ncome from the Venetian Macao and Sands Macao dropped from us$ 133 million in the last quarter of 2007 to us$ 4 million in the first three months of this year. “We lost significant amounts of market share of the VIP business It's clearly an unsatisfactory result,” said Bill Weidner, president and chief operations officer, during a first quarter conference call.
As a result the company has decided to compete with other operators offering junkets - which bring in and finance high roller players - by providing higher levels of commission and access to credit. “Today, we've already responded and adjusted our commission rates to be more competitive in the VIP marketplace, with two principal objectives,” said Weidner.
“One, growing our VIP market share and two, increasing our cash flow generated from this portion of our business.” In the past the company has been reluctant to offer credit to operators or players due to the potential difficulty of collection and the fact that bad debts are still taxed as revenue by the government.
However a new junket-aggregator at Melco PBL Entertainment Limited's Crown Macau providing agents with access to lines of credit has seen many operators lose market share over the last three months. “We were talking about our provision for bad debts, is basically non-existent here in Macau. And it's almost like a bank that doesn't have a few bad loans they are probably out lending enough money,” said executive vice president, Brad Stone.
“We have expanded credit to our junket reps and as we've talked in the past we have done somewhat collateralised by the commissions we owe them. We are going to look at that as well and probably extend more credits to the junket reps themselves those who have performed well.” The results should start showing at the end of this month, the company said.
Overseeing the changes will be management flown in from the USA. The President of the Las Vegas Venetian and The Palazzo and Senior Vice President of the company, Rob Goldstein. will fly into Macau next week together with Weidner to “focus on the evolving VIP market and the direct customer marketing environment in Macau,” said Weidner. “As he will be there next week as will I, we can and we will execute better in the near term,” he added.
Stone has already arrived in Macau to cut operating costs at the company's two casinos. With a renewed focus on profitability Sand's is aiming to open the new casino in the Four Seasons property - scheduled for opening in July - without hiring any additional personnel. “We can operate our current facilities; The Sands Macao, The Venetian Macao more efficiently. Brad Stone is in Macau now heading up a swat team to rationalise operations as we prepare for and open the Four Seasons,” said Weidner.
Part of the new approach with VIPs will see the company dedicate much of the casino space in the Four Seasons development to VIP gaming. The ground floor of the casino will be dedicated to “premium” players brought in directly by the company, while above will see two floors of junket rooms and eventually each of the property's planned for 19 mansions will house a casino.
Although looking forward to seeing how the government implements the announced commission controls and limitations on new casinos, Sand's remains frustrated with the approval process for its remaining plots on the Cotai Strip. Although work has started on its plots 3,7 and 8, it is yet to receive formal approval for the developments.
“We have just been frustrated because of some of the challenges within the government, based upon the scandal that happened here in an area that related to the Public Works Department,” said Stone. “There has definitely been a slowing in the pace throughout Macau, of approvals,” he added.
Company chairman Sheldon Adelson hopes last week's announced casino restrictions will result in the closing of the smaller casinos which hire out VIP rooms, he said during yesterday's conference call. “My fantasy is such, I mean when we first got involved in Macau we were assured that it would take a couple of years to phase out the VIP rooms,” said Adelson.
“I think the announcement by Edmund Ho last week was a reaction to pressure he has gotten from both us and hopefully we don't know for sure, because we are not that convinced about that kind of pressure, from the Chinese Liaison Office, that the way the development was going was not what they originally intended for it to be.
“So, we are hoping that our goal is to turn a city of seedy backwater gambling dens into a city of convention, business travel, and business and leisure travel, where the casino represents no more than 10 percent of the total amount of space."