to Macau’s current woes. The spectre of the global credit disaster does, though, continue to cast a long shadow over the Macau gaming market and Asian gaming markets in general. Top Quotes Quotes of the Week 2008 Here’s the end-of-year list you’ve all been waiting for. Inside Asian Gaming is pleased to present our collection of the best quotes uttered over the past year. As we only started gathering quotes in the second half of 2008, it’s not really an annual award at all, more a light-hearted recognition of the role of public pronouncements and the media in the modern gaming business. Most of the quotes from 2008 were intentionally amusing or provocative when they left the minds and mouths of the industry leaders concerned. One or two are unintentionally funny. We’ll leave you, the reader, to decide into what category each quote should fall. Roughly speaking, there was a correlation between the actual market share of the casino operators in Macau and the number of times a representative of one of those companies appeared in our quotes section. Has IAG discovered something profound about human behaviour, i.e., that the more savvy a boss is in speaking to the media and summing up his or her company’s vision, the better the chances of success for his or her enterprise? In the northeast of England, there’s certainly a saying that “The shy bairns get nowt”. This roughly translates as ‘If you hang back in life, you don’t succeed’. When it comes to Macau’s gaming resorts, size increasingly matters, so we decided to give the IAG Quote of the Week 2008 award not to an individual utterance but to the person whose words of wisdom got the most weekly mentions. One candidate put on a late surge with a real corker. The coup de grace for the other contenders was the fact he was also the subject of two of the quotes uttered by other people. He is none other than SJM’s Dr Stanley Ho. Very warm congratulations from the whole team at IAG. Ranking Name Company Appearances 1 Stanley Ho SJM 3 2 Sheldon Adelson Las Vegas Sands Corp. 2 2 Frank McFadden SJM 2 4 Thomas A. Anderson Seeking Alpha 1 4 Anonymous Asian Poker Tour 1 4 Ian Coughlan Wynn Resorts 1 4 Edmund Ho Macau Chief Executive 1 4 Lawrence Ho Melco Crown Entertainment 1 4 Guy Laliberte Cirque du Soleil 1 4 Lai See South China Morning Post 1 4 William Weidner LVS 1 4 Steve Wynn Wynn Resorts 1 4 Thomas Wu Hopewell Holdings 1 January 2009 | INSIDE ASIAN GAMING 29 Top Quotes IAG Quotes of the Week 2008 5th Aug August 15 I will be going on summer holiday. I am planning to be sitting by my cottage in Donegal, Ireland, watching a late summer sun rise up over empty sandy beaches and clear, clean blue water; smelling the ozoneheavy, salty air of the north Atlantic Ocean and preparing for a day where I will be kept busy doing nothing. “I will be returning to Macau and SJM in September suitably refreshed and looking forward to contributing to SJM’s exciting future.” Frank McFadden, President of Joint Ventures and Business Development for SJM, issuing a pre-emptive statement before he flew off on leave. Last year when he went on annual break a local newspaper reported he had left the company. often a consequence of the environment.” Frank McFadden, former professional rugby player and President of Joint Ventures and Business Development for SJM, on why it’s fun to work for the grandfather of the Macau gaming industry. 30th Sept “Macau is just taking a deep breath at the moment—nothing more.” Lawrence Ho, co-chairman of Melco Crown Entertainment and chairman of Melco International Development, on why there’s no need to panic despite the tumble in share prices for Macau gaming operators. 26th Aug “Adelson stands taller than basketball players—when he’s standing on his wallet.” Las Vegas Sands Corp. chairman Sheldon Adelson, speaking during his company’s Q2 earnings call and recounting a third party’s anecdote about him. 12th Aug “I don’t know why you’re thinking I’m selling Cirque du Soleil to the world. I’m not selling Cirque du Soleil. I’m giving up 20% of the company.” Guy Laliberte, the Cirque’s Canadian founder, explaining he will stay in charge of the firm that produces shows in Macau and Las Vegas casinos (among other places). Mr Laliberte had just sold a one-fifth share to two Dubai companies owned by the government of the Gulf state. 19th Aug “I am writing to advise you that from 30 INSIDE ASIAN GAMING | January 2009 “First of all, congratulations on your eight gold medals and world record breaking feats—what a supreme sporting achievement—and I hope superstardom treats you well. However, I write this open letter to you to say that I am in a position to add weight to the argument that you should be crowned history’s ultimate sportsman.” The organisers of the Asian Poker Tour Macau event inviting poker player and US Olympic swimmer Michael Phelps to join the event on his way home from the Beijing 2008 Olympics. 15th Sept “Wynn is a luxury speedboat, graceful and agile. The Venetian is an ocean liner— slow to build speed and difficult to steer.” Wynn Macau president Ian Coughlan on why Wynn Resorts had bucked the trend of declining share prices among Macau casino operators. 23rd Sept “Actually, Stanley Ho is very paternal. And he’s very patient. That doesn’t mean he’s not a tough, driven businessman. But he understands when things don’t go the way you would like them to go, that they are not always a consequence of management but 14th Oct “Short selling is pure gambling. You might as well come into our casino over here and play at the craps tables. Listen, at least [in the casino] you’ve got a 49 per cent chance. You don’t have a 49 per cent chance in the marketplace.” Las Vegas Sands Corp’s chairman Sheldon Adelson speaking at The Venetian Las Vegas on why casino capitalism is less fun than the real thing. Top Quotes 21st Oct Steve Wynn, giving his typically forthright view on the reasons behind Las Vegas Sands Corp.’s difficulties in Macau. “Hard times won’t stop gamblers from betting, partygoers from drinking and smokers from puffing.” Seeking Alpha columnist Thomas A. Anderson on why so-called ‘sin stocks’ may bounce back during an extended economic crisis. 10th Dec “My employees are not only treasures to me, they are extremely precious and I can’t afford to cut their jobs.” Macau’s veteran gaming operator Dr Stanley Ho on why his casino workers can sleep soundly—though not at the gaming tables. “I cannot gamble because I hold a gaming licence and am accustomed not to gamble or even speculate.” Dr Ho again explaining the serious aspect of running pleasure palaces for the public. 29th Oct “A good son does not dig into his father’s inheritance.” Hopewell Holdings’ chief operating officer Thomas Wu, backing his father Sir Gordon Wu’s decision not to fund the Hong Kong-MacauZhuhai ‘super bridge’ project. 12th Nov “If necessary, the government will take over. We will not allow any casinos to shut down.” Edmund Ho, Macau’s chief executive, explains during his annual policy address why The Venetian empire’s Chinese branch will continue to flourish. Operating Officer of Las Vegas Sands Corp., giving a viewpoint on the internal debate within the company prior to its securing of emergency funding. 19th Nov 26th Nov “It was pretty much a monumental screw-up.” William Weidner, President and Chief “If someone tries to build six hotels at once and finds the market can’t accommodate it, there’s a problem with the planning.” 17th Dec “Betting on Mr Ho’s horses yields much better returns than his stocks, based on empirical and mark-to-market data.” South China Morning Post columnist ‘Lai See’ on why in current economic conditions investors might be better off backing Stanley Ho’s successful thoroughbreds than investing in his companies. 