“the Venetian should not concentrate on gambling”
SJM executive director Ambrose So, on fierce competition among casino operators
There wa s recently a meeting between the government and the six gambling operators. Did it contribute to appeasing relations among the different companies?
Ambrose So – I have to start telling you some background about this meeting. When the gaming industry was liberalised, we, as native operators, saw from the very beginning the need for a system that would allow the operators to sit together, to exchange information and try to regulate the industry. Now, if you remember, back in 2005, when I ran for the Legislative Assembly, our group already advocated that some sort of institution should be created in order to listen to the opinions of the players in the industry and to help the government regulate the industry, as such. At that time, there was already a lot of legislation lagging behind, and it was very difficult to catch up with the rapid development of the casino industry. So, it’s very unfortunate that only at a very late stage, when the competition has become so fierce, a meeting had to be called for all the six operators to sit together under the auspices of the Macau Government.
What was preventing such a meeting from happening?
Well, the government had its own consideration about this being a priority. On the other hand, the operators were not co-operative enough to push the idea ahead. In fact, Sheldon Adelson said at that time he did not want to join such an association. Since he did not join it in Las Vegas, why should he join it in Macau, he said according to local media. But now, the government saw the seriousness of the matter and called the meeting, forcing the operators to exchange their views on this fierce competition. The government even went to the extent of launching a gambling consultative group, to be formed within one month, to proceed with new guidelines for the industry. Of course, the government will not adopt all the ideas submitted by the operators, as it has to craft a balance between the interests of the industry and those of the other sectors of the society.
SJM and the Venetian came out of this meeting with quite different positions on the matters under discussion. And again, there were comments from both sides that showed some sort of mutual animosity between the two market leaders.
I wouldn’t say there’s animosity between us, except for competition. There were some strong exchanges of words, and people think this is animosity. In fact it’s not. Anyway, in the world of competition we have to have some regulations and guidelines in order to allow everyone to have a fair share of the market.
The Venetian disagrees with the idea of imposing a cap on the commissions given to junket operators, arguing that the market should be allowed to decide by itself. Why not?
That’s not a fair comment on their part. As I’ve mentioned before, there’s a lot of legislation lagging behind since the opening of the casino industry. If you look at the original intention of why the industry was opened, the reasons were to have diversity and to have a regulated industry. On the day when they announced the three successful tenders, the comments made were the following. STDM (I mean, SJM) was the incumbent operator, they have been operating here for 40 years, they are very good at traditional gambling and they can continue to do that. The Venetian (or Galaxy at that time, as they had not split yet) is very good at conventions and exhibitions and Macau wanted to have diversity in that area. Wynn, of course, is very good at leisure and creating destinations for families. Well, at the very start, by implication – although at that time the government did not spell it out clearly – SJM would continue to develop traditional gambling, Venetian would concentrate on conventions and exhibitions (with an additional gambling element added to it as an attraction) and Wynn should focus on creating an atmosphere that would transform Macau into a leisure and business destination for families. Now, when you talk about the number of gambling tables, you have to have these original intentions in mind in order to come up with a fair balance in the allocation of tables. However, after these players came in (and I’m not going to dwell on the complexities and reasons why these three concessions were split into three sub-concessions) and everybody saw the opportunity of the opening up of China in 2003 with the free-travel scheme, everybody thought we should all concentrate on gambling. And you can see, by way of example, that Sands opened their operation with a casino only – not even a hotel, not to mention conventions or whatever. And Galaxy concentrated on old town houses in the city centre – pure gambling again. So, when we revisit the evolution of how the industry was being liberalised, we can see there’s a departure from the original intention.
And SJM was treated unfairly, is that what you’re saying?
Well, when licenses were awarded we expected to keep doing what we are good at, which is traditional gambling. Once other people also went into this market of traditional gambling, we realised a situation of fierce competition had been created.
Fierce competition, cut-throat competition – we’ve heard this kind of complaint from several SJM sources. How difficult is it the current situation for you?
The situation is difficult, but not only for SJM. You have a concentration in the supply of gambling products and no others. And the current situation features several other problems, like labour cost and labour shortage, lack of professionals and great difficulties for small and medium enterprises. So, these problems are affecting the whole community of Macau. In the gambling industry, all the other operators have been affected, even the Venetian. That’s why they’ve announced they would raise the commission paid to junkets. Their customers were going to other places, and they had to improve their package to get them back. The situation has come to a point where junket operators are making the bulk of the money, while the margins of the six concessionaires are being reduced every day.
Are we facing a situation in which the market is under the control of people who did not have to fight for a license?
Yes, no doubt. The reality is that those people who have the customers have a big say in the market. If you are an operator and you offer me a higher commission, I come to you, of course. If not, sorry I go the other way. Everybody is scrambling for business, and this is a problem. These junket operators need to be licensed; they need to be cleared by the Macau Government. I think it is very difficult to sustain an operation if you offer too high commissions to the junket operators. You may at a certain period of time, a very short period of time, gain a lot of market share because you have a lot of turnover, but if you pay out a commission which is very close to your actual revenue, you have a problem. Casino operations depend on probability, depend on odd percentage. Sometimes, if your odd percentage is high, of course you are able to pay for your junket commissions, but sometimes, if your odd percentage is low, you have a problem.
