The Cheapest, Richest Casino in Macau

[ Feb 06, 2014 ]

Some Find Profits in Asia’s Low Rollers;ABare-Bones Establishment Emerges as a Big Winner


High-rollers who bet millions without batting an eye have turned Macau into the world’s gambling capital. But a bare-bones casino where gamblers pay for their own drinks has emerged as an unlikely winner in the Chinese territory by trumpeting its HK$20($2.58) minimum bets. Jay Chun says his Kam Pek casino,housed in a downtown office building across the street from the glamorous Wynn Macau, caters to the gamblers that other Macau casinos don’t want. By embracing technology to tame the city’s high costs, he says, Kam Pek achieves some ofthe highest profit margins in the city. Macau’s annual gambling revenueshot up from less than $3billion in 2002 to $45 billion, or seven times that of the Las Vegas Strip, last year. But in the race toserve the city’s high rollers within creasingly luxurious casino resorts,low-budget gamblers were left without many options. Over the past year alone, average minimum bets at mass market,or non-VIP, gambling tables in Macau have more than doubled to HK$1,000 ($129) from around HK$400 ($52), says analyst Aaron Fischer of brokerage CLSA. That compares with minimum bets of $7 to $50 at casinosin Las Vegas and most other casinos globally, the brokerage estimates. Lower-budget gamblers in Macau are “a huge market to tap,” says Lee Wee Keat, an analystat Singapore’s DBS Vickers Securities. Macau’s customer mix is “likea pyramid,” says Mr. Chun, chairmanof Paradise EntertainmentLtd., the publicly traded company that manages Kam Pek.“Everyone focuses on the top but we focus on the bottom.”

Casinos spend lavishly ontheir best clients, many of whom hail from mainland China. For example, they offered private jets for all-expenses-paid trips to Las Vegas to ring in the Lunar New Year, which began Friday.

At Kam Pek, top customers were offered the chance to redeem their loyalty points for popular dried-seafood products to celebrate the holiday, but they still had to pay for their own drinks. Gamblers can also use points to enter the “Fun Machine Cash Cube,” which gives them 30 seconds to grab crumbled bills blown around by a fan. If customers want to spend the night at Kam Pek, they are offered one of about 30 basic rooms the casino doles out to its better players for a quick rest,but “they can’t’s for free,” says Mr. Chun. “Most ofthe time they’re waiting for the border to open,” he adds, referring to Macau’s border with mainland China, which shut sovernight until 7 a.m. About half the casino’s patron sare from mainland China,30% are from Macau, and many of the rest come from Taiwan and Korea, Mr. Chun says. Kam Pek has also solved some of Macau’s most vexing problems:the high cost and low availability of labor. The city’s gamblers like table games, in particular baccarat, which require lots of dealers. That’s a problem because dealers can only be drawn from Macau’s 600,000 citizens, and just 1.8% ofthem are unemployed, which makes them expensive. The solution: live-video gaming that allows eight, rather than 100, dealers to handle 900 gamblers. The dealers sit alone at tables, continuously drawing cards for a video that’s broadcaston gamblers’ personal electronic stations. The gamblers,who can see only the dealers’ hands and the cards on their own screens, can bet on multiple tables from their seats. Each dealer “is basically like a robot,”says Mr. Chun. “It’s a pretty easy job.” On a recent Friday afternoon, the casino, which occupies 220,000 square feet across five floors, was crowded, smoky and raucous. Decor includes fish tanks, motorbikes and Portuguese-style tile floors, a nod to the city’s former colonial rulers. Mr. Chun operates Kam Pekunder the casino license of SJM Holdings Ltd., Macau’s largest Continued from the prior page casino operator.

When he tookover the property at the end of 2007, it was generating HK$9 million in monthly revenue from fewer than 1,000 visitors a day.Now it brings in 13,000 gamblers a day who generate HK$100million in revenue a month. The casino’s labor costs are more than 30% below the rest of the market, he says. Kam Pek’s parent company,Paradise Entertainment, has also profited from another Macau government policy plaguing competitors: a cap on the numberof gambling tables in the territory. As each electronic gambling machine counts as only a fraction of a traditional table under government rules, more casinos have ordered Paradise’s machines to fill their floors. The company has international ambitions as well. In November,Paradise Entertainment launched machines at the Sands’ Palazzo casino in Las Vegas.Palazzo has erected a sign celebrating its $5 minimum betsas the lowest in town. “We think their product is uniquely positioned to accommodate customers with potentially lower gaming budgets, a segment which has largely been abandonedin North America due tothe cost of labor," says Ron Reese, a Las Vegas Sands Corp.spokesman.