Apologies for not issuing a newsletter in the latter half of last week. There really was nothing interesting going on in local news, and so we spent the time chasing some interesting leads behind the scenes. We were not disappointed with what we found. But we were somewhat perturbed. All sources suggest that we are heading into another price war in Macau, perhaps even bigger than the one caused by Amax and Crown (now Alitira) in 2008. It will take brave hearts indeed to get through the next few months without margins being eroded.

On the face of it, matters should follow a fairly predictable path. MGM Macau wants to do an IPO. Melco-Crown wants to prove that its management reshuffle was done for the right reason. Both need to get their revenues up, and the easiest way to do this is to spend heavily on marketing. And the easiest way to spend heavily on marketing is to give money back to the players who are coming to their tables. For as long as it lasts. Or rather, for as long as it’s necessary.

And so, we have revenue-share deals going up for the VIP rooms, and aggressive loyalty-card promotions going out to the mass market. Who will be the most aggressive of the two remains to be seen. But the results are showing up already.

MGM obviously has the most ground to make up, as it has lagged in sixth place on the monthly gross gaming revenue tables for the entirety of its existence. August wasn’t exactly a bang, but it was notable for a month-on-month pop in rolling-chip revenues of almost MOP5bn as some new junket players went over. The property also saw a nice 12 per cent MoM rise on its mass floor. We understand that this month will surely see another increase as more junket play is enticed by aggressive revenue-share offers and front-money handouts, while mass-market players are enticed by free buffets and lucky draws. Whether the win-hold percentages reward the aggressive initiatives will be interesting to see, but there seems little doubt that volumes are moving in MGM’s direction.

COD also had a good August on its mass floor — all those purple matchplay cards being handed out are clearly making a difference. Together with Altira, rolling-chip volumes jumped almost MOP10bn MoM for MPEL. The VIP team there says it is all down to sweat equity. We might believe that if its competitors were not crying blue murder about revenue-share sweeteners. We have no doubt that MPEL has one of the best VIP teams in Macau, but we also find credence in the argument that credit trumps friendship any day of the week in Macau. And so we look forward to seeing the AR numbers when the next quarterly results come out.

How the competition responds is the big question. Steve Wynn and Sheldon Adelson cannot be happy campers as they fly into Macau this week to ask their local managers what the response should be to this very deliberate balance-sheet onslaught. Venetian had an incredible summer, capped by a record August on the mass floor. Wynn held its own, too. But neither of them can be under any illusion about the fact that they are now islands in a sea of margin-cutting. They know full well that once revenue-share deals are raised, it’s almost impossible to reduce them later. But when billions of dollars start walking, it is tough to say who will be doing the talking.

Interesting times indeed. Stay tuned.

Used with permission  & copyright to IntelMacau