January 2006 January 2006 Going With the Gaming Flow Page 9 ~ Tour of the Contenders to Macau’s gaming crown Page 14 ~ Sure Bets 9on Macau gaming stocks? Page 17 ~ SJM’s14 Home Court Advantage Page 21 ~ Gaming’s17 A Bit Fishy in Japan Page 26 ~ Las21 Vegas in Europe? Page 29 ~ Las Vegas Sands26 to build Cotai’s Island Annex Page 30 ~ CLSA’s Aaron Fischer looks29 at The Other Side of the Revenue Race Page 3230 ~ Regional Briefs Page 35 ~ That’s Entertainment? Our casino marketing32 guru takes a stab at Macau’s casino entertainment offerings Page 38 ~ International35 Briefs Page 40 ~ Las Vegas Style38 Recruitment at Wynn Macau 40 Editorial What Lies Beyond the Tables? When Cirque du Soleil performed in Hong Kong at the end of last year, there weren’t too many doddery old Chinese ladies in fading blouses and US$1 slippers in the audience. Such ladies are regular fi xtures at Macau’s casinos, and you’ll often spot them hobbling up to the cashier to buy US$25,000 worth of chips. Somehow, the gambling grannies never seem to get mugged on their way home. When you’ve got a proven market, providing the best offering can prove profi table. It’s no surprise that the Las Vegas-style Sands Macau has proved a hit since opening in May 2004. Its 50-foot ceilings and plush interiors offered a more comfortable gambling environment than those of the erstwhile monopoly casino operator, Stanley Ho’s STDM. In this issue of Inside Asian Gaming, Stanley Ho’s right-hand man, Ambrose So, admits that his company’s fl agship Casino Lisboa, which was built in the 60s, obviously falls behind in terms of “hardware.” STDM’s gaming subsidiary, SJM, is busy carrying out renovations and building new facilities to keep up with Macau’s new foreign casino operators. The Lisboa remains the top-grossing casino in the world by a fair margin, but that will change, if only because VIP gamblers brought in by its established networks will soon migrate to the Grand Lisboa being built across the street. Sands Macau has done well in attracting the mass-market crowd, yet Casino Lisboa continues to earn at least twice as much revenue with a smaller property thanks to the company’s grip on the lucrative VIP market. According to a Bloomberg report, the VIP market consists of about 4,000 gamblers, primarily from Mainland China, who bet an average US$1 million per visit. VIP baccarat accounted for 77% of Macau’s casino revenue in 2003, but made up just 63% in 2005. Core Pacifi c-Yamaichi expects VIP baccarat’s share to fall below 60% this year. There are two explanations for this: fi rstly, the mass market is growing thanks to the lure of new casinos. It is also possible that some of the VIP market has been drawn to Sands Macau’s high quality mass-market facilities. Still, the issue of credit will keep most VIP gamblers with SJM. The bulk of VIP gambling is done on credit, and the new US-based operators face serious obstacles in extending credit to Mainland patrons, since collection of credit on the Mainland often necessitates resorting to questionable relationships which could jeopardise their gaming licenses in the US. Gaming revenue will continue rising across Asia, and in Macau in particular. Globalysis, a Las Vegas-based fi rm that tracks Asia’s casino gaming markets, predicts gross casino gambling revenue across Asia will grow 20% year-on-year to US$13 billion in 2006. The biggest revenue gain is expected to occur in the fourth quarter of 2006, following the opening of the Wynn Macau casino resort in September. The question now, as discussed by CLSA’s Aaron Fischer on page 30 of this issue, is whether non-gaming revenues will rise too. Macau’s gaming revenue could soon overtake that of the Las Vegas Strip, but Macau’s non-gaming revenue lags far behind. Wynn Macau will be the fi rst full-fl edged Vegas-style resort to open in Macau since the end of Stanley Ho’s 40-year casino monopoly in 2002. Granted, the 600-room Wynn Macau will be a much smaller version of the 2,716-room Wynn Las Vegas, and its entertainment offerings have yet to be revealed, but it will provide an initial indication of whether Chinese have an appetite for more than just Vegas-style gambling. Ambrose So argues that the US-based casino operators descending on Macau have thus far quietly scaled back their ambitious non-gaming plans, putting in more tables to tap proven demand. The gambling grannies will come if you give them more luxurious casinos, but they will not likely support the other offerings of the grand resorts set to open over the coming two years. Macau will need to attract a new, unproven demographic. Las Vegas Sands (LVS) Chairman Sheldon Adelson is confi dent that Vegas-style entertainment and dining will prove a hit in Macau, drawing Mainland China’s burgeoning middle class. His oft-quoted soundbyte: “If you build it will