Three years after the opening of Melco Crown’s first property, and almost one and a half years after it´s name was changed from Crown to Altira, what exactly have been the major achievements and the biggest challenges?

Ted Chan: Well, let’s talk about achievements. This is actually a very small boutique-hotel, not like other competitors that opened with a couple of thousand rooms, resort bases and all sorts of entertainment. The challenges here were the positioning of this property and also how could we brand the [new] name, which is so important to customers.

Did we want to go back to three years ago, when this was a kind of all-you-can-come-and-enjoy type of property, we had this big mass gaming area and little VIP gaming, or did we want to realistically do a positioning of the property and be more focused on the tier of customers that we would like to entertain?

So we made a decision one and a half years ago. Let’s position this property to be high-end VIP, even if the term can sometimes be quite confusing.

We have positioned this as a high-end hotel, uniquely built in a place which is neither a hot spot on the peninsula nor in the Cotai area.

We decided not to promote this property in a mass-marketing campaign like many of the new brand names are doing. Because we know that our customers are focused in that particular tier I mentioned, promotion is done by word of mouth by both gaming and non-gaming customers.

Today, Altira is known by the “who’s who” in Macau, by those who like to appreciate the good things in life in Macau, both non-gaming and gaming. All the achievements in the past year are telling us that our positioning is right and that we are delivering the right product and service to the right people. As well as the business, we changed from a junket-aggregator model to a more focused individual junket partner basis, where we deliver the service to both the junket partner and agent or customer. A more customised service.

However, nowadays, it is hard to maintain a certain level of service in Macau, with difficulties on the labour market front, and the fact that customers here are not the same as in Hong Kong and Singapore. Are these not extra challenges?

What you mention about the labour market is quite right. In Macau, the government had to make the decision to protect the workforce. In terms of dealers and at supervisor level, we have to hire local people. But the problem is not specific to this property, it applies to every casino-hotel and we sort of understand the reason behind that restriction.

So, it’s more about focusing on the training of the people, given the turnover rate is so high, particularly in food and beverage and in the gaming sector. It is so important that you manage the team right and provide enough training.

We have become used to that environment quite well in the past three years. Honestly, and in terms of lack of labour, at City of Dreams, before the opening, we were nervous about not having enough labour to have the building ready. But it applies to any new Cotai property as well. After three years, we have just become quite used to that. And our relationship with the government is very close and very well maintained.

Bye, bye Amax

At the end of the day what puts a smile on the faces of the shareholders are results and especially gaming results. Before getting into that, why exactly were the changes at Altira regarding the relationship with junkets introduced? (see box in these pages)

First of all, we never changed positions on being partners with the junkets. A lot of people just confuse, stereotype or categorise the junkets as somehow being some kind of lower level, but to me it has a different meaning. To me, they are our partners and we can’t live without them because of a lot of restrictions existing in the gaming industry in Macau. Since [many of] our customers come from mainland China, we need our partners to promote and secure them, so that they can have their gaming experience here.

What has changed is the fact that in the past we had an aggregator of junkets. However, last year the government announced that there would be a 1.25 percent commission cap and the aggregator’s model – we paid a higher commission to the aggregator, who paid a little bit lower commission to the sub-junkets and retained a margin – was no longer valid.

The collapse of that model created the opportunity for us to deal directly with the junkets, which is good for us because in the past the big aggregator sometimes created obstacles for us to service the customer underneath the junkets. Now we are dealing directly with the junkets so we can provide the right service to customers. I am not criticising the aggregator but the fact is…

Were you too dependent on one major representative? You are talking about AMA, under Amax Holdings?

Correct. And honestly we didn’t make the wrong decision dealing with AMA because in this competitive landscape if anyone can guarantee you, for instance, 50 or 60 billion [of rolling chip], wouldn’t you like to give them a higher commission? Oh yes, of course.

As you said, times change. Is AMA still doing any business with Altira?

AMA is not doing business here but the junkets beneath AMA before actually are, as well as some new junkets. They are doing well.

Is it really possible to maintain a cap on the junkets’ commission?

Well, the government is actually implementing the cap. It is in the [Official] Gazette. The law was enacted. The cap is 1.25 percent and everyone in the market is doing so.

The problem is never to produce a law but how to enforce it…

At the very minimum, we maintain that cap.

A better deal

So everyone is satisfied with the cap, including the junkets?

The way we see this problem is how we see the market share. In the last seven or eight months, the level of remunerations and business has stayed at a quite healthy level. So, I agree this is the right level. And, honestly, the more you pay to the junkets, the more they have to repay to the agents and customers. Eventually the junkets would not be the ones actually benefiting from an increase in the commission.

Everybody forgets it is a very competitive world out there and that the junkets need to repay the sub-junkets and the latter to give back to players, so basically the margins are getting thinner…

At Altira, we have about 16 junkets at the moment and we believe that the level of business and the price we maintain with them is a healthy level.