But even if the government places a cap on the commissions offered to them, it won’t end the fight for junkets and their customers, right?
Well, a cap on the commissions will have the effect of stabilising the market. Of course, the government will have to find a reporting procedure to make sure junket operators are being paid without any monkey business, without payments being made under the table. If they want to really regulate it, they will have to do something in that area, otherwise it would be just an empty guideline.
Would it be easy to control?
No, not easy. But if the government adopts the right reporting procedures, I think they will have a deterrent effect on those operators who might want to breach them.
Amid this fierce competition, are there already cases of small casinos on the brink of shutting down their operations?
When you compete for customers, the pricing is not the only important factor; you have to look at your hardware. With all these new casino operators coming up with improved hardware, if you offer the same price, the customer of course will go to the better premises. And this adds some further pressure on the existing old and less modern premises. In fact, we have seen quite a number of casino VIP rooms cease operations or try to merge among themselves. There’s a lot of restructuring going on among junket operators.
What would be a fair level for this cap on commissions?
At the meeting with the government, there was a consensus that we should put a cap of 1.25 percent on the amount of chips bet. But there was a great diversity of opinions regarding the number of tables each operator can have.
Is the government willing to also put a cap on the number of tables?
As I said, there was no consensus among operators on this matter. We have agreed that there should be a limit on the number of tables, but we did not agree on the number to be adopted. So, it’s really up to the government to balance the whole thing. The government should have a short, medium and long-term growth plan for the number of tables and comprehensive criteria for granting them. I got the feeling in the meeting that the government and the concessionaires now understand that you cannot just open as many tables as you want. You’ve got to have a balance, to take into account all the levels of development in the industry itself as well as in the other sectors of the society.
Some argue that by suspending casino expansion the government is in fact giving the upper hand to the Venetian, as they already have a big number of projects approved. Do you agree with this?
I think it remains to be seen what specific policies the Macau government will come up with. In his speech, the Chief Executive was very clear about one point: we have to control the rate of expansion of the casino industry. As to how and when, this remains to be supplemented by the government Secretary (for Economy and Finance). So it’s too early to comment whether this benefits a specific concessionaire at this stage.
So, you have no reservations regarding this measure?
SJM is a native operator here. We are very much attached to the society, and we are involved in the development of the economy of Macau. We always have very close to our heart the benefit of Macau as a whole. So long as there is a fair and equitable basis for defining the policy regarding the number of tables each concessionaire can have and the rate of expansion they are allowed, we welcome it.
We look at the Cotai Strip and we hardly see SJM represented there, although you were the incumbent and knew the terrain better than anyone else. So, what went wrong? Does SJM feel any resentment about the way land in Cotai was distributed among the operators?
In terms of area, of course we feel there was no fair treatment towards SJM. In the meeting, the Venetian said the number of tables should be determined by the amount of investment you put in. But some of the other operators – not us – said: ‘We are also financially capable of putting in a bigger investment, but very unfortunately, we were not awarded the area of land that we wanted. You awarded all the land to the Venetian, so you’ve deprived us of the opportunity. Even though we wanted to invest, we could not do it.’ So it’s unfair competition in a way. They got the land very cheap, to be fair, as it was granted under the gambling law. And that is not a fair treatment for how land should be used. If you go back to the original idea, which was that the Venetian was expected to develop conventions and exhibitions, then of course they should have a big piece of land. But they needed to concentrate on that. They should not concentrate on gambling!
Well, Sheldon Adelson came here once, and he announced his vision for a Cotai Strip, similar to what exists in Las Vegas. Basically, he was asking for land to go ahead with his investments. Why did the other operators stand quiet and not present their own ideas at the time?
Of course we expressed our ideas.
Did they move too fast?
When the public tender was held, there was a certain scale of investment required and therefore a certain area of land that operators would need to use. But in my view this goes back again to the original intentions. Venetian was chosen to develop conventions, so they should not be talking about the number of tables. And they should not be allowed to do the VIP gambling business. In my interpretation, they should rather concentrate on the mass market. Gambling should be a complement to their core business.
A court in Nevada has recently ordered Sheldon Adelson to pay compensation in the order of US $43 million to a Hong Kong businessman who apparently helped him to enter the local market. According to court testimonies, the boss of the Venetian met in Beijing with former vice-Premier Qian Qichen and other government officials, in July 2001, and allegedly promised them to fight opposition in the United States against the Beijing Olympic Games using his influence inside Capitol Hill. Do you think there is any relation between these high-level meetings in Beijing and what has been happening in Macau ever since?
According to the reports I read, Richard Suen introduced him to Chinese government officials. I don’t know if it’s true, but it’s plausible. Anyway, it seems the jury believed Richard Suen’s story, otherwise it would not award him that amount.