22nd Dec Stanley Ho stands beside Macau Chief Executive Edmund Ho at last month’s official opening of the Grand Lisboa Hotel “We love Macau and we love our country, it shows in this lotus-shaped hotel.” A patriotic Dr Stanley Ho, singing the praises of China and his flagship casino property The Grand Lisboa in the same breath. January 2009 | INSIDE ASIAN GAMING 31 Operator Outlook Plodding On Macau’s operators steel themselves for steady though perhaps unspectacular performance in 2009’s Year of the Ox M acau’s market performance in 2008 was a hare and tortoise race. Gaming revenue raced ahead for the first eight months of the year, only to be caught at the end by the creeping tortoiselike effects of visa restrictions and global recession. In 2009, it looks as though the Year of the Ox will live up to its name, with operators and players determinedly plodding through recession in the expectation of better days ahead. In the first eight months of 2008, Macau’s gaming income was growing at an unprecedented rate of 50% year-on-year. At that time, the suspension of any casino project was unthinkable. Asian equity and debt markets seemed to have escaped the 32 INSIDE ASIAN GAMING | January 2009 worst ravages of the US-focused sub prime lending crisis, and financial institutions and investors based in the Asia Pacific region appeared to have enough liquidity to back Macau operators in the roll out of their building programmes. LVS—bloodied but unbowed That all changed in the final quarter of 2008, when the big wave of the world financial tsunami finally hit the shoreline of China. First there was the dramatic announcement in November to the US Securities and Exchange Commission made by PricewaterhouseCoopers, auditors for Las Vegas Sands Corp, that the very survival of LVS was in question. It followed the company’s unsuccessful attempts to interest the debt markets in issuing fresh funding in order to meet covenants on existing loans and to provide fresh capital for its construction projects in the US and Asia. LVS chairman Sheldon Adelson, his Operator Outlook Macao Studio City—2011 and counting? Marina Bay Sands will open in phases from end-2009 wife and family injected a staggering US$1 billion of their own cash into the business in the space of a month from the beginning of the financial world’s own ‘Black September’. Then, in November, the company announced it had succeeded in raising a further US$2.1 billion from the sale of extra shares and warrants without the need for pre-approval by existing shareholders. Despite these remedial measures, LVS suspended building work on its new projects on Cotai, resulting in around 11,000 subcontracted building workers being laid off. In December, the company announced it was shedding 500 casino workers in Macau—all foreigners and including a number of people at executive level. LVS said many of the managers removed from the Macau payroll would be offered the chance of reassignment to the company’s Singapore resort, the Marina Bay Sands, though that project is also a victim of the financial crisis, experiencing its own bout of ‘phased opening’ syndrome. LVS says it expects to open at least 1,000 hotel rooms and a portion of the casino by the end of 2009, but other key elements such as the convention centre and the shopping mall are unlikely to be fully open to visitors until the first quarter of 2010. Melco Crown Entertainment—steady as she goes City of Dreams is sticking to its 2H ’09 opening schedule Until LVS’s historic announcement that it was mothballing its new Cotai sites, the company’s chairman, Sheldon Adelson, had always been proud to highlight what he said was LVS’s excellent record for executing projects on time. On the face of it, Melco Crown Entertainment (MPEL), the joint venture between Lawrence Ho and James Packer, is sticking to its own timetable for opening its City of Dreams integrated resort on Cotai in the second half of 2009, despite the credit crunch and toughening trading conditions. In practice, the City of Dreams project has already seen some deadline creep, some of it related to funding issues. At the time of the ground breaking ceremony in spring 2006, the JV said it planned to open the resort in “the second half of 2008”. Cost overruns and delays on MPEL’s Crown Macau project were a significant factor in pushing back the City of Dreams timetable. Since then, MPEL has been working to improve its balance sheet and its execution on its Macau projects. In November, Crown Ltd, Mr Packer’s Australian casino unit, which has a 37% stake in MPEL, announced it had negotiated a A$1.6 billion syndicated loan from ten banks. Depending on how one looks at it, this can be seen either as a consolidating measure or a rolling over of existing loans. In any case, it allowed Crown to make an early pay back on debt that had been due in August 2010. Crown’s next major refinancing is now reported to be due in late 2011. In December, a few weeks after the syndicated loan was announced, Crown revealed it had raised a further A$300 million, this time in equity. The company has other spending commitments aside from Macau, namely in Las Vegas and Canada. Nonetheless, these measures, taken together, are a sign of the determination of Mr Packer and his team to maintain the confidence of analysts and investors at a testing time for the whole world economy. Macao Studio City is now expected to open in 2011—two years later than originally planned Maintaining investor confidence in ongoing projects is one thing. Getting sufficient backing to move beyond the foundation phase of a project is another. Spare a thought then for Cyber One Agents Ltd, the joint venture behind the US$2.4 billion Macao Studio City, the entertainmentfocused casino resort planned for the northern end of Cotai, near the Lotus Bridge immigration point. At the time IAG went to press, there appeared to be very little activity on the Macao Studio City site. It’s no secret that the global credit crisis has had a negative impact on funding for Macao Studio City and pushed back the projected opening date of phase one of the project to 2011. Richard Hamilton, Vice President, Development for Taubman Asia, which has a 25% stake in the retail portion of Macao Studio City, told IAG recently: “When I started on this project we were talking about 2009. Now we’re talking about 2011. “In some regards it’s frustrating, but in many other ways it’s an opportunity,” he added, suggesting that by the time the project is up, the economy and visa situation for Chinese visitors will probably have improved. SJM—the lotus hoping to blossom in 2009 Before the markets went on holiday for the Christmas break, Dr Stanley Ho went on record as saying the balance sheet of his casino operating company SJM Holdings is solid, despite the global economic turmoil. “We are all aware of the impact that the current economic situation is having on Macau and the gaming industry, but SJM’s strong financial position and our prudent steady growth strategy have left us well placed to weather this storm,” Dr January 2009 | INSIDE ASIAN GAMING 33 Operator Outlook Ho said in comments reported in the Hong Kong press. “Our development plans are moving ahead as scheduled and we will come through these times stronger than ever,” he added. SJM received considerable criticism over the summer last year for launching a public share offering that many market commentators regarded as ‘too little too late’. It raised only around half the US$1 billion that analysts had thought the company was worth even six months earlier. In the light of subsequent world Profit & loss forecast Source: Deutsche Bank, SJM data 34 INSIDE ASIAN GAMING | January 2009 events, however, SJM’s limited exposure to new commitments regarding shareholder dividends, its low levels of debt and the fact it is one of only two casino operators in Macau currently turning a profit for shareholders (the other being Wynn Resorts) means SJM now looks like a prudently managed company with strategic planning of the highest order. SJM recently opened a new 430-room hotel tower attached to its HK$7 billion Grand Lisboa site—across the road from the original Lisboa Hotel and casino on the Macau peninsula. Operator Outlook SJM will also operate a franchise casino at the L’Arc Macau, a property on the Macau peninsula opening in the first half of 2009. The casino, hotel and residential project is being jointly developed by Dr Ho’s wife, Angela Leung, and International Entertainment, a company listed on Hong Kong’s alternative share index known as the Growth Enterprise Market (GEM). International Entertainment is controlled by the family of New World Development chairman Cheng Yu. SJM is also developing Oceanus, a HK$1.1 billion SJM owned-and-operated casino on the site of the former New Yaohan department store opposite the Macau Maritime Terminal on the peninsula. Oceanus will be opened in stages, with 