Is there some junket sharing between Altira and COD or do all of them just work with Altira?

Very few overlap. I think it will be to our benefit in the future to have more collaboration between sister properties. If the same shareholders and the same junkets operate in Altira and in COD, we will be happy with business partnerships. This is one company and that will give more flexibility for junkets to bring in customers. For instance, they like to gamble here but it’s really because of luck. But if they lose money, the agent can suggest to the customer to go to COD and have a look to see other gaming facilities.

Not better, just different

For the first quarter, net revenue at City of Dreams was US$336.3 million and adjusted EBITDA was US$70.9 million. In the same period, Altira had net revenue of US$197.2 million and generated adjusted EBITDA of US$21.8 million (see box for second quarter results on these pages). Has Altira been posting stronger results than COD, especially if we note that it is just one property while COD has three big properties?

As I said, in terms of VIP business, we have very few overlapping, so there is no business collaboration. As one single property, Altira’s VIP business is among the top five in the whole of Macau’s properties. So, I’m quite satisfied with the results.

Talking about Altira being a single property and earning a US$190 million revenue compared to US$300 million at COD, bigger by three or four times, I think our challenge is actually having a very high percentage of VIP business overall. The VIP segment represents about 80 percent of all revenue in the company. So, I believe there is huge room to go in the mass-gaming market. And I am a super bullish individual looking at the retail and mass-gaming opportunities in Macau in the next five years.

On non-gaming revenue, Altira beats COD in the occupancy per available room; 92 percent at the first against 75 percent at the second, according to first quarter figures. What’s the reason for such a difference?

First of all, the occupancy in both COD and Altira is not bad. I mean in the whole of Macau…

I didn’t say it was bad…

Altira is small, we only have 216 rooms. During the weekend, it is always full, 100 percent. So what we have been doing now is actually allocating some of the customers to stay at COD during weekends.

COD is different. It is bigger and has more rooms, approximately 1,400 rooms and caters to another sort of customer. So, it is not fair to say Altira beats COD in terms of occupancy rates, although the numbers suggest that. But if you look into more detail, to the customer mix, it is fair to say we are doing pretty well.

The new challenges

Let me ask your personal opinion on how difficult it will be to replace Greg Hawkins and still maintain the same level of cooperation between both properties?

That’s a very, very, difficult question and I am sure there are a lot of rumours in Macau [interview was done before the public announcement of Greg Hawkins resignation].

Greg is a great guy and he has done a very good job in putting up COD and maintaining the level of quality. That is what we were looking for and he has been doing a great job. He has left a very good system in COD to be followed.

At the same time, I think the lack of entertainment at the moment in COD, in my point of view, is the main reason that we are still a little bit behind in terms of the non-gaming or mass-gaming revenue. But that will change soon. For instance, John Choi is going to put Cubic over there and we have the House of the Dancing Water coming, which will be the best show in the world, and also the Hard Rock Cafe.

We need someone to put this together and programme it right. With the system that [Greg Hawkins] built and with the exciting elements coming on board, I think the one who could do a good job to continue his quality work is someone who will programme these elements right to meet the customer’s expectations or beat the customers’ expectations.

Most of the customers come from mainland China, although we have a significant portion [of clients] from Hong Kong. Ten years ago, mainland Chinese did not know about western restaurants, where you could have a good steak and a good wine, how to order a 1982 Lafite and that kind of stuff. Nowadays, I can assure you they have a similar level of understanding of the good things.

Vegas is fuming with rage and jealousy regarding Macau because this city surpassed the Strip in 2006 and in 2007 beat the results of the whole of Nevada, then in 2008, Nevada and Atlantic City altogether, and now basically Macau is doing in one month what Vegas does in three months.

It’s amazing.

What is the limit of Macau and gaming?

There’s no limit. This is the same question that we have been asked and have answered for some years and it has to do with the fact that we are the only city in the whole of Greater China where gaming is allowed. If you look at the last couple of years, the central government has put a lot of effort into cracking down on all the illegal gaming activities in China, whether it is Northeast China, Northern China or elsewhere. I am not suggesting this is a Chinese bluff to rule out gambling, but you do not have to be too shy to say that it is human nature, for people to like to gamble.

I think it is right to position Macau as the one city where you can come along and gamble, and it is so lucky that an equilibrium position has been built. We have the historical reason and, at the same time, the Chinese economy is doing so well.

As long as the supply continues to be very strong, pushed by a strong mainland economy…

The sky is the limit and I see a great benefit and a great future for the mass and VIP segments. I see a great market but it is so correlated to the economy, so there will be some volatility in there. But with a continuing relaxation of  [visa] policy, that allows more and more people to enjoy the Macau experience, that will continue to drive business.

