PROFESSIONAL CONTRIBUTION

Untouchable Macau !

Viewpoint contributed by: Johnson Au (Hong Kong)

27th Feb 2010      

Prior to the opening of the Resort World Sentosa, many industry observers including investment analysts speculated that Singapore Integrated Resorts casinos would take Macau’s market share for breakfast.

Now that the verdict is out; the so called most expensive integrated resort in the world is merely another “run of the mill” theme park & casino – just a Genting Highland looked alike. On the first two days of the Chinese lunar new year, it was reported that “big crowd” queued up outside its casino and it turned out to be 70% of which are the foreign laborers working in the City State. Feedback that these lower mass market “patrons” only went in to have their fair share of free drinks and formed the large pool of “back betters” (or should it be called no-bet betters?) crowding around gaming tables. The Lion City’s casino charges local population a flat S$100 entrance per day; while foreigners get to enter the casino free of charge.

In a cheap thrill attempt, apparently many believed that it was a purposeful leak coming from within the first grand integrated resort casino in Singapore, claiming a fantastic S$40m revenue from the casino for the first two days. This piece of cheap thrill news surprised many analysts and industry observers. It is a pity that fantasies do not last; the Minister Mentor of the Lion City State came forward timely and punctured the hot air balloon without any hesitation. In actual fact, the first two days of Chinese New Year casino taking for Resort World Sentosa was only S$3.6m daily in gross revenue. That is at best equates to a small-mid size casino’s normal days revenue or may be worse. The resulted plunging of Genting Singapore stock price by 30% (as from Jan 2010 peak) was not an unthinkable outcome.

Some analysts estimated that Singapore’s casino market volume will come close to about 20% of Macau’s. In addition to that, the poor response from the junket community has much to say about the IR casino’s VIP gaming pie.  Many HK & Macau junkets apparently went to Singapore for a closer look at the IR casino.  The interest level is rather low.  Two pertinent points were singled out by them, that the unfriendly junket control regulation and > 2.5 hours flight time being the big obstacles.

Such market size is not in congruence with the overstated stock price-to-earning ratio that was quoted earlier by some investment banks. The worse case scenario may happen when the other integrated resort casino (Marina Bay Sands) opens in late April through June 2010. That means, a small market volume and tight pool of local players will be split by two casinos in competition. When the dust finally settles down, it is life as per normal for Macau’s world-class gaming hub. It turns out there is nothing to worry about indeed, for Macau gaming industry.   (Posted on 27th, Feb 2010).

* Afternote by editor:  We searched the web and found the following comments from another source, as follow,

Ronnie Chan, chairman of Hang Lung Properties Ltd., Hong Kong’s fifth-biggest developer by market value, said recently in a Bloomberg Forum in Hong Kong that the two casino-resorts in Singapore will fail because they won’t be able to attract high-rollers:

“The big rollers are what make money in casinos, they will never come to Singapore, it’s a family entertainment” location. You think big-rollers will go to Singapore where they have teeth and fangs coming out sideways? There are too many rules. I was in Sentosa island, I really think that it’s going to be a flop…..The whole integrated entertainment industry, I’m worried for them. The good thing about Singapore is that if you flop, you’re given a second chance,” he said.  

The Sentosa IR, opened for more than two weeks ago had seen more foreign workers than high-rollers so far. If the situation does not improve, there is a chance that the two IRs may become “white elephants” in the middle of Singapore’s Central Business District.

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ARE THE WORRIES of MACAU CASINO MANAGERS  REAL & APPARENT?

Article by:  M. H.               27th August 2009

Extract of Reports 

E-News of Destination Macau (Aug 21th)            solareclipse
Revenue figures from the first 18 days of this month show that the Macau gaming market is on track to do its highest on record, well more than the MOP10.4 billion it did back in January 2008 (soon after Amax started the junket commission war at Crown Macau). It might even break the MOP11 billion mark. Is this a case of “Be careful of what you wish for”? Many casino managers are starting to ask that question, with good reason: the Liaison Office of the Central Government’s Zhuhai branch has reportedly set up a special division to carefully monitor and research the link between the mainland’s fiscal stimulus programme and gaming revenues in Macau.

Indeed, past (recent) experience would suggest that the last thing Macau needs right now is a surge in gaming revenues, which will inevitably result in a (re-)tightening of visa controls on mainland visitors.

… it is the junket operators who bring in players who spend hundreds of millions a night on baccarat that are the greatest cause for concern. And currently, they are making hay as fast as they can while the sun shines.

Been in the eye of the storm,  I totally agree with the above report.

I still remember the invitation to me two years ago by one of Zhuhai’s semi-government organizations, it was a cultural (& news) agency/association of sort.   I was invited to Zhuhai for dinner arranged by the association’s party members.  There were four of us that evening, eating and drinking away at one of the fairly high-end restaurants in the city of Zhuhai.