300 mass-market gaming tables available by the end of 2009. In a recent report on SJM’s prospects for 2009 and beyond, Deutsche Bank analyst Karen Tang was generally upbeat. “By 2010, SJM should have opened five new projects. We forecast that these properties will generate HK$2.2bn EBITDA by 2010, based on 17% market share with 14% EBITDA margin,” she says. “Grand Lisboa has proven that, under new management, EBITDA margin at new A hotel room at the Grand Lisboa properties can be substantially higher than at legacy casinos (1H08: 18% vs. 2%),” she adds. Deutsche Bank says that even though in 2009 SJM’s share of total Macau casino revenue may fall below 25% for the first time ever, it expects the launch of new products will help SJM claw back share to around 23% in 2010. Ambrose So, SJM’s chief executive, is confident the company can square the circle of expanding operations while at the same time controlling day-to-day costs. One way to achieve this is to transfer existing staff to new sites as they are opened, rather than recruiting new people. Mr So said the recent troubles experienced by competitors in Macau were because some had “over-leveraged, overborrowed and over-projected the market”. Mr So and his boss certainly have long experience of operating in the roller coaster world of the south China economy, with its potential for rapid boom and equally rapid bust. It’s possible this may have given them an edge over some of their foreign rivals when it came to anticipating the downside of the Macau gaming market. Ms Tang of Deutsche Bank says: “SJM has a long-serving senior management team that has substantial experience in the management of casinos, and local connections in Macau. Strong understanding of local culture and customer preferences will be advantageous when formulating business strategies in a fast-changing competitive landscape.” She adds the company has also brought in new executive blood in the last few years from Macau and beyond, and this may also help maintain its position in a highly competitive market. “Since 2006, SJM has expanded its strategic and operational management team through an additional 150 experienced personnel,” says Ms Tang. “Many of them have held senior positions in other casinos in Macau or overseas. For example, Frank McFadden, President of JV and Business Development, was formerly COO for Venetian Macau Ltd. Similarly, John Catt, Tim Gilbert, and Lindsay Stewart, who are now overlooking public relations, table games, and slot machines, have all previously worked for Sands or Venetian Macau Ltd. We believe that the new blood will bring industry best practices to SJM, and help improve operating efficiencies.” The truth about SJM’s good positioning following 2008’s market turmoil may in fact be more prosaic than Mr So and Ms Tang suggest. At least some of SJM’s modest exposure to global financial markets is probably due to what American commentators call ‘dumb luck’. The company was originally very keen to raise money via an initial public offering. The fact it only managed to raise around half of the cash the markets had been hoping for actually led some analysts to mark down the company’s stock during the summer. If SJM is to capitalise in 2009 on its own good fortune and the hard luck of some of its rivals in 2008, it will certainly need shrewd leadership. Advertise with Inside Asian Gaming For advertising enquiries, please email: [email protected] or call Matt at: +852 95797383 January 2009 | INSIDE ASIAN GAMING 35 New Property Time for an Encore The latest signature resort in the Wynn collection was unveiled on December 22. Here’s a glimpse of what’s on offer Located next door to flagship property Wynn Las Vegas, Encore is a distinct destination with its own selection of accommodations, dining and leisure activities. Central to Encore’s fanciful and intimate environments are sunlit corridors with flowering atria and sprawling pools visible from throughout the property. Natural light floods the resort to reveal gardens, vibrant butterflies and signature mosaics. Encore’s accommodations are comprised of 2,034 suites that offer casual elegance in a comfortable, residential setting. The Resort Suites span up to 700 square feet and Tower Suites measure up to 5,800 square feet. Two separate arrival and check-in areas pamper guests and showcase the textured details of Roger Thomas’ interior design. In keeping with the culinary standards set by Wynn Las Vegas, Encore introduces a new all-star team of chefs to the dining family, each of whom is in their kitchens cooking dinner every night. Five signature restaurants pair these master chefs with personally prepared gourmet fare. Sinatra is a salute to Ol’ Blue Eyes. Chef Theo Schoenegger’s modern Italian cuisine riffs with Sinatra tunes as guests revisit the entertainer’s legendary charisma. A surprise awaits at Switch, Chef Marc Poidevin’s French-inspired seafood and steakhouse. Diners can appreciate the art collection by Columbian artist Fernando Botero at Botero Steak while sampling Chef Mark LoRusso’s modern cuisine. Society Cafe Encore was designed with the whimsical era of Oscar Wilde in mind, to match the imaginative cooking of Chef Kim Canteenwalla. Turn a corner in the casino and come face to face with a 27-foot crystal dragon, mounted at Wazuzu, where rising star Chef Jet Tila serves 36 INSIDE ASIAN GAMING | January 2009 Steve Wynn in Encore Atrium New Property Spa Lobby up pan-Asian cuisine. Todd-Avery Lenahan designed The Spa and The Salon at Encore, sure to make a statement. Upon arrival in the grand Spa Court, guests are welcomed into a vaulted, softly-lit and glass-enclosed courtyard. The Salon is full-service and The Spa contains 37 treatment rooms, 14 naturally-lit garden rooms and four oversized couples’suites for massage, body treatments and facials. Two movement studios offering spinning, yoga, pilates, conditioning and meditation classes are part of the new Fitness Center. Encore also brings a new nightclub to the scene. At XS, after-dark impresario Victor Drai combines an outdoor pool environment with the sizzling club atmosphere. Destined to be the gold standard in Vegas nightlife, the club’s design is inspired by the sexy curves of the human body and embraces the European pool and island bar it envelopes. The dance floor at XS is highlighted by a tenfoot rotating chandelier. The Esplanade at Encore consists of a selection of 11 boutiques. The edgy Rock & Republic, the distinguished Hermes and the eternally classic CHANEL anchor an array of clothing, shoe, jewellery, home decor and accessory stores. The Rock & Republic store is the designer’s first venture as a retail boutique. Inspired by the festive energy of the French Riviera, the pools at Encore are Spa Treatment Hall central to the resort experience, both literally and figuratively. Positioned at the heart of activity, the resort pool and the European pool present scenic views for the bars, restaurants, casino and meeting rooms that envelop them. The pools are surrounded by sculpted gardens, mosaic tiling and feature Jacuzzi spas and twentynine luxurious cabanas. Encore defies casino convention with a more intimate approach to gaming. The vast, open area that once defined the casino floor is replaced by columned pavilions, canopies and draperies that partition the gaming areas into private chambers. A butterfly motif portends good luck and gives way to the comfortable character of parlor room environments, each equipped with a garden or pool view. Encore offers 60,000 square feet of custom-designed, configurable event space, from private boardrooms to an expansive, column-free ballroom. The facility is connected to Wynn Las Vegas, where an additional 200,000 square feet of space is available. XS The Nightclub January 2009 | INSIDE ASIAN GAMING 37 Casino Lite ‘Casino Lite’ for Taiwan Gaming? E arly indications are that Taiwan will adopt the sort of ‘Gaming Lite’ multipurpose resort model adopted by Singapore and Vietnam—as and when Taiwan starts to build casinos following Monday’s ‘yes’ vote in the legislative assembly. While the notion of casinos in Taiwan naturally grabs all the headlines, the background information on the most detailed plan to be announced so far sounds more like Singapore and Vietnam’s schemes for holiday resorts with a bit of gaming, rather than