MACAU JUNKET COMMISSIONS APPROACHING JUNK BOND YIELDS?

  • This is a gross exaggeration I know, but I am increasingly alarmed by the junket price war. My source indicates that LVS may have boosted its commission again, from an implied 1.25% of roll to 1.3%. I believe MGM may have moved even higher than LVS. No indication on Crown but if I had to guess I'd say MPEL will or already has followed suit. This chart examines the relationship between escalating junket commission rates and declining theoretical EBITDA margins on VIP revenues. I estimate the casinos break even on VIP business around a commission rate of 1.5%.
  • No word yet on WYNN but I am skeptical they can hold out any longer. WYNN has proven to be the best operator in Macau and their performance resilient despite an uncompetitive junket rate. At some junket rate, price will win over product, at least with some junkets and players. I am not sure we are there yet but any market share loss or softening of its junket position could be a major dent to this Bugatti. WYNN's stock has been a massive outperformer relative to the group and deservedly so. Could WYNN's stock become a victim of its own success? Follow the junket rates and market share.