Sands China CEO Steve Jacobs seems to have enough time on his hands to give interviews to media, and yesterday he gave Reuters a conservative forecast for gaming revenue growth in the second half. Saying that the DICJ’s comments earlier this month were fairly accurate in predicting 30% growth for 2010, Jacobs also said the company was having no problems hiring workers for Lot 5+6 due to recently implemented regulations on imported workers.

Analysis: Steve Jacobs is one heckuva manager, with a tight fist and laser-like focus on his company’s numbers. But he hasn’t been here long enough yet to properly understand the seasonality of Macau gaming revenues. So he’s probably looking at his own numbers from the DICJ (distributed to every operator) and thinking that the softness we have seen since the Dragon Boat festival is symptomatic of a decline that will continue to be felt the rest of the year. We called this softness before as a natural result of exams plus holiday plans being held up ahead of summer. We think July will be strong again, and August stronger. If that alone happens – never mind the Sept-Dec annual surge – then 30% YOY growth forecasts will already be made redundant. As for the labor issue, well, what else could he say when asked such a question? We will believe it when we see thousands rather than dozens of workers clambering around that site.

Used with permission & copyright to IntelMacau

PokerStars Macau at Casino Grand Lisboa hosted the Macau Poker Cup (MPC) June Special from June 18-20. The weekend had 67 players stepping away from World Cup fever to participate in the featured HKD $5,000 No Limit Holdem event with a HKD $350,000 Guarantee. PokerStars sponsored Wing Cheong Chong from Hong Kong won the event along with HKD $115,500 in prize money.

Players from the region certainly remember the name Chong as he had just recently placed second in the APPT Macau Main Event last May. The local favorite is well known for his maniac-like aggression and he was running over the field in the late stages of the event. It seemed as if Chong’s aggressive play had tilted his opponents as the final hand saw his opponent moved all-in preflop with Q4 and Chong called with KT. The board didn’t improve either players’ hand and King high would be enough to give Chong the victory.

Photo used with permission of PokerStar.net

MACAU, June 22, 2010 The world’s mahjong tournament, the “World Series of Mahjong” (“WSOM”), will return to Macao this summer for the third time! The long-awaited tournament will be held from August 19-22, 2010 at the prestigious The Venetian® Macao-Resort-Hotel. Registration begins today at The Venetian Macao, the official registration venue for WSOM. Mahjong players do get ready to step on the glamorous path to stardom in the mahjong world, and enjoy the thrilling experience!

The third World Series will include two separate tournaments, namely, the 3-day single-elimination Main Event World Championship and the US$1,000 buy-in Riichi Rules Tournament. The buy-in fee for the Main Event is HK$5,000 (US$650), plus HK$500 registration fee. The second World Series paid out the highest US$1 million prize money in the mahjong history, while the prize pool for this year will be based on the number of participants in each exciting tournament. The top 32 places in the Main Event will be awarded prize money according to the rankings.

The Main Event Champion will receive the top cash prize, a World Champion necklace, an unique Venetian Mask sponsored by The Venetian Macao, and a free invitation to the fourth WSOM Main Event in 2011. All tournaments are open to any mahjong player who is at least 21 years of age and ready for the money and fame. The WSOM will employ a simplified World Series of Mahjong Rules® for the 13-tile game, and a scoring system that is fair to all different players in the world. For more details, please visit the official website at www.wsom168.com.

Interested players can register for the tournament through The Venetian Macao. Special travel packages will be offered to all participants. For registration enquires, please contact CotaiTicketing™ in Macau (853) 2882-8818, Hong Kong (852) 6333-6660, or visit the CotaiTicketing website at www.cotaiticketing.com.

“We wish to sincerely thank The Venetian Macao for their enthusiastic support of the third-annual WSOM. This enables us to bring together the top mahjong players in the world, and provide them with a brand new tournament experience at a world-class venue,” said Mr. John Hardyment, CEO of World Mahjong Limited, founders of the WSOM.

“The Venetian Macao is proud to host the third annual World Series of Mahjong tournament from August 19 to 22. It is just one more example of our effort to bring the best in sport and entertainment to Macau. With this tournament, we look forward to welcoming the world’s most skilled mahjong players to The Venetian Macao,” said Mr. Mark Russell, Senior Vice President of Sales and Marketing, The Venetian Macao-Resort-Hotel.