aircraft hangar-sized halls full of slot machines and baccarat tables found in gambling-focused Macau’s ‘integrated’ resorts. On the Penghu Islands, an offshore archipelago long tipped as the first site on Taiwanese territory to host a casino or two, the talk is of an ‘international vacation village’. This would be a 120-hectare zone, featuring a tourist hotel of more than 2,000 rooms, a duty-free shopping mall, 38 INSIDE ASIAN GAMING | January 2009 an international convention centre, golf courses and casinos. Penghu county magistrate Peter Lin said in remarks quoted in the regional media that the gaming industry would be small and heavily regulated, with resort development trending toward hosting families. Whether this is an example of the routine noises made by pro development lobbyists to head off criticism from environmentalists and other interested parties, time will tell. Another point worth noting is that the political campaign for casinos in Taiwan may not be over quite yet. The governing Kuomintang (KMT) used its large majority to push through the necessary preparatory law in the legislative Yuan on Monday by an impressive 71 votes to 26. It would in theory allow casinos in three groups of offshore islands: Penghu; Kinmen and Matsu. Opposition Democratic Progressive Party legislators voted against the bill, citing concerns about debt, crime and environmental degradation. Taiwan’s President Ma Ying-jeou still needs to sign the bill before it comes into effect and some political horse-trading with opponents may take place before that happens. The locals in proposed casino zones will also need to be consulted in individual referenda. In two previous plebiscites, Penghu’s 90,000 job-hungry inhabitants gave casinos an emphatic thumbs up. But diehard opponents on Taiwan’s mainland are likely to try and rally any antis in what could be an emotional new referendum campaign. Taiwan’s legislature will also need to amend another law called the Statute of Offshore Island Development, according to officials of the Public Construction Commission quoted in the local media. That could take time, and as the saying goes, a week is a long time in politics. And from an investor’s viewpoint the number of casino licences issued and Feature the gambling tax rate will be important considerations in deciding the attractiveness of the Taiwan market. Taiwan’s cabinet is reportedly setting up a committee to work out detailed measures stipulating the regulation of gambling, such as the number and size of casinos to be licensed and the minimum capital required for operators. The government of Penghu county is reportedly looking to raise NTD30 billion (USD909 million) from private investors for a scheme there. Two locations—the Houliao Bay area and the Huhsi Port area—are candidate sites. The local authority hopes to have finalised the list of private investors by early 2010, with building work starting in 2011. London-listed AMZ Holdings is a leading contender as either the developer of a project on Penghu or as a key partner in a consortium for a scheme. It has access to an 11-hectare waterside site acquired in 2007 on a speculative basis at a cost of USD10 million. Other contenders interested in developing gaming resorts are a local firm called Great Penghu which has reportedly purchased a nearly five-hectare site for gaming, and the Penghu county government which plans to develop a 40hectare site. “We’ve wanted to stimulate development of the offshore islands, particularly tourism,” said Chang Sho-wen, the secretary general of the governing KMT’s caucus, in comments reported in the regional media. Casinos could attract half a million tourist visits to the Penghu Islands each year, generating NTD100 billion (USD3 billion) worth of revenues in gambling and tourism, according to an evaluation study prepared by Taiwan’s Council for Economic Planning and Development. Harrah’s for Taiwan? Speculation is at fever pitch that Harrah’s Entertainment will be a partner in a Taiwan casino resort. It follows remarks by Ashley Hines, president of operations in Taiwan for London-listed AMZ Holdings—which has an 11-hectare parcel of land on the outlying Penghu Islands, one of the prime locations for a casino resort—that AMZ would seek to build up to 500 hotel rooms, at a cost of USD200 million, and link with ‘one of the world’s top five’ casino operators. Among the top five by turnover, Las Vegas Sands Corp. and Wynn Resorts appear to have their hands full with projects in Macau and Las Vegas. MGM MIRAGE recently announced involvement in Vietnam’s Ho Tram Strip scheme to complement its 50 percent stake in MGM Grand Macau. Genting Berhad is busy preparing for the opening of its Resorts World at Sentosa project in Singapore and may also be a player in the Manila Bay project in the Philippines. That leaves Harrah’s as the obvious contender. Harrah’s didn’t just miss the boat in Macau but seemed not to think at the time that the boat was worth boarding. Currently its exposure to the Asian gaming market is a casino-free golf course on Cotai in Macau. Added to that mix are the recent comments of Gary Loveman, chairman and chief executive of Harrah’s. “Taiwan is potentially a terrific market. You have a lot of the same dynamics that you have in Macau: an enormous population both locally and regionally with a strong interest in gaming, and a limited amount of supply,” Mr Loveman was quoted as saying. “No one knows what the tax rate would be and you can’t predict all those things in advance. But you certainly have the right starting conditions,” he added. Inside Asian Gaming is acutely aware that when it comes to speculation on business projects adding two and two doesn’t always make four. We await developments with interest. A Sure Bet Log onto www.asgam.com for the latest industry intelligence and a subscription to our digital edition — all absolutely free. January 2009 | INSIDE ASIAN GAMING 39 Changing Face of Reform Since coming into force in September 2007, UK’s Gambling Act has given...and taken away T he 2005 Gambling Act came into force in September 2007 and therefore has been in place for over a year. Now would seem an appropriate time to review its impact on the UK gambling sector in general and the casino sector in particular. The Act came after several years of consultation with various interested parties and followed the publication early in the decade of a report headed by economist and banker Sir Alan Budd which contained 175 recommendations for reforming Britain’s 40-yearold gambling laws. Many of the recommendations were finally incorporated into the Act. The main change was the creation of the UK Gambling Commission to oversee the regulation of all gambling. The commission is paid for by the industry. The Act also allowed for the expansion of the casino industry by creating a “regional casino”, as it was officially known (or a “super casino”, as it came to be called), which would contain up to 1,250 unlimited-prize casino-style slot machines, and 16 new smaller casinos. However, the super casino, which finally was designated for Manchester, was voted down in the House of Lords in the spring of 2007 and dropped by the new Labour Government of Gordon Brown that summer. It was a disappointment for the city of Manchester. But it also raised questions about other provisions of the Act and Government policy. Specifically, because the super casino was considered an experiment, a brake was put on further new licenses so that its impact could be viewed in isolation. Some now argue that the absence of the super casino removes the need to inhibit growth in the sector. But such is the state of the UK casino market at present that even if the industry were allowed to 40 INSIDE ASIAN GAMING | January 2009 expand it is doubtful that it would want to. In fact, since the Act came into force, nine casinos have closed, and there are doubts about the openings of some of the 16 smaller casinos. The closures and the absence of new openings are considered visible signs of an industry in serious decline. However, the current malaise in the sector is not just an unintended consequence of the Act but the result of a combination of factors, some of which have been exacerbated by the Act. For example, the downturn in consumer spending would have affected casinos irrespective of