At that time it sounded strange when I was on first hand to learn about the ‘association’ was indeed tasked to gather information about casino affairs and development in Macau.  They were particularly eager to know about the influence of American casinos in the territory and how’s the Chinese big players from  China collaborated with the junket operators to punt at casinos in Macau.  At the dinner they had expressed extreme concern with the way Macau casino development and impact on Southern China’s social and economic stability.   I was then thing that these were some overly zealous journalists in Zhuhai trying to fish out some joicy news of the glitz of casino.   Now that I know for sure that the meeting was not just a coincident at all.  The Chinese government indeed had started casino information collection systematically via various channels from across Zhuhai, watching every move of Macau casino industry.

All evidence points to the determination of Chinese government to closely monitor and MANAGE casino’s (negative) impact on Southern China region.  That makes me to conclude that, Macau will never be like Las Vegas even though its gaming revenue surpassed the US sin city.  In the nutshell, Macau lacks the true freedom to play their own tune…  the territory could only dance around in accordance with their master’s music.   Yes, it is not a free for all arena for casino owners and managers to take all they wanted without being pulled back to within the lines drawn. 

But ironically, it is the Chinese government wants Macau to be like Las Vegas.  What I really meant is for Macau to develop its non-gaming elements that support the overall economy growth; to achieve what is like Las Vegas, 65% of non-gaming revenue and a much moderated (and healthy) 35% casino revenue.   That message has been told to Macau (including its newly elected Chief Executive) time and over again – Diverting away from relying on casino revenue for growth. 

However, other than Venetian Sands that shows a more genuine interest in creating the “Asian’s Las Vegas”, the rest of the casino operators did not really move in step with that direction.  Simply put, the grand vision of Macau is good but its execution remains out of synchonization.  Macau had lost important 5 years of momentum to push for a more balanced  Vegas resorts landscape and comprehensive services.  Everyone was too eager to beat each other in short-term and compete on gaming revenue market shares  and hence, continue to rely heavily on junket system until such that the (junket) system eventually rules over all of them.  The introduction of Amax/AMA “junket aggregator”  is one of the bad ideas that pushed the casinos to the edge of the cliff.   Now that everyone is suddenly shouting “we want to build up the mass market revenue” and “let’s cap the junket commission”.  Is it not that these are the very fundamental principles of casino marketing and operation?  

In hindsight, Macau casino managers seem to aim at the wrong target collectively – casino revenue that surpasses Las Vegas.   In that, they lose the better things over the horizon. 

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SHANGHAI BECOMING A CRUISE HUB?

Article Contributed by:  Expert IR

May 12, 2009

上海大力吸引国际游轮公司落“沪”

(2009-05-12)

shanghai1

From the latest news source released by Shanghai Municipal, China; the city of Shanghai will be opened up further, increases the pace to become an international shipping hub.

Essentially, the State Department of Chinese Central Government will soon come up with regulatory framework for foreign cruise operators to register cruise business entity in Shanghai as well as international cruise operations to be conducted.

In addition, Chinese government will establish a full-fledged cruise industry financial services, insurance, logistics, credit & financing in support of its pace of development of the cruise centre.

My assessment of this significant event is as follows:

(1)                   That the push for Shanghai to continue developing itself to be a major and influential economic hub of East Asia has intensified, as the central government showing forceful support.

(2)                   This is also the sign of giving strong focus on developing Shanghai’s financial services and capital market, using the cruise industry as a test bed. To achieve any significant impact, scalability and quick pace, Chinese government has to allow greater degree of deregulation of its domestic shipping & logistic market and hence, introducing the international cruise operators into its environment as the lead in factor.

(3)                   The initiative of deregulation of Shanghai’s shipping (& cruise) industry will bring about direct investment and logistical technologies for its maritime sector.  This is a strategic move towards strengthening Shanghai’s competitiveness as East Asia’s shipping & maritime hub.

(4)                   The development of Shanghai into East Asia’s shipping & maritime hub has its goal linked with the reviving of maritime professional training in northeastern China’s Qindao and Da Lian. Both cities are historically the cradle of Chinese naval & maritime’s past and present. The two northeastern cities would provide the necessary training and logistic resources for joint ventures with foreign shipping and cruise operators into Chinese market.

(5)                   Creating a cluster of maritime (& cruise) service support, insurance/P&I and debt market in and around Shanghai and its municipal will transform the city’s commercial landscape as well as tourism in the region. The Chinese government might be looking at Shanghai as its 2nd major initiative /platform for economic transformation, moving away from property-heavy development scene which also carries much speculative activities. (The 1st major initiative of economic transformation is Guangdong province. It is trying to move away from low-cost manufacturing-based structure to higher value-add economy).