Schedule:

19th Aug (Thurs): Players check in & practice day

19th Aug (Thurs): Riichi Rules Tournament

20th Aug (Fri): Main Event World Championship – Day 1

21st Aug (Sat): Main Event – Day 2

22nd Aug (Sun): Main Event – Day 3. Final Round

22nd Aug (Sun): Awards Ceremony & Check presentation

Now hear this: there is no end in sight to the current market rally. VIP revenues are growing strongly and fairly predictably, driven by cashed-up junkets. Policymaking across the border seems favorable toward Macau. Investment is continuing apace on Cotai and the concessionaires are all jockeying for land there in a prime position. What could possibly go wrong?

That is really the most important question to be considering. It’s not a matter of when, but how. How will revenues start to slow? How will the seemingly never-ending climb start to taper off?

The most obvious answer is that a slowdown will come once the junkets start running out of money to provide as credit to players, and once the players themselves start worrying about asset values in their portfolios due to macroeconomic uncertainty, rather than political uncertainty, in China. Which means all we need to do is watch for signs of trouble on the mainland, right?

But what if it’s more complicated than that? And what if the danger signs could, in fact, be lurking right under our noses in Macau?

We’re not saying this is the time to be chewing nails over an imminent slowdown in revenues. What we are saying is that there are systemic risks worth examining in detail on the way up, so that they can be better understood on the way down, when that moment inevitably comes.

The most important of these, the risk that outweighs all others, is the financial management of the junkets. We understand the argument that “The King is dead, long live the King” in explaining how it’s not about individuals: people like Ng Wai can look immortal one minute as a consolidator and the next minute can be cut out of the food chain if they cannot keep the cash coming to sub-junkets. We get that the junkets are backed by societies that have withstood the tests of time in China’s turbulent history and are stronger than most Anglo-Saxon banks could ever hope to be in their own right. What we don’t buy is the idea that they are not susceptible to the same temptations that Lehman Brothers was before the global financial crisis erupted. We would have to believe that when money is so cheap and in such abundant supply, corners are starting to be cut by those managing these apparently ever-growing piles of cash as they contemplate retiring to a superyacht, and riskier bets are starting to be placed on outcomes that seem now to be guaranteed but could accelerate the downturn when it comes.

Moreover, we understand that these financial mavericks – companies with a magical ability to manage cross-border flows of money in a country with a closed currency – are being egged on in their endeavors by concessionaires who are only too happy to provide them with credit in return for their business as they jostle themselves to show Wall Street who’s the cleverest of them all. Are these concessionaires taking similarly outsized risks?

Enough said, for now. Stay tuned.

Used with permission & copyright to InteMacau Photo to Ponte 16

Looking back at the numbers for May, there is one that really stands out on the peninsula. And no, it’s not Wynn’s staggering jump from HK$45 billion to HK$60 billion in rolling-chip turnover; we have already covered that in previous e-newsletters. It’s the 30 per cent jump in mass gaming floor revenue at MGM Macau.

We understand there are changes underway at the property at the end of the street that don’t involve rearranging Macau’s traffic grid. With a proposed IPO in the planning, it wouldn’t need a rocket scientist to predict that management there are interested in jacking up their numbers. But what we have heard about so far involves mostly plans for ramping VIP play. We are not aware that anything drastic has been changed on the main gaming floor. Why, therefore, the sudden jump in mass revenue?

One reason may just be blind luck. Visitor arrivals are jumping again from the mainland (up 43 per cent year-on-year in May under the IVS) and it may just have been that a disproportionate number decided to walk the extra few meters to reach MGM, and they lost more there than they usually do. Another more plausible reason is that Encore didn’t just draw new business to Wynn, but also to MGM, whose casino main entrance sits directly across the road. Wynn saw its mass revenues jump nearly 18 per cent in May, and MGM was coming off a lower comparative number, so its surge could largely have been a case of piggy-backing. But another, more interesting reason to consider is that MGM has crossed a threshold of sorts on its mass floor, where critical mass begets critical mass. It’s the old analogy of the restaurant that’s full: passers-by assume it must serve great food, and so they queue up outside, attracting more interest, and so on. We have noticed what appear to be good attendance figures on the MGM floor this month; so perhaps word is getting out that the place has a better vibe.

We can only assume that the gents across the water at City of Dreams must have looked enviously at those numbers going through MGM. Although everyone gained from the rising tide of mass-market arrivals in May, as you can see from the attached charts, there is a closer correlation between MGM and Wynn than there is between Cotai No. 2 and Cotai No. 1. Not that Sands China has too much to crow about, though: its big box on the peninsula has not exactly been keeping up with the Joneses.