the regulatory framework in which they operate. But the granting of new licenses in places where casinos already exist can only have an adverse affect on those existing casinos. The British Casino Association, which represents around 75 percent of UK operators, including Rank’s Grosvenor Casinos, Genting Stanley and London Clubs International, says there are four main reasons for the industry’s problems: the licensing regime, tax increases in the last budget, the nationwide smoking ban and the removal of Section 21 machines from casinos. The BCA argues that new license holders will enjoy “inherent commercial advantages over current licences in terms of greater machine numbers, sports betting and, in the case of the eight ‘large’ casinos, bingo.” The BCA says it is in favor of growth in the sector, but it shouldn’t be achieved in a way “that prejudices the commercial viability of the existing casino estate.” Then there is the tax issue. In his March 2007 budget, thenChancellor Gordon Brown abolished the 2.5 percent and 12.5 percent rates, assessed smaller casinos and replaced them with a flat bottom Feature rate of 15 percent. That equates to an average additional annual tax bill of £200,000, with some casinos paying considerably more. There was also the introduction of a new 50 percent top rate on casinos with annual revenues of more than £10 million, which has not only impacted larger casinos but possibly has deterred operators from taking up new licenses. Analysts at Panmure Gordon said after the budget was passed: “The increased level of duty will probably cause some small marginal casinos to close. In addition, some planned new casinos are not likely to be built now.” The removal of Section 21 machines and the introduction of the smoking ban in July 2007 have seriously impacted both the casino and bingo sectors and have been disastrous for Rank, which operates in both. Gala Coral also operates casinos and bingo halls but has a large betting shop estate and has benefitted there from the proliferation of fixed odds betting terminals, which have been offering £500 jackpots since the Act came into force. Some casino operators believe they are losing machine players to the betting shops and they are lobbying for either FOBTs or the return of Section 21 machines. The BCA also wants Government to allow casinos licensed under the old 1968 Gaming Act to be transferable between local authorities. This, they argue, would allow operators flexibility without increasing the total number of licenses. Currently, if a casino is losing money the operator will close it down. The operator can apply for a new license elsewhere, but that is a slow process and uncertain. The association met with Government last July, and it was agreed that the situation would be reviewed in six months. The BCA also won a review of the machine rules. Government, in the meantime, is reviewing the impact of FOBTs in betting shops. Lawyer Richard Jukes, an advisor to the BCA, said that although the industry was “having a torrid time” he was hopeful that Government would listen to the industry and act appropriately. “We enjoy a good relationship with Government and are engaged in a close dialogue. However, the difficulties we face are very real and very marked, and we will continue to lobby for changes to taxation, which the industry cannot currently sustain.” There is also talk of consolidation and mergers. Harrah’s Entertainment, which paid around £300 million for London Clubs in 2006, is reported to have been in talks with Rank and Gala about selling LCI. However, neither Rank nor Gala would appear to be in a position to expand their operations through acquisitions at present. Rank announced that in the first six months of 2008 revenues fell to £275 million from £285 million in the same period the previous year, while operating profit fell from £47.9 million to £28.9 million. Gala Coral operates 28 casinos and 156 bingo halls and more than 1,600 betting shops. The company is not listed so is not required to publish results, but the private equity owners have admitted that they invested an extra £125 million into the business last April amid fears that it was on the verge of defaulting on its banking covenants. Another major operator is Genting, which operates 46 casinos under the Genting Stanley brand. Genting’s head of strategic investments and corporate affairs, Justin Leong Ming Loong, has said: “We take the view that things are going to get worse before they get better in the UK. In the UK you get periods January 2009 | INSIDE ASIAN GAMING 41 Feature of respite before things get worse again, and we are battening down the hatches.” In the short term there is unlikely to be any significant increase in the 144 casinos currently operating in the UK. Indeed, there is more likely to be a decrease. As for the Gambling Act, it was conceived during a period of economic growth and massive increases in gambling turnover. Only if and when the economy recovers and the sector begins to thrive again will it be possible to pass final judgment on it. Reprinted with permission from International Gaming and Wagering Business (IGWB) magazine. Simon Banks is a freelance writer specializing in the sports and gambling industries. He is based in London. UK Project Pipeline From Solihull to Leeds, gaming development plans span large, small and smaller Solihull This West Midlands city of 95,000 has emerged as the most likely site for the first of the eight “large” casinos authorized by the 2005 Gambling Act. However, before a site can be chosen the local council has to invite bids from developers and choose whichever it thinks can deliver the most benefits for the area. A £90 million joint venture between the National Exhibition Centre and Genting Stanley featuring a 15,000-square-meter gaming floor with the statutory limit of 150 limited-prize slots is seen as the favorite. But Rank Group has also been lobbying in the area. Rank Chief Executive Ian Burke is launching a grassroots campaign to persuade local groups that his company takes the social concerns of local communities seriously. “We have been active in Solihull in engaging with influential stakeholders such as church and faith groups, charitable organisations as well as business representatives,” he said. NEC is confident that the Genting-backed venture can win the backing of the council. “The NEC Group now looks forward to demonstrating that our partner and proposals represent the best possible outcome for Solihull, Birmingham and the wider West Midlands,” said head of communications Deborah Smith. The council is expected to announce the identity of its preferred partner early this year. Yarmouth Developers have received the backing of the local council in this North Sea resort town for a “large” casino scheme on the sea front called The Edge. The £35 million project includes a 138-room hotel, eight-screen cinema, 18-lane bowling alley, six restaurants and four stories of car parking. The casino will be operated by Aspers, a joint venture between Aspinalls and the Packer Organisation. The scheme was proposed by Councillor Mick Castle, who said, “The town has embraced this project, and there have not been any objections apart from extraneous matters such as parking concerns. This scheme is about jobs, about regeneration and about improving the offer of a seaside town.” Aspers says the development will create up to 1,000 jobs. The plans will go before the Secretary of State, who will decide whether to hold a public enquiry or allow the decision to be taken by the council. The granting of a license is expected to take 18 months from application. There is some opposition to the development with some conservationists concerned the six-story hotel will obscure views of the sea and the town’s famous monument to Lord Nelson. Hull The Queen’s Gardens and Maritime Museum in Kingston upon Hull city centre 42 INSIDE ASIAN GAMING | January 2009 Developers behind a £100 million development in this Yorkshire city of 257,000 have been given a two-year deadline to start work on the city center site. The scheme is incorporated in what will be Hull’s tallest building, a 23-story high rise that will contain a “large” casino, a 185-bed hotel and student accommodations. The developers, Manor Group, say they have two possible international operators