Do you think that such a scenario will not change even with some measures taken by the central government to try to cool down the economy in the mainland?

Look at the last year or two; it has not been that significant.

No competition worries

How can Macau maintain its place as the hottest gaming city in Asia when some other places are betting on a strong gaming presence as well?

I think you are referring to some Asian countries like the Philippines and Vietnam.

Vietnam, Cambodia, Singapore, the possibility of Taiwan or if one day South Korea allows domestic gaming. And, of course, for the near future, everybody is talking about Japan, which is a very exciting market as well.

First of all, the proximity to the customer. It’s quite unique in Macau. And secondly, we have the luxury of having all these developments built in the last couple of years and we are trying, at the moment, to build the total experience, not just gaming.

In my view, gaming is the last thing that you have to market. Non-gaming or a total experience, excitement, is what you have to promote.

I understand China very well, I am Chinese, and I have travelled quite a lot in China in the last 15 years. When I go to one city, I won’t talk at the executive level, I just talk with people that have 5,000 to 10,000 yuan income. They tell me there is nothing to do in Macau. Think about all these excitements similar to what Las Vegas is providing and hundreds of millions of people being committed, just in the Guangdong area.

I am sure you know about the railway network that is being built in China. It is phenomenal. And there is something unique here compared to other Asian countries, which is the history of Macau and Hong Kong. That is something in our hearts that tells us that every Chinese has to pay a visit to Macau and Hong Kong in their lifetime.

The new gaming boss

Ted Chan has been promoted to co-chief operating officer for gaming. The move is part of a wider management restructuring at Melco Crown Entertainment. The new operations management structure is organised along functional rather than property responsibilities, and has two newly created co-chief operating officer positions for gaming and operations at the top (see “Changing of the guard” in the Gaming section).

The Melco Crown Entertainment press release announcing the restructure says “Mr Chan has been a pioneer in the transformation of the gaming industry in Macau in recent years and is uniquely qualified for this position”.

The company stressed his broad experience across Macau’s customer segments, reaching back to 2004 when he was chief executive of Mocha Clubs.

Who is Ted Chan?

Ted Chan Ying Tat has served as president of Altira Macau since November 2008. Prior to that, he was the chief executive officer of Amax Holdings from December 2007 until November 2008.

Before his role at Amax, he led special projects at Melco International Development.

He held the position of Mocha Clubs’ CEO from 2004 to 2007.

From June 2002 to November 2006, he assisted Melco chief executive Lawrence Ho, getting involved in the group’s overall strategic development and management.

Mr Chan served as a director of development at First Shanghai Financial Holding Limited from 1998 to May 2002, specialising in Internet trading solutions and business development in the mainland.

He graduated with a bachelor’s degree in business administration from the Chinese University of Hong Kong and holds a master’s degree in financial management from the University of London.

Amax woes

The good times appear to be over for Amax Holdings. The 1.25 percent commission cap introduced by the government late last year has been detrimental to the business model of the company, controlled by long-time VIP room operator
Ng Man Sun.

Amax, through its Macau unit, AMA International, was once the biggest aggregator of junkets in Macau, working closely with Altira Macau.

The company charged a higher commission to the casino but, in return, brought in a considerable volume of business. AMA would keep a part of the commission, giving the rest to the junkets under its umbrella, to whom it would also facilitate access to credit.

With the regulatory changes, junkets no longer saw the value in the arrangement and began negotiating directly with Altira.

Amax is now facing uncertain times. In its results presentation on July 30, Amax said “as AMA’s collaborators ceased to cooperate with AMA, some refused to schedule the repayment time and have not yet settled the debts. Therefore the impairment for dubious debt overshadowed the HK$2 billion revenue received by AMA during the financial year” ended March 31.

Last month, Amax hired corporate restructuring and insolvency firm Horwath Corporate Advisory to begin “assessing the recoverability” of the HK$373 million debt (at least) owed by junkets, according to the company’s annual report.

For the year ended March 31, Amax posted a loss of HK$2.48 billion, compared to a profit of HK$78 million the year before. The result was mainly due to “the large impairment loss related to the investment in junket related operations.”

Amax, which also owns a 49.9 percent share of the Greek Mythology Casino, says it “is undergoing internal restructuring” and, despite the setbacks, is seeking opportunities to cooperate with casinos in the Asia-Pacific region. “We foresee that the company will soon embark on a new direction,” it said.

Melco Crown’s losses narrow

Melco Crown Entertainment Limited reported a net loss for the second quarter of US$30.1 million last month, an improvement on the US$144.0 million net loss in the same period last year.

“The reduction in the net loss resulted from a significant year-over-year improvement in the operating performance of Altira Macau and from having a full quarter of earnings contribution from City of Dreams,” the company said. For the second quarter, net revenue was US$573.6 million, representing an increase of about 166 percent year-on-year. (See “Stock Watch” in the gaming section).