Macau – No Mercy for Casino Operators

Galaxy Entertainment – Departure of two senior executives

Brief extracts of DOW JONES NEWSWIRES report (Oct 2010)

HONG KONG (Dow Jones)–Two senior executives integral to Galaxy Entertainment Group Ltd.’s (0027.HK) nearly US$2 billion casino resort project have resigned, the company said Monday, raising the possibility of delays.

Steve Wolstenholme, chief operating officer of the company’s flagship Galaxy Macau project, and Jeff King, senior vice president of marketing for Galaxy Macau, will depart shortly, Galaxy said in a statement, confirming an earlier Dow Jones Newswires report.

Wolstenholme, Galaxy Macau’s top-ranked executive, and King are two of only four executives dedicated to the project that are listed on the company website’s management page.

The Hong Kong-listed casino operator, controlled by the family of tycoon Lui Che Woo, said the management changes won’t affect the company’s performance or its project, which is still set to open in early 2011.

But Wells Fargo analyst Carlo Santarelli wrote in a report that he had already considered that to be “an aggressive timeline,” and the executives’ departure makes it seem “even less likely” the project will open on time.

Wells Fargo expects Galaxy Macau to open in May or June.

Wolstenholme and King couldn’t immediately be reached for comment.

“When management changes like this happen, you have to be concerned,” said Royal Bank of Scotland Group PLC analyst Philip Tulk. “The question is whether they have the bench strength to execute the strategy of the board and (Galaxy Entertainment Vice Chairman) Francis Lui.”

Aaron Fischer, an analyst at CLSA, said: “It’s never a good sign when people quit ahead of an opening.”

————————————————-

 

The Editor’s Comment:

We overheard from some sources (in Macau) that the two senior executives who quitted from Galaxy Entertainment are, sadly to say that they failed to produced a “concrete opening plan” for the owner. Both have no prior experience in executing such a project in the Chinese territory. Experience in the US market at times becomes more of a problem than useful guide. Macau is not Las Vegas.

Under the circumstances, it is likely that Galaxy Resort opening will be further delayed. On the current market situation, as an “exclusively” junket room business model carrier, Galaxy is already lagging behind in terms of market share among the rest of the big casino operators. Its mass gaming business has become almost non-existance and too weak. Without a more definite strategy underlays an opening & business plan for Galaxy Resort to capture the mass casino market share, it is high-risk to open the property and to incur greater operating costs, amidst the repayment of debt/bond obligation in 2011. It is envisaged that Galaxy’s operating margins for its resort will be lower than average, under keen competition in Macau.

Watershed for Macau Casino Landscape

MACAU MASS GAMING BUSINESS IS FADING AWAY

13th Dec 2010       

Contributed by: Alan Kaplan (An industry observer based in Hong Kong)

By October 2010, VIP gaming business continued to be the leading pack of Macau’s gaming revenue, scored a huge 84% of market share for total casino revenue. Among the big casinos, VIP bacarrat win percentage varies from 2.48% to 3.23%. An unlucky month of operation could wipe out the already thin margins in this volatile field.

Slots remain weak in the territory since 2004, staying at a low share of <5% of total casino revenue.

Chinese govt. would be happy to see that mass gaming influence is capped at this level and hence, social issues would also be minimized. However, going forward Beijing would not like Macau to run its world largest gambling den all the way over the edge (of the cliff). New plans (and boundaries) are being toyed by the central govt. at this point in time.

Main gaming floor revenue achieved only a mere 10 – 12% or so in the share of total gaming revenue. Among all casinos, Sands has the larger pie of mass gaming revenue and therefore has a greater margin from casino taking. In contrast, Galaxy continues to sink under the wave of syndicated Junket Room operation and hence, allows its profit margin to be heavily eroded. If such situation were to persist, it is unlikely that Galaxy Resort in cotai can be successfully run even if it opens in 2011 or later. Large casino resorts typically need to achieve high Ebitda margins in order to survive. This is especially so in Macau gaming landscape.

aN INDUSTRY EXPERT SAYS:

Galaxy is the most VIP-oriented operator, MAINTAINING 90% of its table gaming revenue from VIP baccarat. iT WAS RUMORED THAT ITS RESORT IN COTAI MAY NOT OPEN AT ALL AND WILL BE FURTHER DELAYED DUE TO LACK OF CONFIDENCE IN COMPETING FOR MAIN GAMING FLOOR BUSINESS WHICH IS CRITICALLY NEEDED FOR SUSTAINING MARGIN PLAY.

in macau only two casinos are holding on to the mass market business, they are, SJM (Lisboa) and Sands. Wynn Resort has gradually shifted over to vip share of revenue.

that said, it is still far from achieving the initial dream of making macau the asia’s las vegas that will carries more non-gaming entertainment funs. the pressure is building up for macau authority. another indicator is towards capping of american casino expansion. sands would not be allowed to expand “unlimitedly” in the territory. sjm linked operators may be given more leverage in cotai development going forward.