they come? In my mind, not only will they come, but they’ll come in droves.” LVS is betting hard cash on that vision, with the US$2.3 billion Venetian Macau scheduled to open in mid-2007 featuring a diversifi ed offering of Vegas-style convention and entertainment facilities. Sands Macau merely proved that Chinese gamblers prefer gambling in more plush surroundings. Mainland Chinese will eventually demand Vegas-style entertainment and dining, but it could take some time. They will surely come. It just might take them a bit longer to get here than LVS hopes. Kareem Jalal We crave your feedback. Please send your comments to [email protected] Editor and Publisher Inside Asian Gaming is published by Kareem Jalal Must Read Publications Ltd Director 9B Edifi cio Regent, 22 Praça de Lobo de Avila Tel: (853) 646 0795 João Costeira Varela For subscription enquiries, please email [email protected] Contributors Edwin Karmiol, Vivek Ramani, Aaron Fischer, Kristian Nygaard Photography Carmo Correia Advertising Director Herb Moskowitz Email: [email protected] Tel: (852) 2838 8702 Fax: (852) 2572 5468 5 Letters A Whine About the Grapevine The undersigned Chief Legal Counsel of the Philippine Amusement and Gaming Corporation (PAGCOR) writes in response to the article published in the October 2005 issue of your magazine entitled, “From the Manila Grapevine.” We wish to correct certain pieces of inaccurate and misleading information that you allegedly gathered from the “grapevine.” PAGCOR’s profitability has neither declined, nor has it been tarnished by cheap rumours of corruption and investor mistrust. Under its present leadership, PAGCOR has flourished into one of the most profitable corporations in the Philippines today. PAGCOR Chairman and CEO Efraim C. Genuino’s visionary approach, coupled with his business savvy and no-nonsense management has propelled the gaming firm to the second highest position in terms of revenues in Asia, next only to Macau. In 2001, PAGCOR posted over Php17.46 billion total income, exceeding by almost 20% its Php14.6 billion income of 2000. In 2002, the corporation posted Php20.21 billion, which earned it the distinction as the most profitable corporation in the Philippines for 2002, according to the Philippine Securities and Exchange Commission (S.E.C.). In 2003, while most countries with casino gaming industries suffered immensely from the effects of the SARS scare, PAGCOR kept its shortfall to a minimum, earning Php19.43 billion for that year. In 2004, PAGCOR beat all previous income records by posting a record-breaking Php 21.90 billion, the highest ever in its history. If the issues of corruption and inefficiency bear any trace of trust in them, how does one account for its optimal and unprecedented performance? To mismanage and to register top-notch feats are two ironic and incongruent propositions. One can only make sense of these deviant claims in the context of fierce competition in the region. PAGCOR has undoubtedly earned the envy of its neighbours. What you have featured in your magazine reeks of contrived press releases from PAGCOR’s competitors. If these “PR lies” prove anything at all, it is the fact that the Philippine competitors are desperate, and they are now resulting to black propaganda. What they claim to be “from the Manila grapevine” is no more than mere “sour-graping”. PAGCOR has, indeed, developed a plan that once realised, will transform the Philippines as the next tourism and gaming hotbed in Asia. And this is what is sending panic ripples all throughout the region. It is a fact that the Philippine gaming experience boasts of an incomparable showcase of extraordinary pleasures, from the scenic landscapes, to gastronomic feats, to the grand hospitality that is distinctly Filipino. These are the real “sweet grapes” that await the hands of gaming enthusiasts. Those who cannot even come close to the real thing, just content themselves to sucking on the grapevine. Who can blame them? We wish, however, to remind you to be more circumspect in devoting precious space in your publication to manipulative excretions from those whose motives are suspect. Their lies tread the thin line between the libellous and the absurd. Carlos R. Bautista Jr. Chief Legal Counsel PAGCOR Ed: We thank you for your feedback. We rely on readers better positioned than ourselves in the industry to point out inaccuracies in our articles and flaws in our analyses. However, the article in question made no mention of profitability declining due to “rumours of corruption and investor mistrust.” The article’s focus was on the investor mistrust itself, which is likely supported by such reports as appeared in the March 12, 2005 edition of the Manila Times (a “contrived press release” from one of PAGCOR’s competitors?), stating that PAGCOR Chairman Efrain C.