(6)                   The deregulation of Shanghai’s shipping/maritime/cruise industry for direct foreign investment would further benefit the city’s convention/trade fair/meeting and incentive tour market.

Amidst the above new business scenario that is unfolding, just how the foreign cruise operators such as Carnival, Royal Caribbean, Princess Cruise, etc. would react is to me, a clear signal that I personally would think that it is so difficult for them to ignore and resist.

As interesting as the abovementioned, how would Asia’s cruise industry react to such a phenomenon is to be watched. Star Cruises is currently going through fleet downsizing and diversification, which including its planned new casino-resort in Philippines and junket room operation in Macau. Whether the Chinese authority would welcome gaming-heavy cruise model to be officially into China’s economic reform test bed (Shanghai) is really everybody’s guess.

Another big question is, whether Star Cruises is in the position to open yet another new ground in China (Shanghai) with considerable investment risk amid its ‘risky’ (some analysts’ rating) Philippines project is to be watched. Shanghai authority would prefer a considerable size of investment commitment instead of just a touch-n-go show of interest, this time around. However, it was known that Star Cruises has been operating indirect and small scale sales & marketing station in Shanghai for long while as well as a not-too- successful training school there. It was also rumored that the relations between Star Cruises and Shanghai authority remains not-so warm as otherwise expected.   

But in business, everything is a possibility.

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Posted on May 4, 2009

 

IR’s Operations Launch Strategies ir

 

Series #1 – Revenue Streams & ‘Bridgehead’ Phase

Article contributed by:  M. H.

The development of Singapore IR (Integrated Resorts) is well under way and coming to its important milestones soon. According to released statements from the operators and also the authority, the first IR – Marina Bay Sands will open its doors to the public targeting at end of 2009 and thereafter closely followed by the Resort World Sentosa scheduled for opening in first part of 2010.

Regardless of whether the IR will open in phases (as highly speculated) or in full-swing, it is envisaged that casino revenue will remain a major revenue contributor to the IR, though it is unlikely that it will be as drastically disproportionate as in the case of Macau which is at approximately 90% gaming/casino revenue vis-à-vis 10% non-gaming revenue.

It is understood that Singapore IR would emulate what is so successful in the Las Vegas business model, in which 64% of total revenue comes from non-gaming streams of business, such as entertainment, celebrity shows, wine & dine, hospitality services and of course the major contributor – Convention goers. 

It is quite fair to say that Singapore is definitely not another Macau’s model, and it is also not entirely a Las Vegas replica. Therefore, currently we could only place our guess as such, that the split of gaming and non-gaming revenue streams will be in the following range, for first 5 years of the IR’s operations.

–          Non-gaming revenue of approximately 25 – 35% of total revenue. (Depending on whether IR’s non-gaming facilities/products are well-developed & offered at affordable price-points OR these products being too fragmented due to phase-opening, and or at the wrong price-points).

–          Gaming/casino revenue is expected to be a mainstream income that will be viewed by investment analysts (and the IR operators) as a key survival indicator, as well as its EBITDA margins. We can envisage the casino revenue to be as close to 70% of total revenue attainable.

In the context of IR’s gaming-inclusive products and market share (yes, market share!), I would advocate a launch strategy that covers three (3) key phases of business & customer management. (Not to confuse with the building infrastructure and phase-opening in this instance). The three phases can be illustrated as follow,

The Bridgehead….   Conditioning….    Reinforce & Push

In this first series, I would share some thoughts on the ‘Bridgehead’ phase of the operations launch, in a very brief format.

The term ‘bridgehead’ is used to denote critical grounds that an IR operator should cover in preparation of its initial operations prior to the date of opening and at least be able to gain ‘quick wins’ over the casino operations as well as non-gaming products/services.  

These critical grounds are,

–          Program Management

This includes but not limited to, the rolling out of product hardware (casinos, restaurants, theatre, hotel rooms, convention space, etc.) in synchronization with major contracts with suppliers, such as, entertainment programs, casino-management systems, gaming devices, AV systems, junket agreements, etc. etc.

–          Systems Induction/Process Integration

This includes internal audit system, IT infrastructure, POS (point of sales), casino marketing system, table games & slots systems, loyalty & redemption system/card levels, etc. etc.

–          Mission-critical Work Streams

This includes in-house and external training programs, F&B menu designs, marketing campaigns, staffing, approval timeline by the authority, service processes, casino floor & systems setup, theme-park promotion, convention/MICE programs, etc. etc.

An IR operator not only needs to cover comprehensive grounds on the above ‘bridgehead’ before opening; the focal point is to score quick wins over the period of first 3 months of IR launch.

Execution for quick wins requires prior detailed planning on the following,

–          Examine geographical scanning results for tapping into ‘must-get’ markets. e.g. the ‘must-get’ markets for Macau are cities of Guangdong province.

