‘Ex-AMA’ junkets on board Altira

Thursday, February 4, 2010
Issue 933, Page 2
Word count: 621
Published in: Macau Daily Times

By Poyi (Natalie) Leung

A senior executive of Melco Crown Entertainment confirmed in the Tuesday earnings call that the company has signed individual agreements with 12 junket operators who were previously under the AMA International (AMA) umbrella.

AMA, a junket license holder in Macau, signed a Gaming Promotion Agreement with Melco Crown Entertainment in August 2007 to market and promote Altira Macau as well as operate junket business there.

Hong Kong listed company Amax Holdings afterwards through its wholly owned subsidiary Ace High Group Limited entered into two Profile Transfer Agreements with AMA respectively in 2007 and 2008.

However in the January 24 announcement issued by Amax Holdings, it accused Melco Crown of “without the consent of AMA, the Gaming Operator has unilaterally entered into separate agreements with the collaborators [junkets] since December 2009 to whom they are under the Gaming Intermediary Agreements with AMA”.

Despite changes in the commission cap in Macau, the Hong Kong listed company said that AMA and Melco Crown have signed a revocation agreement in respect of the Gaming Promotion Agreement on December 23, 2009 and on the same day, they entered into a new Gaming Promotion Agreement.

“An agreement on gaming promotion is still existence and AMA still has the operating right at Altira Macau,” Amax Holdings said in the statement.

Melco Crown Entertainment at that time did not confirm the authenticity of Amax Holdings’ claims in response to the Macau Daily Times’ enquiry.

Yet, the situation seems to be more clear after Simon Dewhurst, the Executive Vice President and Chief Financial Officer of Melco Crown Entertainment, gave detail comments to a number of analysts during the fourth quarter 2009 earnings call held on February 2.

According to the full transcript of the conversations on seekingalpha.com, Dewhurst said that “a strategic decision back in 2007 to make Altira Macau a property dedicated almost exclusively to the junket-driven rolling chip business” was made.

“We teamed up with AMA an aggregator, who was well funded and was able to offer substantial working capital support to a group of junkets,” he added.

The senior executive explained that AMA received a commission based on the roll volumes generated by the junkets, in compensation for the provision of its working capital. At the same time the junkets were also paid commission “in line with the market practice”.

However, he then pointed out that with the imposition of the 1.25 percent commission cap on December 1, 2009 in Macau, Melco Crown was no longer able to pay the addition of commission to AMA.

“The commission cap legislation was the catalyst for us to transition from an outsourced credit provision model, underwriting model to a more traditional business model, where relationships with our junkets are direct,” Dewhurst told the analysts.

“We’re pleased to be able to report that all 12 junkets, which had previously operated under the AMA umbrella signed direct agreement with us [effective from December 1, 2009] and decided to stay at Altira Macau,” he added.

These 12 junkets Melco Crown has now got on board as direct partners are receiving a flat rate of 1.25 percent commission, as stated by Melco Crown’s Co-Chairman and CEO Lawrence Ho and Altira Macau’s CEO Ted Chan during the earning calls.

In the third and fourth quarters of last year before the commission cap came into effect, it was revealed that Melco Crown was paying above 1.3 percent in junket commission.

There are currently altogether 17 junkets operating at Altira Macau since Dewhurst said that the company has “always had to buy junkets as a property that were outside of the AMR umbrella”.

On the other hand, Lawrence Ho called recent reports of Harrah’s Entertainment negotiating to buy a 32 percent stake in Melco Crown “total nonsense”.

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