Macau’s cap on live table numbers could be a golden opportunity for the electronic variety
Electronic table games have long been touted by equipment manufacturers as the casino equivalent of the philosophers’ stone. In Western culture, the philosophers’ stone was a legendary alchemical substance, supposedly capable of turning base metals, especially lead, into gold. The magical allure of automated or semiautomated table games—particularly in the Macau market—is their supposed ability to deliver play on much wider margins than traditional live table games because they don’t need expensive and scarce local dealers to run them. In the first quarter of this year, the median monthly wage for a table dealer in Macau was MOP13,000 (US$1,620). That’s actually higher than the monthly wages paid to dealers in the new Singapore integrated resorts. Dealer salaries at Marina Bay Sands average S$1,800 (US$1,293), according to industry analysts, while at Resorts World Sentosa the average is reportedly S$2,000 (US$1,437).
There’s just one problem. There is as yet little consistent, strong evidence that players in Macau are willing to migrate en masse from live table games to electronic ones, or to view them as a viable alternative if live tables are too full. At Chinese New Year, most players would rather crowd four-deep around traditional live tables with minimum bets pushed up as high as HK$300 than take their chances with the automated baccarat tables.
Against the tide
There are some notable exceptions to this general aversion to electronic table games. Aruze’s Lucky Sic Bo has proven a hit on mass floors in Macau as compared to the traditional hand-shaken dice version. That’s in part because of the clever ‘bash button’ feature that allows players the illusion of control once the automated dice shaking has commenced. It could also be because in China’s relatively low-trust culture, players are more inclined to put their faith in an automated shaker with its dice hermetically sealed in a transparent container, rather than in loose dice shaken by a flesh and blood dealer on an open casino table. From the players’ near-paranoid perspective, who knows what subterfuge could be going on behind the scenes?
On the downside for the electronic games lobby, Paradise Entertainment’s attempt back in 2008 at creating a niche Macau property with a floor entirely populated by hybrid tables (i.e. electronic table games with live dealers) at the SJM-licensed legacy casino Kam Pek on the Macau peninsula, was not a roaring success. Electronic table evangelists point out, however, that this may have been more a function of the quality of Paradise’s equipment and its marketing strategy than of the soundness of the concept itself.
In Singapore, by contrast, there seems much more acceptance by the players of electronic table games. TCSJOHNHUXLEY reports almost constant 100% occupancy of its Novo Unity™ II TouchBet® Roulette terminals since they were installed at RWS. Alfastreet says the same about its SI Line Modular standalone roulette terminals delivered to RWS. But then Singapore is not as baccarat obsessed as Macau. In fact, suppliers report to Inside Asian Gaming that the operators have actually been taking some baccarat tables off the mass floors at the Singapore integrated resorts and replacing them with either blackjack tables, slots or electronic table games—in particular roulettes.
Clear case
The value proposition in operational terms from manufacturers to casinos regarding electronic table games is very clear and hardly disputed, even in Macau. They virtually eliminate payout disputes, accounting mistakes and old fashioned fraud, and they maintain steady 24-hour operation with no sick leave and no bad moods. Yet none of that really matters if no one wants to play them.
“Any time you try and migrate an established market to a different product, you’re going to have issues,” says a senior gaming executive spoken to by IAG.
“You can’t take someone who is used to betting HK$500 a hand and squeezing the cards and having the people slam the table on a winning point, and then expect them to adopt electronic tables overnight,” adds the source.
In Macau, numerous attempts by equipment suppliers to replicate in electronic game form the card peeking, card squeezing and general adrenalin-pumping action of live baccarat have been met not so much with rejection by players as with sheer indifference. Why bother tasting the casino gaming equivalent of a hamburger on an electronic table when you can dine on prime steak at the live table?
That has led some suppliers and some operators to market electronic baccarat in Macau on the value proposition of smaller minimum bets because of the lower overheads involved. Unfortunately, rather than creating a loyal following among valueconscious players, the strategy seems to have placed electronic baccarat in a kind of ghetto as a poor man’s table game suitable mainly for the retired and for domestic workers.