We only wish that we had numbers for the Grand Lisboa to put in here alongside Wynn, MGM and Sands. We suspect it would be ahead of all three. Which, in the bigger picture, augurs well for those properties near the intersection of Avenida da Amizade and Avenida da Lisboa, suggesting they are building critical mass among people who walk all three properties, perhaps at the expense of the neighborhood around the ferry terminal. This is a trend worth watching more closely over the coming weeks and months as tourism arrivals continue to grow strongly. Don’t be distracted by the headline VIP numbers: mass is where the margins lie.

Used with permission & copyright to IntelMacau

We would understand if Sheldon Adelson, boss of Las Vegas Sands Corp., decided to give up on Lot 7&8 right now and knock those buildings off his scale model of the Cotai Strip. As the Marina Bay Sands is showing, there are jurisdictions in Asia other than Macau where it’s possible to make a pile of money from an integrated resort; more importantly, there are places where you don’t have to worry about labor quotas, onerous taxes, and village politics, nor the constant worries of a price war.

It could be that Adelson chose the opening party of MBS this week to talk at length about the potential to build “five other Vegas” developments in Asia because he wanted to send a message to the Macau and Chinese governments. It could also be that he was just juiced by the occasion and could not help himself from thinking about the next ridge to charge. Whatever his motivation, we can see how attractive markets like India and Japan, not to mention Korea – where he is heading this weekend – might seem right now. His Macau projects are throwing off great cashflow, to be sure, but operating in Macau also provides him with endless headaches, even if many are of his own making.

We would not be surprised if Sands China does US$1.2 billion in ebitda this year, given the way revenues are surging. And there is still plenty of capacity at Venetian to handle growth in the mass market. But does his company really need to do anything beyond Lot 5&6 and Lot 3? Why keep so many eggs in one basket by continuing to build in a place that has a 40 per cent gaming tax and where junkets can make the difference in several percentage points of market share every month? Indeed, we can see strong evidence that Adelson has had enough of the difficulties of building what he was originally asked to build when he won his license here in 2002. His heart seems to be no longer in the place, even if his wallet is.

If that is truly the case, we would have to wonder about the implications for commissions and revenue-share deals with junkets around town in the coming weeks and months. It is quite obvious that the Venetian, Plaza and Sands casinos have been steadily losing share of rolling-chip junket play in recent months due to their stubbornness in not discounting heavily enough to the junkets, preferring to focus on where the ebitda margins lie, in mass and premium-direct. But we cannot see a reason why Adelson would let this go on indefinitely. Why not have your cake and eat it? Why not hoover up the mass and premium-direct while at the same time taking rolling-chip volumes away from the competition? Why should Galaxy continue to get away with rolling-chip volumes of MOP 48 billion a month at such mediocre properties?

One obvious reason is, of course, that discounting to the junkets means Sands would also have to increase rebates to the direct-VIPs who are playing on rolling-chip programs in-house. That doesn’t help margins. But it also needs to be evaluated against the increased revenue generated by higher roll volumes. Sometimes, this is six of one and half a dozen of another.

We understood the strategy of standing up to the junkets before. It made sense when we thought Adelson still saw Macau as the place to be putting all his efforts for the ultimate prize of such a massive market, especially when City of Dreams had just opened and it made sense to avoid a price war on Cotai. But we’re not so sure he thinks that way any more. Marina Bay Sands will become his single most profitable property within a couple of years, we would wager, while Japan could be even more so if done right. So if Sands China’s market-share number dips below 20 per cent this month, we think there is reason to believe he might just say, “screw it, why not?” and let slip the dogs of war. As the old saying goes, be careful of what you wish for, for you may just get it. Adelson’s competitors would do well to remember that.

Used with permission & copyright to IntelMacau

Hooray! Marina Bay Sands is now nearly, well, almost, er, a bit closer toward being fully open. The US$5.5bn integrated resort in Singapore had its big bash yesterday and appears to be doing better than it was after its soft opening on April 23. The mall is still largely a no-shopping zone, although more outlets are opening gradually; the hotel supposedly has all 2,400 rooms open (though clearly not all the lights were on the night before the party), and the convention and exhibition center appears to be functioning well (we are not aware of any other event organizers being sued for non-payment). Within the next year, all should be running smoothly, and LVS chief executive Sheldon Adelson has declared himself content with progress. So content, it would appear, that he spent more time talking to reporters yesterday about opportunities for his group in Japan and India than in Singapore. We were most intrigued by his admonition of Sands China CEO Steve Jacobs for “prognosticating” out of place, yet unsurprised when he started pontificating about what the Japanese ought to do with their gaming industry once they open it – to him, of course, the obvious choice to be “first mover” there, possibly by as early as 2014.

