Casino & VIP Baccarat


Extracts of news report with Professional Ground’s commentary,  16th Apr 2010

Japan’s parliament will meet in August 2010 to pass the law for deregulation of casinos on its mainland, including Tokyo and also offshore islands such as Okinawa.

A total of 10 casinos will be planned in 10 years, to boost Japan’s tourist arrival from the current level of 10m to 30m.  For the start, two casino licenses will be issued upon the passing of law for deregulation of casino industry in Japan.

With that in view, it can be envisaged that a new trend will take shape in East Asia’s tourism & Convention landscape.  China (including Hong Kong), Japan, Korea and Taiwan will evolve to be the largest  “Asian Tourism & Leisure Hub” within the next  5 – 7 years.  Korea had announced to build the world’s largest Universal Studios (20x the size of singapore’s) to be completed in 2014.  China Shanghai has opened up for another large Asian Disneyland to be built.  Size matters. 

We can therefore, anticipate the following to happen in the next 5 – 7 years (right up till 2017),

–  Increase in air travels in Asia, especially routings  that concentrate on East Asia. 

–  Budget airlines industry (in Asia) will continue to grow by leap & bound to cater for more affordable air travels.

–  Tourism and MICE activities will gain momentum in East Asian region, in particular Shanghai, Japan and Korea.

–  Travels volume for countries such as China, Japan and Korea will form the bulk of leisure tourism in particular the Asian affluent market segment. 

East Asian region will be the largest leisure tourism hub in Asia


Expert IR

Expert IR’s Deep Thought  –  “You need the numbers… and momentum”

18th July 2009

I have been writing about VIP gaming issues in Professional Ground for quite a while.  It seems that interest level on VIP gaming remains high, from the various communities, including but not limited to casino investment analysts, investment bankers, industry practitioners, Macau and especially Singapore IR keen watchers. 

For the benefit of readers, I would like to lay down yet another ‘golden rule’ for those who are managing the huge animal called VIP Gaming and also, those who are still trying to understand what animal it is!

VIP Gaming Business = 

“You really need the RIGHT numbers produced by a specific condition/cycle of the business; and based on these numbers build your momentum.”

(Never mind that if you don’t quite grasp it, just continue to follow the Blog. )





(Source: by Morgan Stanley’s Report “Turning the Corner” dated May 12th 2009)

 What the report says:

A cut in the upper level of Macau VIP chip commission rates of just 10 basis points (i.e., 0.10%) could lead to a dramatic improvement in pre-tax margins and pre-tax earnings for the territory’s casino operators, says a report from Morgan Stanley Research Asia/Pacific.

…says a cap on the upper level of commissions at 1.25% could boost margins on earnings before interest, taxation, depreciation and amortization (EBITDA) by as much as 300 basis points, fuelled by a rise of up to 34% in EBITDA itself.”

Expert IRPinpoint Views by expert IR

May 18, 2009

In my view, the abovementioned report remains an academic exercise and failed to point out to readers in that, the American casinos run their VIP gaming fairly different from their Asian counterparts – SJM, Melco and Galaxy.

Let’s take a closer look at what the Morgan Stanley’s report that highlighted the increase in EBITDA figures after junket commission cap.

The Report says:

Casino                                               EBITDA (% increase)

Galaxy                                                           34%

MPEL                                                             20%

SJM                                                               18%

LVS                                                                7%

Wynn                                                             8%

MGM                                                              5%

It is interesting to see that why the three Asian-asset casinos (Galaxy, SJM & MPEL) have larger % increase in their EBITDA and the three American casinos (LVS, Wynn & MGM) fair lesser increase in EBITDA.  My assessment is that it is NOT simply because of commission cap.

My view is that,

–          Firstly, the Asian-asset casinos usually could run up to a much higher proportion of VIP-Mass gaming ratio (ave. at 70% VIP gaming). Therefore, the rolling chips turnover would be much higher in volume. Commission cap would help in saving some costs but not really a main contributor.

–          These Asian-asset casinos are mainly on Junket Room operation that entails profit-sharing and special turn-over bonuses business model. The ultimate leftover (net win) for the casino is much less than the Direct Junket system operated by the American casinos.

–          Reported higher % EBITDA increases do not indicate the Asian-asset casinos’ real margins over their casino operations, especially with higher portion of profit-sharing for junket room operators coupled with less emphasis on the mass market which carries much greater margins.

–          It is likely that the main contributors to huge % increase of EBITDA for the Asian-asset casinos might be due to tightening of credit line/facility to players, reduction of rebates/expenses/incentives and, expansion of mid-tier pool of players (with less volatility).

At this juncture, the capping of commission (to 1.25%) is merely academic. The cost-structure of VIP/junket operation covers more than that. To attribute the % increase of EBITDA solely to the capping of junket commission is NOT a credible argument.

– End of view –




Posted on May 7, 2009

Contributed by: Expert IR


It is always much interesting to discuss about VIP gaming (or VIP Baccarat) operations as compared to the ‘run-of-the mill’ mass gaming.  Based on 1st quarter 2009 reported casino revenue for Macau’s gaming industry, the essence of the territory’s gaming story is as follow:

 Key Figure                                                                   Outcome

 2009 1st Quarter casino revenue                      MOP26.2b;    12.8% drop vs 1stqtr 2008

2008 4th Quarter casino revenue                      MOP24.8b

VIP Baccarat revenue (1stqtr 2009)                 MOP16.3b;    19.1% drop vs 1stqtr 2008

VIP vs Mass gaming casino revenue                   VIP approx. 62.2%;   Mass approx. 37.8%

A cautionary note must be born in mind is that in Macau, the VIP baccarat (high-roller) produces much lower margins (15 – 20% of Win) for casinos as compared to mass gaming revenue, primarily due to high Junket commission (40 – 45%) and high gaming tax regime (40%). Yet the risk is high due to high volatility and potential huge rolling credit as well as expenses. 