lined up to run the casino and hotel. But the council is getting impatient and wants work to start soon. Councillor John Fareham, chairman of the local Planning Committee, explained: “I am concerned about the level of permissions we have given in the city centre that have not been taken up. The city centre is meant to be the jewel in our crown, Huddersfield Town and I am keen not to give another permission only for nothing to happen. This is a key site, and requiring the development to begin within two years is perfectly reasonable.” Leeds It’s been a case of “one in, one out” in this metropolis of 761,000 in northern England where a new casino has opened and an established one has closed. London Clubs’ Alea Casino opened in the Clarence Dock development in September 2008, and in October the Rank-owned Grosvenor Casino in Moretown closed after 40 years of business. Rank has two Grosvenor casinos in the city, and a spokeswoman blamed the rise in betting duty for the closure of the Moretown site. “The rate of duty for the Leeds casino increased by 500 percent in 2007, a level which would be difficult for any business to absorb,” she said. The £13 million Alea has 17 gaming tables, six bars, two restaurants and a cinema spread over 50,000 square feet. R.I.P. Plans for Britain’s first racino in Reading fell apart after Stanley Casinos pulled out of a joint venture with greyhound stadium operators Stadia UK. Plans for the combined dog track and casino had received the backing of the local council and a site had been sourced. Stanley, which also operates the town’s Maxim Casino, cited the financial downturn for its decision. The collapse of the scheme was bad news for dog and speedway racing fans in the Thames Valley town. Smallmead Stadium, which hosted both, was forced to close in October. Stadia UK is searching for a new partner. A new £5 million casino in Huddersfield has been forced to close just eight weeks after opening after the operating company cited financial difficulties. Casino Red was operated by a company of the same name, which also operates an online casino site. It opened in a blaze of publicity and featured a high-class restaurant and a dance floor. Customers received news of the closure by text message: “Casino Red directors have unfortunately had to temporarily suspend trading at the venue in Huddersfield. We will inform of a re-opening ASAP. Apologies.” 43 Briefs Regional Briefs LVS Favours Singapore Tax ‘Haven’ Marina Bay Sands The logic of Las Vegas Sands Corp.’s decision to mothball its Macau projects and press ahead with its integrated resort Marina Bay Sands in Singapore became clear at a recent investor conference in the US. LVS President and COO William Weidner pointed out that with Singapore’s lower gaming tax burden (10% of the gross on mass market play and 20% on VIP play, as opposed to an effective 40% across the board in Macau) the net earnings generated on projected revenue of US$2 billion in Singapore would amount to $940 million, compared to only $504 million from the equivalent gross in Macau. Mr Weidner added Las Vegas Sands Corp.’s revised business plan envisages the company can complete its Marina Bay Sands project in Singapore with cash to spare, says Business Times Singapore. LVS says it needs US$4 billion to complete its Marina Bay site and that it currently has $6.2 billion in borrowings and liquidity, including income raised or expected from monetisation of non-core assets. “There is cash available to open Singapore [Marina Bay Sands] in the first quarter of 2010,” Mr Weidner told the investor conference in the US. He revealed that LVS expects to cut US$100 million in costs globally in 2009 by reducing expenses, labour, head count and benefits “everywhere that doesn’t affect the customer experience”. Mr Weidner projected that with its 2,600 rooms, and an average daily rate of US$269 per room by 2011, LVS hopes Marina Bay will achieve initial EBITDA (earnings before interest, taxes, depreciation and amortisation) of $161 million. He also forecast rental revenue from its retail component at $179 million. Addressing the issue of debt, Mr Weidner was quoted as saying: “The debt that we have is extraordinarily valuable. No one can generate about $9.8 billion of debt at a blended rate of about five percent in this environment.” He said that the first maturity of this debt is May 2011 for a tranche of approximately US$800 million followed in May 2012 by about $776 million. chairman and chief executive of Harrah’s. His comments were made to the China Daily newspaper as Harrah’s unveiled its 18-hole Caesar’s Golf Macau facility at Cotai just before Christmas. Harrah’s has reportedly spent HK$200 million upgrading the course. Mr Loveman’s warm words do though raise the question as to why Harrah’s didn’t try harder to get a casino licence the first time around if Macau is indeed as wonderful as he suggests. But in the spirit of New Year goodwill, Inside Asian Gaming will allow Mr Loveman—the owner of probably the world’s most expensive golf course, a 175 acre plot the lease of which was acquired from a Taiwanese entrepreneur in late 2007—his two cents of commentary. “This is the largest and most prosperous gaming destination in the world and we think it will widen its leadership over time,” Mr Loveman stated in another interview to mark the course opening. “The market is likely to go through a maturation to Macau 2.0,” he added prophetically. Exactly what Mr Loveman has in mind for Harrah’s contribution to ‘Macau 2.0’ isn’t entirely clear, though medical tourism and theme parks were apparently referred to in one conversation with journalists. Harrah’s investors would certainly welcome a money-spinning new scheme in Macau, especially if it avoided the need for one of those troublesome gaming licences that can cause such a lot of litigation and heartache for companies. Although Harrah’s has never officially confirmed the price it paid for its golf course, at the time the bill was widely reported as US$575 million, which some wag worked out was US$31.9 million per hole. It is though the second biggest parcel of land on Cotai after that granted to LVS, so the course could potentially be converted to miniature crazy golf at a later date to make way for a higher yield leisure operation. Mr Loveman’s comments about medical tourism and theme parks reminds IAG of what Robert de Niro’s character Sam ‘Ace’ Rothstein says about modern Las Vegas in the 1995 film Casino. “Today it looks like Disneyland. And while the kids play cardboard pirates, mommy and daddy drop the house payments and junior’s college money on the poker slots. “You get a whale show up with four million in a suitcase, and some twenty-five-year-old hotel school kid is gonna want his social security number.” IAG doubts the US government’s Medicare system would pay for the sort of medical tourism potentially on offer at Cotai. And the medical insurance companies would need to be careful not to advance cash to policy holders to pay for treatment, otherwise granny could be forced to wait a bit longer for that hip replacement. Look East Young Men Macau 2.0 Macau’s medium-to-long term prospects as a gaming market are undimmed despite the current downturn, says Gary Loveman, 44 INSIDE ASIAN GAMING | January 2009 City of Dreams Briefs Macau gaming developer Melco Crown Entertainment said on Tuesday it expects the Macau market to rebound from a sharp contraction. It is also monitoring expansion opportunities in Taiwan’s emerging casino market. “The worst period for Macau’s tourism industry is probably over,” said Lawrence Ho, co-chairman of Melco Crown Entertainment. The company added it is on track to open its City of Dreams integrated resort on the Cotai strip by early summer. Short term hopes—recently dashed—that Beijing would ease visa restrictions and a global rebound in equities from multi-year lows helped Melco shares rise around 70% in the last three months, though the stock is still down nearly 80% over the last year. “2009 should get gradually better,” Lawrence Ho told reporters in Macau. Mr Ho said 7,000 new jobs would be created in the first phase of the US$2.1 billion City of Dreams on the Cotai Strip. Melco Crown and Wynn are the only two casino operators adding new capacity in Macau over the next 18 months. Mr Ho added Taiwan’s move on