According to sources, Chinese central govt. may adopt greater intervention on macau development in 2013 to change the tide of overwhelming casino influence on the territory.

　

Published data:

Gaming Revenue in October 2010 (excluding slots revenue) for Macau casino industry

	Main Gaming Floor Revenue (HK$ bn)	VIP Baccarat Turnover (HK$ bn)	VIP Baccarat Win Rate (%)	VIP Baccarat Revenue (HK$bn)	Total Revenue (HK$ bn)	Share of Revenue From VIP Baccarat (%)
SJM	1.62	153.94	2.72	4.19	5.81	72
Sands China	1.08	53.05	4.08	2.16	3.24	67
Melco Crown	0.38	68.93	2.96	2.04	2.42	84
Wynn Macau	0.47	72.56	2.61	1.89	2.36	80
MGM Macau	0.36	45.98	3.23	1.48	1.84	81
Galaxy	0.17	64.12	2.48	1.59	1.77	90
Industry Total/Avg	4.07	458.57	2.91	13.36	17.44	84

Las Vegas Puts All Eggs In One Basket!

  

Brief Extracts of a report by Jennifer Robson (dated 6 Dec 2010)

LAS VEGAS, Nevada — You already know Las Vegas has one of the country’s worst economies.

Now, a new report takes things further.

The Brookings Institution, which is based in Washington but has a local research arm, said Tuesday that the Las Vegas Valley has the world’s fifth-worst economy. The think tank ranked the region No. 146 on its Global Metro Monitor, which rates the world’s 150 biggest metropolitan economies on their economic strength before, during and after the recession.

In its final result, the Brookings report’s assessment of Las Vegas is less a measure of economic torpor than it is proof of just how volatile the city’s economy is, said Robert Lang, director of Brookings Mountain West at the University of Nevada, Las Vegas.

The population of Las Vegas burgeoned by 104 percent to nearly 2 million in that 14-year period, making the city first in the United States and third in the world for population gains. Employment grew 4.9 percent annually, driven by construction, real estate and gaming, and the market added roughly 470,000 housing units from 1990 to 2007. Brookings ranked Las Vegas No. 14 in the world for its overall economic performance in the period.

When the recession took hold of the economy in 2008, though, the trends reversed.

Local employment dropped 4.9 percent from 2008 to 2009, compared with 4 percent nationally. Much of the job loss came in the region’s most important industries: construction, which shed 28,000 jobs in the year, and leisure and hospitality, which cut 19,000 positions. Gross value added slumped even more, dropping 5.4 percent. That indicates the loss of high-value jobs in financial and business services, many of which supported real estate and tourism, the report said. And a region that added a net average of 40,000 residents a year in better times posted a net loss of 1,300 residents from 2008 to 2009.

In that slowest-growth period, Las Vegas ranked No. 128 worldwide.

…. At No. 146, the city’s situation is still worse in 2010, nearly 18 months after the recession’s June 2009 end. The valley’s gross value added per capita has continued to erode, dropping 1.2 percent even as the nation’s average improved. Employment dipped 3 percent, far more than the nation’s 0.7 percent employment falloff.

Observers blame the valley’s abysmal post-recession performance partly on the severity of the local housing crash and partly on the area’s lack of economic diversity.

…. Gordon agreed that Las Vegas could return to growth, but it’ll take a while, he said. First, the nation’s economy must improve, so that spending in the city’s economy can flourish again.

“It’s going to be a slow and painful process. It will require baby steps,” Gordon said.

——————

Editor’s Comment:

With Asian casino hubs like Macau, Korea and Singapore in full swing… under a boom state of affair of their growing economies, Las Vegas situation can only be worse amidst US high unemployment rate. Casino operators like MGM and Harrahs are facing a dire winter. Just think about it, how are they going to clear their huge debts? Also, LV Sands further expansion in Macau has been capped, a clear signal from Beijing. 

