Summary
Macau's government's cap on junket commissions came just in time. Keeping high-roller baccarat profits with casino operators is very good news for Macau’s casino concessionaires and their many partners. The deal was brokered by 87-year-old Stanley Ho, now in intensive care after brain surgery. If Ho does not recover completely, fights for succession could break out. Instability in China is never a good thing for outsiders trying to do business there, and may directly impact American casino
Analysis
Macau's Executive Council announced that the Secretary for Economy and Finance will decide the cap on junket commissions. But whatever it is, it will be better than the situation today, where casinos give 40% of baccarat win to middlemen and another 40% in taxes. Stanley Ho, who earlier in Spring tried to rouse anti-westerner feelings among local Chinese, became a unifier when it came to getting all casino owners to agree to a commission cap, which directly impacted his bottom line.
Technically, Macau has only six casino "licenses", called concessions. Three are American companies: Las Vegas Sands (LVS), Wynn Resorts, and an MGM Mirage joint venture. The Australian PBL and Hong Kong Melco Crown Entertainment just opened the City of Dreams. Galaxy Casinos is owned by a Hong Kong company. Meaning the only true Macau operator appears to be Stanley Ho’s Sociedade de Jogos de Macau, S.A. (SJM). But MGM’s partner is Stanley Ho’s daughter, Pansy Ho, and Ho’s son, Lawrence, runs Melco-PBL. In fact Ho and his family are involved in an overwhelming majority of all gaming that takes place in Macau.
Uncertainty, with the odds in your favor, may be good for casinos. But it can be literally deadly for anyone on the business side. There are already fears that organized crime triads will use the disruption that Ho’s death would cause to gain market share.
Ho has four wives and 17 children, many with clashing aspirations. Who wins and how quickly will make a difference for every company with interests, or wishes, in gaming in Asia. Lawrence Ho is the most likely heir, which would not only be an enormous boost for City of Dreams, across the street from the LVS’s flagship Venetian, but he recently visited Taiwan to scope out its upcoming casino project, which MGM would also like to pursue. But MGM has additional concerns, since New Jersey regulators are telling it that it has to cut ties with Pansy Ho. Pansy is very ambitious, and may grab control of the Ho empire from Lawrence.
Meanwhile, the uncertainty about what is going to happen with Stanley Ho and gaming in Macau, has put somewhat of a damper on casino stocks in Hong Kong. Both SJM and his other big company, Shun Tak Holdings, fell on news of Ho's surgery. This will make it more difficult for WYNN and LVS to raise the many of millions of dollars they were expecting with their IPOs.
I. Nelson Rose consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