Monday to legalise gambling on its offshore islands represented a possible opportunity for Hong Kong-listed Melco, which has a joint venture in Macau with Australia’s James Packer. “We are interested in the [Taiwan gaming] market, but we have to do further studies into the political environment there,” said Mr Ho. “Our main consideration is to check there’s no impact on Macau... the Taiwan market could be very large, yet because it’s not on the [Taiwan] mainland, but an outlying island, we’ll have to study how to set up the infrastructure,” he said. Mr Ho said, however, the tough economic conditions meant bank financing for even a mid-sized resort there would likely remain difficult in the next one or two years. Despite Melco’s bullishness, some analysts still take a dim view of Macau’s gaming prospects in the short term. eSun Share Issue Blocked Macao Studio City The Hong Kong media company eSun, a partner in the Macao Studio City project, has cancelled a share issue after a US investor challenged the move in the Hong Kong courts. San Francisco-based investor Passport Capital won an injunction in late December from Hong Kong’s Court of First Instance The share issue would have raised HK$177 million (US$22.9 million) but was opposed by two funds belonging to Passport Capital that alleged eSun was acting in breach of its fiduciary duty. “The [eSun] board believes that the interim injunction in favour of Passport should not have been granted. The company and its executive directors will continue vigorously to pursue their respective rights and remedies against Passport at (an) inter parties hearing on Jan. 22 and otherwise,” eSun said in a statement. The statement said the board still believed eSun needed to raise funds to strengthen its capital base and develop the business, adding eSun would consider other options. Passport was ordered by the court to provide a bank guarantee of US$15.5 million to compensate any potential loss to eSun, the media and property group headed by Peter Lam Kin Ngok, or alternatively to cover any damages awarded by the court. Rolling in the Isles Amax Entertainment Holdings Limited, which has interests in Macau’s VIP junket aggregation market, reported a 564% increase in revenue to HK$300 million in the six months to 30th September 2008. The revenue increase figures are skewed somewhat by the fact that the six-month totals are being compared with an initial performance over three and a half months. Amax only started operations in the Macau market in mid-December 2007. The figures also exclude the final four months of 2008, when Macau’s gaming revenue started to contract. In the relevant six months Amax said it recorded a consolidated net profit of HK$219 million, compared to a loss of HK$51 million in the previous period. The company added that the results were primarily due to the contributions of the junket aggregation business operated by AMA International Limited (AMA) in which Hong Kong-listed Amax has an indirect 80% effective interest. AMA helped Amax grab an 18% share of the Macau VIP market within months by offering a headline grabbing 1.35% commission on rolling chip volume. Rolling chip volume generated by AMA totalled HK$215 billion for the six months ended 30 September 2008, said Amax, including HK$95 billion of rolling chip volume for the three-month period ended 30 September 2008. Amax added that its rolling chip volume for the September 2008 three month period “continued to represent market leading levels of VIP gaming volume achieved at an individual casino in Macau.” Amax conceded though that it expected performance in the latter part of 2008 to be weaker than in the first half of 2008, due principally to visa restrictions, explaining the rules had “reduced travel of junket players, including primarily the lower tiers of Amax’s junket players, as well as creating a challenging consumer environment.” The company said it had recently taken steps to enhance its operating and capital structure in order to “more accurately reflect the leverage of its junket aggregation model”. In August, Amax disposed of its non-core, legacy LCD business. Also that month, Amax announced a share premium cancellation to eliminate the company’s previously accumulated losses, with the remaining balance credited to its contributed surplus account. The company said it was relaxed about the expected imposition by the Macau government of a commission cap on rolling chip volume. “We expect that, when effected, the implementation of a commission cap of 1.25% will further clarify Amax’s competitive advantages,” said Brian Cheung, Amax’s chairman. January 2009 | INSIDE ASIAN GAMING 45 Briefs International Briefs Caesars Palace Delays Tower Opening Mandalay Bay Caesars Palace Octavius Tower Joining a string of other companies delaying or cancelling building projects amid the floundering economy, Harrah’s Entertainment is delaying the opening of its Octavius Tower expansion at Caesars Palace until demand for hotel rooms improves, reports the Las Vegas Sun. The company had planned to open the 660-room tower, part of a US$1 billion hotel expansion, this summer. Some 110,000 sq. ft of convention space, three 10,000 sq. ft villas and an expanded Garden of the Gods pool and garden area will open by mid-summer, as planned. While demand for the convention space remains high in spite of the downturn, hotel demand has suffered in this economy, Harrah’s spokesman Gary Thompson said. With additional hotel rooms opening in the next few months “it was not prudent to bring this to market,” Thompson said. “We have not had the advance bookings we anticipated for those rooms.” Harrah’s has a tight balance sheet because it was taken private last year with billions of dollars in debt. The company, like many others, has been cutting costs and shaving staff. Still, financing for the US$1 billion expansion was in place before the credit markets collapsed. The company said it doesn’t expect any staff reductions related to the hotel tower delay and anticipates being able to bring the rooms online within a few months once demand picks up. The Las Vegas Sun also reported that winnings at Strip casinos dropped to a five-year low in November as the resorts recorded their second straight month of double-digit declines. The gross win at the 41 Strip casinos was US$437.6 million, off 16.2% from a year ago. MGM Mirage Scales Back Bloomberg reported that MGM Mirage will write down the value of Mandalay Resort Group by US$1.2 billion because cash flows at the casino company acquired in 2005 have weakened and buyers are paying less for gaming assets. The goodwill and trademark expense will be taken in the fourth quarter, MGM said in a regulatory filing. The Las Vegas-based 46 INSIDE ASIAN GAMING | January 2009 company, controlled by billionaire Kirk Kerkorian and the Strip’s largest casino operator, paid US$7.67 billion for Mandalay. Casino values have been hurt by 11 straight declines in Las Vegas gambling revenue during the US recession. Gaming companies, which had been expanding, have reversed course and are now scaling back. Chief Executive Officer James Murren agreed last month to sell MGM’s Treasure Island Hotel & Casino to real-estate investor Phil Ruffin for US$775 million. Fourth-quarter results will be a “kitchen sink for a lot of the companies,” Deutsche Bank AG casino analyst Bill Lerner said today on a conference call. “We should be expecting any impairment or any other charge that was going to happen.” Murren, who was promoted to CEO after Terry Lanni quit, inherited an indebted company still expanding in the face of a recession and declining revenue in Las Vegas and Macau. The company will “dramatically” reduce debt and will consider further casino sales to strengthen the balance sheet, Murren said in a January 7 interview. Treasure Island Top Tier In an apparent effort to boost its standing in the analyst community, Nasdaq-listed Melco Crown Entertainment has been accepted as a member of Nasdaq’s Global Select Market. The tier within the Nasdaq index was created in July 2006 and has higher standards in terms of company finance and liquidity than for the main bourse. The company will maintain its existing MPEL ticker. Melco Crown’s City of Dreams integrated casino resort on Cotai, Macau, is due to open in the first half of 2009. A Cool Head