Slots trump tables in new junket room club model

The opening of Macau’s first junket-run VIP slot room has been seen as a bold move by an industry seeking new sources of revenue, but analysts have warned it may be a tough sell given the weak operating environment and lack of enthusiasm for machines among high rollers.
The JJJ Grand Prize VIP slot room opened last month at the Jimei Casino, one of SJM Holdings’ third-party operations. The 'parlour' opened with 111 premium slot machines from Aristocrat operated with the Weike Slot System and also operates four Baccarat tables.

It was the vision of junket operator Zheng Zhang and his brother and is the first and only of its kind in Macau. However Zheng, who has lengthy experience in the junket industry, plans to open another within three months and is currently in the process of selecting the best location, which will probably be on Cotai. He also sees potential to export the idea throughout the region, particularly in emerging markets in Southeast Asia. The company is looking for strategic development partners, slot game technology partners, and financial partners to help with its expansion plans.

Zheng is confident in the new model of the VIP slot club. He first had the idea five years ago, though has been searching for a suitable location. Many casinos turned him down, but Jimei closed its slot business a year and a half ago, leaving space to let.

The VIP slot room will offer the same incentives as for Baccarat tables, e.g. commission together with dividends for investors. They will also adopt the same marketing methods as used for tables.

As Zheng points out, the customers are the same. “Baccarat rose so quickly because the agents attracted and trained the customers. Offering the same terms and incentives equals the same success formula,” he told AGB.

VIP revenue slumped almost 40 percent in Macau last year as China’s anti-corruption drive forced high-spending gamblers under the radar. The collapse in the market has created a crisis in the junket industry with operators looking for alternative sources of revenue.

“The opening of the VIP slot is one of the better pieces of news coming out from Macau in the past year because most of the news has been about running away and closing down clubs,” said Tony Tong, co-founder of Hong Kong-based Pacific Finance Services and an adviser to Zhang Zheng ZZ and the slot club.

“This shows that all the VIP operators are trying to shift their marketing focus from the high-end to mid and low-end VIP players. Many were focusing on super VIPs who gambled $50 million and above, but these people are either wiped out or they are hiding and suffering from people chasing their debt.”

Although slots have historically taken a backseat in Macau in favour of Baccarat, Zheng believes there is ample optimism for growth given the right education and incentives for customers.

Slot spending in Macau was MOP 11.75 billion in 2015. That was down from MOP 14.4 billion ($1.79 billion) the previous year, but still sharply higher than the MOP 8.6 billion recorded for 2010. Though the figures have been rising, slots still only account for about 6 percent of the local market compared with 50 to 60 percent in Europe.

Major suppliers have been working on developing products specifically tailored to the Asian market, which has helped slots gain some traction in Macau. The strict table caps being imposed by the government, coupled with the huge amount of additional floor space as a result of the opening of new Cotai properties, has also been expected to give a further boost to electronic gaming.

Zheng said although the suppliers have impressive research and development budgets, they still lack the view of a native Chinese person. He has also invested in an innovative slot machine company and is developing games that hopefully will become available in Macau after testing.

However, according to a recent Bloomberg report, the slot room has got off to a slow start in its first month of operations.

It said the room was already ready to give up the HK$100,000 (US$12,854) membership required for play only a week after the official opening in January. VIP room employees were seen announcing machines were accepting spins as low as HK$1.

Union Gaming warned the slot room may have a difficult time in a report when the opening was first announced.

“We would caution that slot players are exceptionally fickle and VIP slot players probably even more so. They are very high maintenance from a customer service perspective and are very particular about what games they want to play, denominations, etc,” it said, adding that the location also is unlikely to work in its favor as Jimei has historically been one of the lower-performing third-party casinos.

On the upside, analysts noted that players are likely to be offered the ability to play on credit along with some sort of rebate. “This dynamic could hold some level of appeal to existing slot players albeit at the expense of lower margins relative to the typical 40 percent + EBITDA margin on slots.”

The JJJ Grand Prize VIP Club has over 10 years of experience in the Macau junket space having had past relationships with the Heng Sheng Group among others. 113 East Limited is consulting for the group and is the operating partner of The JJJ Grand Prize VIP Club.

113 East brings over 20 years of electronic gaming experience and assisted with product acquisition, installation and setup of the room. It has key 113 East employees working within the operation including VP of Slot operations, IT Manager and Technical Support.
 113 East has existing operations in various locations in Macau, Cambodia, Vietnam, Laos, and Sri Lanka and will be looking to expand operations into various other parts of the Pacific and Southeast Asia in 2015.