Marketing mish mash
Yet, arguably, that style of marketing is approaching the electronic baccarat issue from the wrong end of the spectrum. Suppliers and operators should instead be focusing on the fairness of electronic baccarat for the player.
As David Kinsman, Chief Executive Officer of Singapore-based Weike Gaming Technology told IAG at G2E Asia last year: “Electronic gaming has a direct benefit for players because it gives them the real, true, odds of the game.
“An electronic baccarat table runs at 1.8% [house advantage]. A live baccarat table in Macau runs at up to 3%. Where’s the player better off? The players will realise that very quickly. They’re not stupid.”
Macau players definitely aren’t stupid, but they do seem to be quite conservative in their tastes. They know what they like and they like what they know, and so far what they like is live baccarat with a flesh and blood dealer.
On the face of it, an electronic gaming system that yields on occasions an extra 1.2% house edge to the player compared to the average live dealer version, doesn’t sound like a natural winner with casino managements. Mr Kinsman stressed, however, it’s a win-win situation for player and house.
“At the mass gaming end [of the market], live table utilisation might only be four to six hours a day, but operators still have to staff those live tables,” he pointed out. “They would be better off having some electronic tables around.”
New day dawns
Well, finally the prospects for electronic table games in Macau could be about to change for the better. There are a number of reasons for that. The first is that the Macau government’s 5,500 cap on the number of live tables in the market between now and the end of 2012 could soon mean that beggars cannot be choosers—i.e., if the gaming market keeps growing in excess of 65% year on year without a corresponding increase in table inventory, then in some gaming rooms if players want to get a game it will be electronic tables or nothing at all.
The leader of the ‘necessity is the mother of invention’ revolution appears to be Sheldon Adelson, Chairman and Chief Executive of Las Vegas Sands Corp (LVS). During the company’s earnings conference call for the first quarter of 2010, Mr Adelson said that Sands China will put 100 electronic table games on the floor of its US$4.2 billion Cotai 5 and 6 extension.
That doesn’t seem to have been the company’s ‘Plan A’. Back in November 2009, LVS said in a filing to the US Securities and Exchange Commission addressed to would be lenders that it intended to stock Cotai 5 and 6 with 670 gaming tables and 2,200 slots. Then came the government’s live table cap, and the rest is history.
LVS said in its Q1 2010 earnings conference call that it had been promised in writing 400 new tables for phase one, due to open in the third quarter of 2011. If that’s the case, it means the government has already broken its own cap. At the end of the first quarter this year, there were 4,811 tables in the Macau market. Encore at Wynn Macau added another 61 when it opened in mid-April, and Galaxy Entertainment Group says it has been told it can have 400 when it opens its Galaxy Macau resort on Cotai in the first quarter of 2011. That would take the market total to 5,272, leaving (in theory) only 228 for Sands China to play with when phase one of Cotai 5 and 6 opens.
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Guarantees
Michael Leven, President and Chief Operating Officer of LVS, scotched the idea of LVS facing any table shortfall on Cotai 5 and 6.
Mr Leven stated during the earnings call: “We’ve been assured in writing [by the Macau government] of 400 tables to start with and their assurance is of reviewing tables as we go over the next couple of years. Our expectation is and our lenders know that we will open with enough tables in 5 and 6 to justify the numbers that we projected in the loan documents. That will involve moving some tables from some of our facilities, as well as the addition of some electronic games.”
Mr Leven was asked to clarify whether the 400-table figure included under-utilised tables the company might choose to move from its other properties to Cotai 5 and 6. His answer was unequivocal.
“No. It’s 400 new tables plus 2,200 slots. We [also] have assurances from the government that they will work with us to get additional tables by the latest in March of 2013. But if that doesn’t happen, we will still open,” stated Mr Leven.
“We will move some tables that we are not using in the other facilities as well as adding electronic games. So the numbers that we projected are the numbers that are in the loan documents and have been approved by the banks.”