Jamie Odell, the recently appointed chief executive of Aristocrat, Briefs a leading supplier of slot machines and gaming equipment based in Australia, knows all about brand building and the challenges of competition. Mr Odell was previously a senior executive for another ASX 100 company, Foster’s Group, where he worked as managing director of its Australia, Asia & The Pacific division. The global beverage business owns world famous brands including the eponymous Foster’s lager, as well as the Australian wine houses Penfolds and Wolf Blass. IAG would like to offer a toast to Mr Odell’s success in his new post at Aristocrat. GigaMedia and Victor Chandler Team Up GigaMedia, the Taiwan-based parent of Everest Poker and Everest Gaming, says it has formed a strategic partnership with the Gibraltar-based land and online gambling company Victor Chandler International. Gigamedia said the deal, focused on sports betting products, would significantly expand the online capability of the Everest Gaming platform. It includes a new sports betting product called EverestBets.com. The new site offers wagers on a variety of sports including horse racing and soccer, and is available in multiple languages, 24 hours a day. Victor Chandler’s land based operation was founded in 1946. The firm’s sports betting business takes over two million betting calls per year from customers in over 160 countries, 24 hours a day. The group does not accept bets from US-based customers, in compliance with the US’ Unlawful Internet Gambling Enforcement Act of 2006. Earls Court Prepares for IGE m and above are Alfastreet, Casino Technology, Recreativos Franco, Barcrest Group, XtalE, Merkur Gaming, Bally Technologies, Gold Club, Games Warehouse, Inspired Gaming, Elektroncek, Gaming Partners International and Unidesa-Cirsa Group. These are joined by a further 32 companies with 100sq. m-plus displays. IGE also serves as a vital market place for small to medium size enterprises (SME’s) which use the exhibition as a platform to launch their innovations to an international audience of buyers. Many of the SME’s are amongst the 72 organisations that will be making their debut appearance at the London show. Drawn from a total of 27 countries, the debutantes bring a fresh approach and perspective on the gaming industry, helping to sustain the exhibition’s reputation for being a dynamic and commercial market place to source new products of which an estimated 2,000 are launched each year at show. The list of IGE first-timers includes renowned industry names, as well as those looking to make a big impression with their maiden appearance by taking significant stands. Those with 50sqm [538sq. ft] or more include Alsart (Russia), Cryptologic (Canada), Intervision Marketing (Cyprus), WorldMatch (Malta), Synot (Czech Republic), Hydako (Korea), Intel Corporation (USA), Ivobank (UK) and Shock Machine México. Adding to the pre-existing casino (ICE) and remote gaming (ICEi) components, the introduction of soft gaming, lottery, betting and other gambling and wagering disciplines has formed the umbrella ‘International Gaming Expo’ which weighs in at a colossal 20,000 sq. m of net floor space. For up to date exhibitor lists, floor plans, the latest show news, travel and accommodation and FREE entry badge registration, visit www.ige-exhibition.com. Big Players at ICEi Earls Court Exhibition Centre The International Gaming Expo (IGE) will take place January 27th–29th at the Earls Court Exhibition Centre in London, with more than 300 companies from 48 nations showcasing their products and services to the industry. The biggest stand at the show will belong to AGI’s Novomatic and covers an impressive 1,115 square metres. The 2009 ‘big league’ of exhibitors also includes IGT–Europe, Astra Games, TCS John Huxley, WMS Gaming, Atronic International, Aristocrat Technologies, Amatic Industries and APEX Gaming—all with stands in excess of 300 sq. m. Also firmly on the radar of show visitors with stands of 200 sq. Within the 2009 International Gaming Expo is ICEi, which focuses on i-gaming companies. ICEi will feature more exhibitors (90) from more jurisdictions (25) and occupy more stand space (2,750 square metres) than at any time in the event’s history. Labelled the fastest growing gaming exhibition in Europe, the roll call of exhibitors reads like an industry power list comprising remote gaming giants including Playtech, Cryptologic, Microgaming, Boss Media, WorldMatch, A Bet A, Ongame Network, Synot, Net Entertainment, Chartwell Games, Cyberarts Licensing, Partouche Interactive, Continent 8, Medialivecasino, Orbis Technology and Ivobank—all demonstrating a wide selection of new and innovative products and services on substantial showcases. ICEi’s reputation for providing visitors with a rich variety of the latest products and services for the remote gaming sector is due in no small part to the number of new exhibitors which are attracted to the event each year. The 2009 edition will feature 35 ICEi debutantes, 39% of the exhibitor base. This year’s newcomers comprise AliQuantum, Antigua & Barbuda Directorate of Gaming, Connected Table, Cryptologic, CSB Group, Enetpulse, Esanda Recruitment, Global Betting Exchange, Global Collect, GoResponse, Hyperion Online, Imobgaming, Inside Poker Business, Ivobank, Lucky 8, Meridian Gaming, Mfuse, Mirada, NET4Uonline, Netrefer, Noble Gaming, Openlot Systems, Optimal Payments, Player2Players, Play’n GO, QAS, Reed Personnel Services Malta, SC Dollarobet, Search Focus, Synot, Technical Systems Testing, Teckpro, Visionary iGaming, Vodafone Malta and WorldMatch. January 2009 | INSIDE ASIAN GAMING 47 Events Calendar Events Calendar A more comprehensive events listing is available on our website, www.asgam.com. 26, January 2009 4 -5, March 2009 Millennium Gloucester Hotel, London, UK Viena, Austria Gaming Awards 2009 Organizer: Contact: Tel: Email: Website: Empire Events Lisa Barrett +44 (0)1543 57 86 89 [email protected] http://www.gaming-awards.com 27-29, January 2009 The International Gaming Expo Earls Court, London, UK Organizer: Contact: Tel: Email: Website: Clarion Gaming Emma Green +44 (0)20 7370 8585 [email protected] http://www.ige-exhibition.com 24 - 26, February 2009 AIG Asian i-Gaming Congress & Expo The Venetian Macao, Macau, P.R. China Contact: Tel: Website: Organizer: Jennifer Poon +852 2219 0111 http://www.aigcongress.com Beacon Events Ltd 30- 31, March 2009 Casino Affiliate Conference NH Grand Krasnapolsky, Amsterdam Contact: Tel: Email: Website: Organizer: Marc Lesnick + 1 212-722-1744 ext 72 [email protected] www.cac2009.com Ticonderoga Ventures, Inc. 01-02, April 2009 New Zealand Gaming Expo Christchurch Convention Centre, NZ Contact: Tel: Email: Website: Organizer: Ross Ferrar +61 2 8216 0931 [email protected] http://www.nzgamingexpo.com/ Gaming Technologies Association 01-03, April 2009 Bet Markets Contact: Email: Website: Organizer: Joya Schneider [email protected] www.bet-markets.com Clarion Gaming 7 - 9, May 2009 GTI Asia Taipei Expo 2009 Taipei World Trade Center (TWTC), Taipei, Taiwan Tel: Fax: Email: Website: Organizer: +886-2-27607407 +886-2-27623873 [email protected] www.gtiexpo.com.tw Game Time International 19 - 21, May 2009 Gaming Technology Summit 2009 Green Valley Ranch, Las Vegas, NV, US Contact: Email: Website: Organizer: Lesley Grashow [email protected] www.gametechsummit.com BNP Media & Whitesand Consulting 25-29, May 2009 14th International Conference on Gambling and Risk Taking Harrah’s Lake Tahoe, Nevada, US Contact: Email: Tel: Website: Organizer: Danielle Crowther [email protected] +1 (775) 784-1442, +1 (775) 784-1057 http://www.unr.edu/gaming/index.asp University of Nevada 3-4, June 2009 G2E Asia Venetian Macao, Macau, P.R. China Contact: Tel: Fax: Email: Website: Organizer: Wendy Fong + 852 2965 1633 + 852 2824 0246 [email protected] www.g2easia.com Reed Exhibitions Asia’s Gem SMX Convention Center, Manila, Philippines Email: Tel: Tel: Website: Organizer: [email protected] + (632) 812 2161; 750 1369 +(632) 893 4097 http://www.asiangemphil.com PAGCOR & Asian Gem and Tourism Foundation Inc denotes events where Inside Asian Gaming will be available. 48 INSIDE ASIAN GAMING | January 2009 To list your event here and on our website, email [email protected]. January 2009 | INSIDE ASIAN GAMING 49 50 INSIDE ASIAN GAMING | January 2009