–          Carefully align IR’s product mix/packages for achieving greater impact of time-to-market, and hence popularity.

–          Specific training target at elements of prime products/services to gain competitive edge day one.

–          Identify and remove bottle-necks as well as any potential operational ‘leakages’.

–          Build up critical mass volume operations through marketing campaigns and focused valued customer concept.

–          Etc.

The Las Vegas myth of ‘If you build it, they will come’ + ‘Casino is never affected by recession’ are fading away fast… every new casino-resort that is built will have to position itself on a quick wins platform to compete for market share (& good margins) in relatively early stage of operation, in that I mean Day One!

The next series of IR’s Operations Launch Strategies will be posted when ready…  

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Will They Come? Chinese VIP Customers (High-roller)

–         by Jurobid F. Hall

22nd April 2009Fishing

For those who think that Singapore is an ideal destination to rally the VIP gaming market (High-roller) by drawing the example of Asia’s top gaming hub – Macau, I would like to throw some words of caution.

A gentleman from the industry commented in the recent issue of Inside Asian Gaming about the Lion City’s potential for VIP gaming business, as follows:

(1)  “You might get high rollers from mainland China, the VIP customers. They might prefer to go to Singapore to gamble as opposed to Macau.”

(2)          “It’s easier for a mainland Chinese to get a 12-month multiple entry visa to Singapore. …. So for mainland VIP players, it will be very easy to nip over to Singapore.”

(3)          “…. The fact that they (Singapore & China) use Mandarin, Simplified Chinese, is a great draw as well. ….. if you come from Chengdu, or Beijing or northern China, …… Singapore will offer a much easier cultural adjustment.” (He also claimed that Guangdong people prefer Macau because of they speak Cantonese.)

The above statements are definitely great booster for Singapore IR casino operators.

On its surface there is nothing wrong about making such assumptions on rallying the VIP players/market, especially from mainland China.

But think deeper than that, you would forgive this gentleman’s fair ignorance about this ‘mainland China’ that he was referring to, in his comments most of the time.

I would like to throw some light on the issue being discussed, as follows:

(1)  First and foremost, why mainland China VIP customers would prefer to gamble in Singapore as opposed to Macau?

Who are these VIP customers from China? What are their profiles?

On the contrary, Macau categories of VIP players/customers from mainland China would NOT prefer to gamble in Singapore.

Highly concerned reasons:

–         That it is much more difficult in ‘moving’ monies from mainland to Singapore than to Macau.

–         Stricter declaration of players’ background and money transaction process and channels used. (for Singapore).

–         State-owned enterprises’ officials (a main category of VIPs) and those who closely related in business are not that easy to leave for overseas trip. Every single trip will be tracked and monitored. Intelligence will be gathered about what they do outside the country. So there is not different whether they go to Singapore (when the IR is up) or Macau.

–         Greater credit risk (to be born by junkets and or casino) for gambling in Singapore because it is much harder to transact money out from china. Collection of casino credit remains a challenging and a deadly task, especially in China.

–         Even on MICE activities, the Chinese Central government imposes strict rule about Chinese businesses leaving China to participate in overseas events. Such approval is normally on a group basis. That is to say, a form of ‘mutual tracking’ of individual movements. This is even stricter for traveling to Macau.

Therefore, I don’t understand the argument of mainland Chinese VIP customers would prefer to gamble in Singapore than Macau.

(2)          It is easier to get a 12-months multiple entry visa to Singapore?

It is obvious that it is easy to gain entry into Singapore from business and traveler perspective as the city state is an open port. Same cannot be said for mainland Chinese who are wealthy, and hence many of them are in one form or another related (or linked) to political or semi-political appointments (such as state-owned enterprises, appointees of Chinese national congress representatives, and many other nomenclatures etc. etc.). As I mentioned above, it is still not that ‘easy’ for mainland Chinese to get out of the country, in particular, those with monies to gamble.

(3)  Frankly I am not quite sure about since when this Simplified Chinese has become an enabler for rallying VIP customers from mainland China to Singapore?

With my experience in VIP gaming in the context of mainland Chinese customers, though the ability to communicate in Mandarin is the first criteria, but other factors are of greater influence usually, such as credit facility, confidentiality, rolling-chips commission, rebate to players, etc.

In summary, I am confident that the Lion City will be another new alternative for the region’s VIP customers, mainly Southeast Asian. Those who are expecting a full plane load of mainland Chinese VIP customers consistently going to the Lion City to gamble may end up very disappointed.

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    I refer to the article by M. H. (IR’s Operations Launch Strategies). I would think that Quick wins are essential for new casinos in the currently low margins and highly competitive gaming industry. In the case of the Lion City’s integrated resorts, it lacks the size of critical mass markets (mainland China and Hong Kong) and the pressure for quick wins is even more apparent.

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