Mr Adelson added: “We are adding [to Cotai 5 and 6] 100 electronic table games, which offer some very good potential. We’re going to try different electronic table games,” he told analysts.
How much Mr Adelson’s statement represents inherent faith in the business proposition of electronic games and how much it’s a case of necessity is open to debate.
Slick operation
What can be said is that if Sands China decides to put its slick marketing operation behind electronic table games, then they are likely to have a better chance of being programmed for success in Macau than they have been previously.
“Already suppliers are vying for that electronic table business in Cotai 5 and 6,” says the gaming executive spoken to by IAG.
“People are already trying to get new product into existing properties so they can create a market-tested value proposition to Sands China on Cotai 5 and 6,” adds the insider.
Of course, some electronic tables are more electronic than others. There are tables, such as Walker Digital Gaming’s Perfect Pay Baccarat, with radio frequency identification tags in the chips and antennae on the table to track all betting and payouts. They offer wonderfully efficient tableside accounting, player tracking and many more hands per hour, but otherwise in look, feel and playing style appear just like a ‘traditional’ table. There are tables that can be switched from full automation to attendant operation to fully trained dealer mode at the flick of a switch or a series of switches, such as TCSJOHNHUXLEY’s TouchTable MultiPLAY Series. There are tables with voluptuous or hunky (depending on the clienteles’ tastes) virtual dealers on video screen. There are even tables with robotic arms adapted from car factory assembly lines, dealing cards to players with all the charm and personality of Star Wars’ R2-D2 repairing Queen Padmé Amidala’s starship.
What’s in a name?
How a table is designated—i.e. as an electronic gaming machine (EGM) or as a live table—matters for all sorts of reasons. Not the least of them is that an EGM designation in Macau means a much lower annual government licensing fee than for a live table.
“On a mass [live dealer] table, as an operator you’re paying MOP100,000 a year per table in government licensing,” says the gaming executive.
“The most expensive licence is for a VIP table. If the DICJ [Macau’s gaming regulator] isn’t telling, then I’m not telling. But it’s a lot of money.
“On an EGM, you’re paying MOP1,000. The licensing fees are calculated by revenue,” explains the source.
If a table product can stay close to the look and feel of a traditional table but be licensed and regulated as an EGM, then it stands a better chance of killing two gaming birds with one stone—maximising the number of players using it, and minimising the table overheads, thus boosting profit margins.
“You don’t have to be a genius to realise that even with the capital costs of an electronic table, the much lower annual licensing costs to the government mean you can maintain a reasonable margin on a much smaller handle than is generally achieved by a traditional table game.”
Cap for electronic tables pondered
The history of regulation in some markets is that tables with an element of electronic functionality are sometimes designated as slots, and sometimes as tables. How they end up being defined can depend on some extent to how well or how convincingly the manufacturer lobbies the regulator, or indeed how sympathetic the regulator is to the industry’s position. A good example recently is in the United Kingdom, where a manufacturer was able to get the regulator to designate its electronic poker table game as a table game, rather than an EGM. The advantage in that particular case was that the supplier was selling into a casino where there was a strict limit on the number of slots allowed, but a looser restriction on the table quota.
Given the recent superheating of the Macau gaming market, is there even an argument for putting a cap on the number of EGMs allowed in Macau? Does it make sense to close the front door of casino expansion by capping the number of live tables, while at the same time leaving the back door open for EGMs?
There is a potential political problem to that approach. Given that it seems mainly to be Sands China that is suffering the most from the fallout of the table cap, were the Macau government now to impose restrictions on electronic games, it could look dangerously like an anti-LVS stance, rather than a policy for the good of the community and the economy as a whole.
“There has certainly been some talk of an electronic table games cap,” says Ricardo Siu, Associate Professor of Economics and International Finance at the University of Macau and an acknowledged authority on the VIP gaming sector in Macau.
“The progress on it doesn’t seem very advanced. That’s because of the fact that since the middle of last year the Macau government and the DICJ really wanted to focus on the VIP segment first. Whether the government would return to this issue later is hard to say at this stage.”
