Competition of Asia’s high roller segment will heighten as operators raise commission rates and offer more freebies. The two casinos in Singapore may be hindered by tough disclosure requirements. Maintain MARKET WEIGHT.
Asian “non-captive” VIP market worth only about US$6b annually in 2008. We estimate that legalised Asian casino operators’ collective gross gaming revenue was over US$21b in 2008, with the “non-captive” VIP segment estimated to be worth only almost US$5.8b, or 50% of the US$11.3b overall VIP segment. Our definition of “non-captive” VIP revenue excludes casino earnings by the traditional junket-cum-casino operators in Macau, which we estimate to be worth US$5.5b in 2008, based on our estimated gross win in this segment of about US$3.7b in 2004 (before the entry of American casinos), and assuming that this segment’s annual growth matches the 10-year (1994-2004 period) CAGR of 12%. These junket-cum-casino operators, who dominated the Macau gaming market before gaming tycoon
Stanley Ho’s gaming monopoly gave way into six concessionaires, operate exclusively in Macau. Junket operators account for the bulk of Asia’s gaming VIP business, particularly due to their large presence in Macau, although Genting Malaysia and Australian casinos rely more on direct high roller programmes. Junket operators are predominantly an Asian phenomenon, and play the role of introducer and financier to high rollers. Typically, they have strong client connections with emerging countries like China, Indochina (Vietnam,Cambodia, Myanmar) and Southeast Asia (e.g. Thailand and Indonesia).Casinos pay junket operators commissions for bringing high-roller patronage to them; and junket commissions are typically 0.1-0.2ppt higher than outright rebates given to high rollers under the casinos’ direct high roller programmes.
Casinos raising their stakes to entice junket business. Casinos have been raising the effective commission rates for junket operators due to keen regional competition with some Australian casinos having recently joined the fray by raising effective commission rates by 0.1-0.2ppt up to 1.4-1.5%.
Despite efforts to limit commission rates to 1.3% in Macau, we believe that the effective commission rates among Macau casinos still hover at the 1.4- 1.6% range, after adding other freebies (e.g. free travel, accommodation and F&B). Presently, the effective commission rates in the regional range from as low as 1.2% to as high as 1.8%, with the more remotely located (e.g. some casinos in Cambodia) or less popular casinos offering the higher end. Tighter competition could continue to squeeze margins. Competition for the VIP business will further tighten in 2010 when the two casinos in Singapore commence operations. Impact on this segment’s margins can be significant. A 0.1ppt increase in junket commissions could lower gaming revenue by 1.1-2.4% for casinos in which the VIP segment accounts for 30-66% of net gaming revenue.
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