All In
Lady Luck is a fickle friend
Last week, we told you that Melco Crown Entertainment only managed to capture a 9.9 per cent market share in Macau in the two weeks that followed the June 1 opening of its US$2.1 billion City of Dreams. That figure isn't very impressive, especially when you consider the company already had 11 per cent of the market last month with only the 216-room Altira casino hotel (formerly the Crown Macau).
Three weeks out of the gate, the picture doesn't look much prettier. Melco Crown's share of the Macau market by revenue was about 7 per cent after City of Dreams' first 21 days in business, industry insiders said.
Some casual observers and even investors are befuddled. How can the addition of a massive property like City of Dreams, with its 520 gambling tables and 1,350 slot machines, actually decrease the company's market share?
Answer: luck. Pure, stupid, fickle, dumb luck.
As we wrote last week, a casino operator's market share refers to its net winnings. In the long run, a casino in Macau can expect to win something like 2.85 per cent of all VIP baccarat wagers made by its players.
But that win rate can and does fluctuate significantly over shorter periods - like days, weeks or even months or quarters. A casino's market share can easily swing up or down by 5 percentage points during any given month, based on whether it plays lucky or unlucky.
And City of Dreams has played very unlucky. Instead of winning 2.85 per cent of VIP wagers, the casino 'lost' a little more than 1 per cent of those bets during its first 21 days, industry insiders said.
That adds up to a fairly exceptional run of bad luck for the house. But turn that statement around, and it has been a joyous three weeks for some very deep-pocketed gamblers in Macau.
As the saying goes, there's nothing like a satisfied customer. And the folks at Melco Crown are no doubt hoping the bumpy start will add to their win-rate karma going forward.
It's a safe bet, provided the volumes are there to support the mathematics of the game: if not in the beginning, the house really does win in the end.
A cap that's not a sure bet
Not that anybody is counting, but it has been 14 months now since outgoing Macau Chief Executive Edmund Ho Hau-wah raised the possibility of capping junket commissions.
As of July last year, the cap appeared to be all but a fait accompli. Secretary for Economy and Finance Francis Tam Pak-yuen went on record at the time to say that a law would be introduced soon - possibly within a month - to cap junket commissions at 1.25 per cent of VIP chip wagers. But to date, no legislation has materialised.
Commissions in Macau top out somewhere north of 1.35 per cent. So why all the fuss about bringing them down a measly 0.1 per cent?
Consider that VIP chip wagers in Macau averaged around HK$175 billion per month in the first five months of this year, and you get the picture (see chart). An across-the-board decrease of 0.1 per cent would suggest that well over HK$100 million a month would go to casino operators rather than their junket agents.
But it was never that simple, of course.
Analysts at Nomura this week issued a report cautioning investors that the cap was unlikely to materialise given the myriad difficulties associated with getting it passed in the legislature and implemented.
In other words, don't bet on it.