In terms of margin generation for VIP baccarat (high-roller game) a casino has to take into thoughtful consideration of the following principles of operation which from time to time even the casino senior management tend to ignore, when they are chasing after higher and higher turnover syndrome – chasing the Alpha (of investment). However the (rolling chips) turnover bubble could go bust! It is not much difference from the housing mortgage bubble in the United States.

I would suggest the following diagram to depict key sustaining principles for operating and managing VIP baccarat (high-roller) within a safer zone, yet the objective is not to reduce its potential growth especially in Southeast Asian markets but with the intent to strengthen such a known to be volatile business model in VIP rolling chips.


Instead of writing long lecture notes, I would attempt to pen it down in rather concise approach to explain the essence,

Principle #1    Maintain a close watch over pattern of the ‘Walk-out money’ captured in the Win/Loss report vis-à-vis junket commission (or any form of rebates). The ratio could impact heavily on the bottom line of the 2.7% theoretical win for the casino and thus its margins. This is particularly important for casinos outside the territory of Macau. As the expected turnover volume can never be the same scale as Macau to mitigate the volatility.

Principle #2    Operating CCF (Chip Credit facility) accounts is unavoidable if a casino were to target at growing its direct high-roller business. But this feature (CCF) has to be closely pegged with outcome of CGSR (Constant Good Supply & Retention of value-rated players). I have seen casinos just rely on CCF solely for customer acquisition and worse, inconsistent review of player ratings. There are many other up-front incentives to be used for acquisition of new customers.

Principle #3     Create new demands for sustainability of high-roller business instead of overly slant towards using chip credit. Managing a ‘progressive’ agreement/arrangement with distribution channels (such as Junket, GSAs, affiliated promoters etc.) will be better than a ‘big-bang’ style and later to resort to drastic changes. Striving for long-term credible relations with distribution channels is desired. 

Principle #4    Ability to fully understand and able to exploit Asian high-roller market would determine a casino’s real potential in managing a profitable VIP gaming business. Otherwise, putting resources onto mass gaming market would be a better bet. In particular, casino resorts that are built outside Macau territory. Regulatory framework has an important (if not overwhelming) influence over the establishment of a successful VIP gaming “safe” haven. (Think as in player’s context).

Principle #5    Player Development is about Trust & Goodwill. If there is a slightest hint at how casino branding should be executed then it is to direct marketing resources onto building abundant “Goodwill Recall” (in my own words) in support of VIP business, as in the case of above-the-line mass media marketing’s “Brand Recall’ objective.

Regardless, junkets would remain the primary and organized VIP channel for Asian casinos. That said, selection process is as important as the management process of this mammoth network.





VIP (Baccarat) Gaming, A Risk Function

Contributed by:  Anonymous (A Singaporean expert in Gaming & marketing, particularly Asian Markets)


Wth very volatile outcome for VIP Baccarat, coupled with Non-negotiable chip programs, the business evolves itself as a risk function.

Casinos and junkets alike need to consciously manage their respective (yet intertwined) financial risk.

I suggest the following equation as an oversight to complement casinosdaily operating procedures and systems; with regard to Asian VIP Baccarat landscape and its recent development in Macau.


The equation:

Revenue Optimization = f (TO x Cd x Sc) + R


f   (Cumulative function of factors/components)

TO  (Turnover)

Cd    (Credit & debts ratios)

Sc    (Consistent supply of right customers)

R      (Risk tolerance)


Failure to run VIP gaming on a long-term sustainability and as a risk business, will lead to the same dire state of affairs in Asias largest gaming hub. Those who are in the industry would understand why margins are eroded and that AMA-Amax platform still would not save the day.

  1. Steve R. says:

    Expert IR, I am quite intrigued by your straightforward view points with your article “Leverage on VIP Gaming…”. You seem to be an ‘insider’ of Macau’s gaming industry and, your assessment of VIP business in this small territory but biggest gaming hub in the world is refreshingly helpful. Look forward to more…

    – Steve R.

  2. David Sofer says:


  3. David Sofer says:

    Regarding Expert IR Deep’s Thought:
    VIP Gaming Business = “You really need the RIGHT numbers produced by a specific condition/cycle of the business; and based on these numbers build your momentum.”

    Yes, Expert IR, truer words were never spoken. So very easy to understand but so very difficult to successfully put into practice. Would that Expert IR be made operating boss of Lion City IR! All Lion City leaders are deeply worried that an MBS VIP gaming failure will boomerang into an overly intense mass media Mass Market marketing advertising promotion campaign that inevitably will generate a big problem, a major Singaporean Chinese Baccarat gambling epidemic with its associated social problems that Lion City does not want or need! Please become Lion City IR operating boss, Expert IR, a Lion City IR VIP gaming business model is very doable but only for a very thoughtful and very hard-working IR boss, not current lazy bosses…

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