VIP Junket Commission Capped at 1.25%

Posted: July 17, 2009 in Uncategorized

Any Impact on Junket Commission capped at 1.25%?

Analysed by:  expert IR     (17th July 2009)           Cotai

Read this:   July 15 (Bloomberg) — Melco Crown Entertainment Ltd. and Las Vegas Sands Corp. capped the payments some tour companies earn bringing big bettors to their Cotai Strip casinos in Macau, driving up gambling operators’ shares in Hong Kong.
“Our volume has been stronger than ever,” since Melco Crown’s City of Dreams and
Las Vegas Sands’Venetian Macao agreed July 1 to limit commissions to 1.25 percent, Melco Crown Chief Executive Officer Lawrence Ho said. Ron Reese, a spokesman for Las Vegas Sands, confirmed the agreement and declined to provide more details.
The accord is the first example of cooperation since the six Macau casino operators in April formed a coalition and pledged to work together in the face of dwindling revenue.

Expert IR’s straight forward view is that,

(1)  This is just a propaganda carried out by City of Dreams and Venetian Macau, in the wake of weakening operating margins for their casinos especially VIP gaming business portfolio.

(2)  To be fair, in most cases the VIP Junket commission rate had long been hovering at 1.25% (approximately 45% of Win) for direct junket operstions.  While the VIP room operators are having their popular “40-25”  split with Chinese casino operators. 

(3)  Only for AMAX-AMA structure, Melco Crown was giving out a maximum of 1.35% top level commission rate based on a very high level of non-neg chips turnover.  But as AMAX is also acting as junkets’ aggregator, therefore, the actual figures would be modrerated through credit management.  This model tends to churn out high turnover and market share figures but further dilute the casino’s margins.  Therefore, it proves to be a failed attempt.

(4)  Let’s do the sum again:   With Junket commission of 1.25% on turnover, what the casino is left with can be explained below,

         The simple equation:     Casino VIP gross win – 45% (based on 1.25% on turnover) for junket commission –                                                                         40%  gaming tax

                                             Casino gross win  =   15% !   (That’s before operating costs & volatility risk/loss)

Therefore our panel’s assessment on this commission cap remains, SO WHAT !?




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