Though the US has released 2nd round of Quantitative Easing, US casino operators are still trapped in dire situation as the direction of capital  flow is to Asia.

A SEA CHANGE FOR MACAU – 2013

6th Dec 2010

From an undisclosed source that links back to mainland China, the year 2013 will see a huge change (turn-about) of China policy towards Macau’s long-term development.

The most recent disapproval of Las Vegas Sands casino-hotels development on Lot 7 & 8 was just an “early warning” sign.

According to insiders speculation, the key stimulus is the change over of leadership of China in two years time.  With new leadership taking over in 2012, it is believed that several changes will impact Macau’s casino industry, namely,

(1)  The Chinese (Beijing) government is determined to introduce greater changes to its financial/capital market after the change of new leadership.  More open-market measures will be introduced for China to be a leader in Asian financial markets.

(2)  Corresponding  and more forceful control measures will be introduced to cap casino landscape in Macau, in that it has created highly undesirable impact on Southern China economic and social scene. As estimated, each year at least $700b (RMB)  is going through illegal channels out of China! 

(3)  Macau will be forced by Beijing to implement greater restrictions on casino ruling and gaming devices.

(4)  There may be a “sweeping” of Junekt syndicates (by Chinese authority) that link to China funding… especially those in operations within Southern China.

(5)  A new 5  – 10 years Diversification Scheme/Plan is likely to be introduced as from 2013, directing Macau’s redevelopment effort towards a more diversified economy.

(6)  American casinos will not be allowed to “overwhelm” Macau’s gaming industry landscape. Some degrees of capping and curtailing will be a constant policy as from now on. Cotai Strip has to be redeveloped into a real Las Vegas entertainment hub with more aggressive Chinese capital involvement in order to stay on course.

2013 may be The DEADLINE for Macau casino industry

 

American casinos will be capped

A New Big Wave for Tourism by 2015

Contributed by:  Philip Logan (regional tourism critic)

1st December 2010  Wed

With an area of 200,000 sq.m, more than 20 world-class theme park ride selctions, fastest rollercoaster ride (Formula Rossa); the newly opened Ferrari World at Abu Dhabi is really a heavy-weight in the arena of theme park entertainment offering.

Whether or not the Singapore IR’s Genting Sentosa Resorts “recalled” rollercoasters will be ready to reopen, that is far from the standard of what Abu Dhabi could do.

It is not surprising that the Ferrari World will soon become the benchmark of tourism attractions to be, setting the standards for future theme parks in developed countries and Asia. The 2014 South Korea Universal Studios is another new standard benchmark for the new tourism landscape.

To be leaders in the tourism destination attractions, man-made marvels like theme parks will no longer conform to the old DisneyLand formula and the Genting model. New world theme parks will have to encompass the following key elements to win over new generation of tourists.

The key elements are:

–  Big, bigger and biggest.  Small landscape theme park is out. (e.g. Genting Sentosa).  New generation tourists are looking for all-encompassing large space filled with innovative themes and technologies in order to extend their imagination and length of stay.

–  At the forefront of technology and real innovation.  Just another version of overly-marketed but low innovation and standard theme park rides or rollercoasters are no longer the anchor element.  Genting Sentosa is a case in point.  Affluent tourists are looking for somethign that they never heard off before and yet truly an experience of a life-time.  Ferrari World is taking a lead in this dream of excitment. (The Formula Rossa is based on F1 experiences and able to propel riders all the way to a top speed of 240km/hour).  That is innovation!!!

–  Speed sensation. This is one element that has been long embeded in human race.  Abu Dhabi Ferrari World is able to combine Speed and  and well known Sporting Event (F1) into one single theme to become a tourism mega attraction, stretching travel trade’s imagination.

 

Real innovation

 

Combines Big, Innovation & Speed into one single winning theme

Editor’s Comments:

We envisaged that Asian tourism’s new landscape will be pulled over by two major forces in play:  Highly innovative landscape of Abu Dhabi and the largest Universal studios theme park in South Korea by 2014.  (20X larger than Genting Sentosa IR theme park.)

Not to forget this near-the-corner Shanghia DisneyLand… 

Tourism relaying on just luxury goods shopping and casinos will be “neutralized” in the coming decade. A new big wave is rising…