The Macau Metro Monitor, August 2, 2012




According to sources from Business Daily, Sands regained the second spot in the monthly casino gross gaming revenue ranking in July at 22% share.  Galaxy's share came in third at 19%.  SJM Holdings Ltd remained the market leader, with a stable 26% stake.  The market shares for the other operators are as follows:  MPEL-13%, WYNN-11% and MGM-9%.




Junket operator Asia Entertainment & Resources Ltd (AERL) announced that beginning next month it will be changing its remuneration model to a revenue sharing model for all of its three VIP rooms--at StarWorld, Galaxy Macau, and Venetian Macau.  Currently, all AERL VIP rooms are under a fixed commission model of 1.25% of rolling chip turnover.  By shifting to a revenue sharing model, the company says it believes it can generate commission of “over 1.30% of rolling chip turnover, and in addition, be able to negotiate on additional allowances and other incentives, thus increasing revenue and ultimately, net income,” it explained in a press release.



Singapore visitation increased 8.77% to 1,146,246 visitors in May.



Will the Debt Ceiling Be Déjà Vu All Over Again?

Conclusion: Our analysis shows us that another breach of the debt ceiling is imminent later this year.  In 2011, the SP500 had a drawdown of -16.8% around the debt ceiling debate.

Last summer during the debt ceiling debate, the U.S. equity markets were volatile to say the least.  In the chart below, we highlight the VIX and the SP500 from July 22nd to August 8th 2011, which shows the massive increase in volatility and downside in equities that occurred as the debt ceiling debate, and a potential breach, reached its fervor.  In fact, in that period the SP500 had -16.8% drawdown.


Will the Debt Ceiling Be Déjà Vu All Over Again? - spx.vix.2011


Our Healthcare Team has done a substantial amount of work on the next potential breach of the debt ceiling.  In the table below, they come up with three scenarios – aggressive, base case, and conservative – that outline potential dates for the next breach in the debt ceiling.  In the aggressive scenario that date is November 28th, in the base case that date is December 11th, and finally in the conservative case the breach doesn’t occur until January 14th of 2013. 


Will the Debt Ceiling Be Déjà Vu All Over Again? - chart2


With the most recent budget data from the Treasury department, we are increasingly comfortable with our base case scenario in which the breach occurs before the end of the year.  Specifically, the Treasury indicated they will issue $276 billion of debt in calendar Q3 of 2012 and $316 billion in calendar Q4 of 2012.  So in total, the projected issuance will take the overall debt balance to $16.4 trillion, or $53 billion above the debt ceiling.


The debt ceiling debate last summer was about as contentious as possible and finally did reach a compromised solution, though not after creating massive confusion and uncertainty in the markets.  Given that this is an election year, it is unlikely that this issue even gets touched until after the fall elections that occur on November 6th 2012.  Thereafter, the new government will have 22 days to avert another debt ceiling crisis in our aggressive scenario.  Reaching an agreement quickly in this period is unlikely unless one party controls both the executive and legislative branches.


The electoral scenario under which either the Democrats or Republicans control both the Presidency and Congress currently appears very unlikely.  As it relates to the Presidency, Obama currently has a meaningful lead in the Hedgeye Election Indicator, he is at 57.5% on Intrade, and has a two point lead versus Romney in the real clear politics poll aggregate.  Conversely, in the most Generic Congressional poll from Rasmussen, the Republicans are up by three points.  This is validated by Intrade as well, as Intrade has the Republicans at a 51% probability of controlling the Senate and 82% of controlling the House of Representatives.


Will the Debt Ceiling Be Déjà Vu All Over Again? - Chart3


Clearly, a split part government is a likely scenario post the elections this fall.  As a result, so is deadlock on major issues, such as the debt ceiling.  As Yogi Berra once said, “It’s déjà vu all over again.”  This is increasingly likely to be the case with debt ceiling later this fall. 




Daryl G. Jones

Director of Research



Linsanity On Life Support

Now that Jeremy Lin is no longer with the Knicks, the question remains: what do retailers do with all the leftover LINSANITY merchandise?


Answer: mark it down for $5 an item and pray no one notices. This sale was spotted at the Modell’s Sporting Goods in NYC.



Linsanity On Life Support - LINSANITY Modells

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NKE: Brilliant Product Placement

Check out this picture of the US Olympic Women's gymnastics team on the podium with gold medals. Check out their feet. Do you think that just MAYBE Nike proactively outfitted them with FlyKnits in a 'hey look at me' bright Green Summit colorway?