Well, the meeting with Qian Qichen really happened, there’s no doubt about it.
Yes, there are photographs of it. But Adelson denies that it had anything to do with the Venetian being awarded a license in Macau. And I do not know what really happened. I followed the case through press reports that mentioned those political connections. But I’m not in a position to ascertain to what extent they helped.
It was also reported recently that Mr. Adelson paid a private company in the USA to investigate Stanley Ho’s background, and that the final report of this investigation would later be leaked to the
press just before the Nevada Gambling Commission started hearings on MGM’s joint venture with Pansy Ho. Going back to the alleged animosity between the two market leaders, was this episode not serious enough to create problems?
What I can say is that Mr. Adelson has a very special way of doing things, which I cannot understand.
Stanley Ho accused him of wanting to control Macau.
Well, their intention of raising the junket commissions to 1.5 percent leads us to the natural conclusion that they want to grab up the whole market. It was clearly a cut-throat commission, and that’s why the government decided to call this meeting.
Well, many complain that small and medium enterprises also face cut-throat competition from the gambling industry and the government does not intervene to
help them, as it did recently with the casino operators. Is it not a double standard situation? In one case, the government steps in and imposes limits to competition; in the other, people are told that the market should work by itself.
I think that is a question you need to address to the Macau government: ‘Why are you not intervening, despite hearing a loud cry from the small and medium enterprises for the past three or four years already?’ And it’s not only them. Even schools and banks are losing people to the gambling industry. People drop out of secondary schools in order to earn high salaries in the casinos.
What do you think about this idea of giving away MOP 5,000 to each permanent resident of Macau?
I do not especially like this idea. Basically, there are persons who may not need these 5,000 patacas and others who may need much more than that. The latter group should be the priority in terms of (Laughs) Yes, but first I have to see if the community needs me. If that is the case, I’m always ready to serve – in whatever capacity is beneficial to Macau. I’ve been working in this community for over 30 years, and so I have a natural attachment to the welfare of Macau. Any thoughts on next year’s election for Chief Executive you might want to share with us? Well, the requirements for Chief Executive have already been laid out clearly. He must be a patriot, love the country, firmly believe in ‘One Country, Two Systems’ and be ready to serve the interests of Macau. Anybody who possesses these requirements is qualified to run for Chief Executive. I still cannot have any preference, however, because no one has proclaimed himself as a candidate yet. If you don’t know which horses are in the race, how can you bet on any of them? how the public funds should be spent. Of course, if you issue a payment order of 5,000 dollars to each citizen of Macau today, this has an implication: what will you do next year or the year after when, let’s say, there is an economic slowdown? You are creating expectations, and this will have consequences.
Should people who clearly do not need the money pocket it? Are you going to keep your MOP 5,000?
That is the entitlement of any Macau citizen. They will send us a cheque by mail.~
If that were not the case, would you go to a government building to receive that amount?
Yes, why not? As I said, this is the entitlement of any Macau citizen. What each of them does with those 5,000 dollars is up to them. Tell me: if the government decides to reduce taxes and you feel you don’t need it, are you going to offer them the money you’ve saved?
It was officially explained that this money distribution would help families to fight inflation. Do you believe that it will ultimately have good results in that area? Definitely not. Inflation will go up for sure – it’s a classical economic scenario we face here.
So, was it just a case of spending a lot of money to buy social peace?
Well, the government said this would be a way to give back the wealth to the people. Theoretically, it is a good thing. When you manage a territory, you should give back the wealth to the people who have contributed. But there are many ways of doing that. You can invest in education, in social security and so on. You just have to set your priorities. And this one is the easy way out…
And a very unusual one, isn’t it? I mean, it’s not easy to find such a measure in world economy manuals, don’t you agree?
1) It’s not easy to find;
2) It could only happen with such a small population;
3) It’s easy to handle;
4) In other places you have different priorities to set. That’s it.
Are you a candidate in next year’s legislative elections?
That’s not decided yet.
Will it be a personal decision or one to be taken inside SJM? Did you enjoy your first experience despite failing to be elected?
Of course it will be a personal decision. Last time, I treasured very much the experience of running for the Legislative Assembly, sure.
Well, analysts noted you were not elected in 2005 mainly because of lack of preparation. If you decide to run again, maybe you should start thinking about it a little bit earlier.
(Laughs) Yes, but first I have to see if the community needs me. If that is the case, I’m always ready to serve – in whatever capacity is beneficial to Macau. I’ve been working in this community for over 30 years, and so I have a natural attachment to the welfare of Macau.
Any thoughts on next year’s election for Chief Executive you might want to share with us?
Well, the requirements for Chief Executive have already been laid out clearly. He must be a patriot, love the country, firmly believe in ‘One Country, Two Systems’ and be ready to serve the interests of Macau. Anybody who possesses these requirements is qualified to run for Chief Executive. I still cannot have any preference, however, because no one has proclaimed himself as a candidate yet. If you don’t know which horses are in the race, how can you bet on any of them?