MACAU: A MARKET SHARE BATTLEFIELD?

SJM may be embarking on a VIP market share grab strategy for 2010. 

Already with a combined 42% overall market share, SJM could be going for broke, somewhat literally.  The company secured only about 29% of VIP turnover (volume) share in 2009 but is looking to ratchet up that number meaningfully, potentially at the expense of their margins, and potentially the market’s margins.

Within its junket operations across its properties, SJM seems to be moving to a revenue share model with the junkets, rather than a commission based on rolling chip.  We are hearing SJM will keep only 5% of VIP revenues while 40% will go to the government and 55% to the junkets.  That is a very attractive model for the junkets and should drive significant share shift if the competing properties do not follow suit.  This model also takes commission caps out of play since it is a revenue share model and doesn’t violate the letter of the 1.25% commission cap on rolling chip.

If our intelligence is accurate, get ready because Macau VIP margins are going to shrink or share will shift dramatically.  Specifically, SJM may be targeting LVS’s VIP junkets.  However, this type of pricing will hurt everyone.  We’ll have more on this in the coming days.