Brilliant product placement, and exceptional sell-through of this product to date. Certain colors are already sold out at Nike stores.


This picture almost rivals the shot of the US Basketball Dream team covering their Reebok logos with American flags in the 1992 Olympics. 



NKE: Brilliant Product Placement - 8 1 2012 1 56 30 PM


The pundits have been predicting slot price declines yet after some pressure, slot ASPs remain resilient



There are a number of factors that should be pressuring slot ASPs.  Yet as the chart shows, ASPs are climbing again after 2 ½ years of flattish pricing.  We’re not ready yet to call an end to pricing pressure for the following reasons: 

  • Over the last 4 years, there has been a convergence movement between the best and worst performing products.  Even the smaller fish are producing decent products (Ainsworth, MGAM, Aruze, Speilo).  In 2008, we estimate the top 5 manufacturers accounted for 97% of shipments vs. 94% in 2011 and it continues to slip.  We think that in 2012, the top 5's share will fall to below 90%, due to Spielo's large share of the Canadian replacements.
  • Large new openings mean bigger discounts.  New markets that are opening are lower priced markets.
    • IL:  mid $12k
    • Canada:  better than IL but likely below $14k
  • Given the poor macro environment, there is some trading down for product that has less bells and whistles, unless the game is really a hit




In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance




  • BETTER:  Performance in the owned portfolio was stronger than expected, benefiting from renovated assets and strong flow through. Less international and, especially, European exposure was evident.  Announcement of the buyback also lent confidence to management's positive outlook.


    • SAME:  The remainder of 2012 is up 5% with a little less than half coming from rate. 
    • PREVIOUSLY:"Our group pace for 2012 is currently up in the mid single-digit range with one-third of that increase due to increase in rate."


    • SAME:  Still on track to open 20 hotels in 2012
    • PREVIOUSLY:"We expect to open more than 20 hotels this year, including our first select service hotels outside of the US."


    • SAME:  They still expect Lodgeworks to generate roughly $40MM of EBITDA in 2012 and produce cash on cash returns of 10% in the future
    • PREVIOUSLY: "The former LodgeWorks Hotels are doing very well, on track to exceed our original forecast and showing strong RevPAR and market share performance.  We expected that we would generate roughly $40 million of EBITDA this year; we're on track to do that."


    • BETTER:  Mexico City is performing ahead of expectations with YTD RevPAR tracking up 15% YoY and they expect to trend in that range for the balance of the year.  Maintained that the property should do better than $8-10MM of EBITDA in 2012.
    • PREVIOUSLY: "The market RevPAR progression expected this year is about 10% and our hotel [Hyatt Regency Mexico City] is up over 20% RevPAR was year-over-year through April. With respect to Mexico City, we expect this year to earn somewhere between $8 million and $10 million in EBITDA from the property."


    • BETTER:  At June 30th, Hyatt has 175 signed contracts with 39,000 rooms.  Roughly 75% of the pipeline is located outside of NA.
    • PREVIOUSLY: "We have signed contracts for more than 170 hotels representing over 38,000 rooms. On a hotel basis it's about 37% of our hotel base. On a rooms basis it's about 30% of our room base. Over a third of those properties are under construction and about 80% of the contracts for these hotels and the pipeline require little or no capital from us. About 70% of them are outside of North America and about 50% of the total are in China and in India."


    • LITTLE BETTER:  Adjusted SG&A only increased 6% vs. 13% (excluding special items) in 1Q.  However, 2Q included a $2MM bad debt reversal benefit, but even so, the increase would have been 9% YoY.  The $320MM of guidance implies a 13% YoY increase on 2011 clean #'s.  
    • PREVIOUSLY: "We expect the increase in second quarter adjusted SG&A to be similar to the increase we saw in the first quarter, excluding the special items. For the full-year, we expect total adjusted SG&A to increase in the low teen's percentage range versus 2011."


    • SAME:  Forward bookings for 2013 progressed to 50-55%.  They mentioned that they may be acting less aggressive in shoring up forward bookings given the strength in business transient and expectations for rising ADRs.
    • PREVIOUSLY: "I would say as I think about the bookings, for 2013 and 2014 continue to grow. 2013, I think we probably have about 45% of the business on our books. And 2014, we probably have 30% of the business on our books. And, rates are picking up, I mean, rates are up 2%, when you compare this for the bookings this time last year. So I think overall trends are looking decent."