Analysis: This man will never learn how to do business the proper way in Asia, and his staff-management skills leave a lot to be desired, too. Yet it cannot be denied that he knows how to build integrated resorts. Marina Bay Sands and the Venetian Macao are models for any other country in Asia that wants to develop a gaming industry. On merit alone, Adelson would be the obvious first choice for a license in Japan. We have to wonder what Kazuo Okada and his Macau partner are up to at the moment, so we are not about to call Adelson the obvious winner in Japan just yet, especially as it hasn’t even been announced when casinos will be legalized. But if it really is possible that we could see casinos in Japan by 2014, that would be an interesting prospect to consider for current valuations of both LVS and Wynn. And consider this: if you were Steve Wynn, would you be as keen to rush into building your Cotai project, when you can’t even apply for gaming tables until March 2013, if you knew you could get an inside track on an opportunity in Japan? Similarly, losing Lot 7&8 in Cotai might not be the end of the world for Adelson if he can get a crack at the region’s only first-world country. Stay tuned.

Used with permission & copyright to IntelMacau

Visitor arrival numbers for May show visa restrictions are clearly a thing of the past, as mainland arrivals jumped 43%, driven almost entirely by those coming in on the Individual Visit Scheme (IVS). The composition of the 2.09 million visitors in May was largely unchanged in percentage terms: 52% are still day-trippers, and about the same percentage are from the mainland. Growth in mode of transport was evenly spread between ferries and land (16% year-on-year up for each). Noteworthy was growth in air arrivals (up 9.6%), while Indians continue to show their passion for Macau, as numbers more than doubled over last May at 25,000, roughly the same as Koreans.

Analysis: The trend we spotted back in January is continuing, as more mainland visitors realize they no longer need to circumvent IVS curbs by going through travel agencies and getting tour-group visas. Overall, the mass market is where the future lies, but more so for some than others: we note a correlation with good revenues on the mass gaming floor in May for MGM (up a whopping 30% over April), Wynn (up 18%) City of Dreams (up 9.6%) and Venetian (up 8% on a big base). Meanwhile, growth in Indian visitation is continuing to please the folks at Venetian, but not necessarily all of them. Casino management would probably prefer to have Chinese in the hotel rooms, as they gamble a lot more, but mall management is pleased as the shops seem to be doing very well. This source market still has a lot of room to grow, even with the opening of Marina Bay Sands in Singapore.

Used with permission & copyright to IntelMacau Photos source: Macao Govt Statistic & Census Service

Macau’s massive planned land reclamation projects will be completed within the next five years, the government said at the weekend, according to a report in Macau Daily Times. There will be no casinos on these pieces of reclaimed land, which will expand the city’s area by 12.3%. They will be mostly for improving quality of life: at least 50% will be for green spaces, public buildings and community facilities. Social housing will also be an important component.

Analysis: We will believe this when we see it happen. Nothing in Macau has ever been built remotely close to schedule: just consider the Pac On ferry terminal and the light rail. But it will be interesting to see what the detailed plans are for “Zone A”, the biggest piece of reclaimed land off the east of the old ferry terminal. This will be the landing point for the cross-delta bridge, which will apparently be built by 2016. That is also the date by which the Maritime Ferry Terminal in the outer harbor will have passed its use-by date, as Pac On should be ready to accommodate all ferry traffic. So although it could be assumed that more vehicular traffic will be concentrated on the peninsula, ferry traffic will be coming exclusively to all the new resorts opened on Cotai. And Turbojet will just be one of five ferry operators going in there.

Used with permission & copyright to IntelMacau

LVS CEO Sheldon Adelson told reporters at the Sands China AGM on Saturday that Lot 5&6 is still on track for opening in 3Q next year, despite problems with getting around labor quota and gaming table restrictions. His Macau CEO, Steve Jacobs, meanwhile said the company has applied to the government for permission to move its Four Seasons apartments into a special-purpose vehicle so that they can be sold.

Analysis: It might be encouraging to believe that Sands has decided to take the more humble approach to development in Macau by actually asking the government to approve the sale of apartments that are not covered by its land concession. We had been under the impression until now that management thought it could just get around the strata-title prohibition by selling shares in a corporation that guaranteed ownership rights over a defined area of square footage in a residential development. Is this the start of a new conciliatory approach? Alas, Adelson is who he is, and when asked about the table caps, he said that the government’s decision to place a limit of 5,500 tables on all concessionaires was “probably not” good for the industry. He also said that giving him the necessary quotas for imported labor would be the “right thing to do” for the government, because if it didn’t, local workers would inevitably be laid off when projects were suspended. Sigh. We don’t see Lot 5&6 opening in 3Q or even 4Q next year if this.

Used with permission & copyright to IntelMacau