Paradise Casino Opens at Kam Pek Casino Macau - Tuesday 25th of March 2008

Hong Kong-listed Paradise Entertainment Ltd has unveiled the largest e-table casino in the world in Macau at the Kam Pek Casino, hoping to parlay its local connections and innovative spirit to grab a greater slice of the booming gaming market.

Live-dealer baccarat

Paradise Entertainment Ltd has the Macau patent on electronic baccarat terminals based around a live-dealer game, blocking the entry of more recently developed competing products, such as Shuffle Master Inc’s Rapid Baccarat™.

Paradise’s LIVE Baccarat is a hybrid system, with players sat at electronic terminals that process bets on a game dealt by a live dealer. Having a live dealer makes LIVE Baccarat appear “more fair and believable” to players than fully automated baccarat multi-terminals, according to Paradise Entertainment Ltd Executive Director Aaron Park. Players also appear to be more engaged when playing against a live dealer than a computer generated image, and consequently are likely to bet more aggressively on the LIVE Baccarat system. Meanwhile, the automated processing of bets dramatically increases productivity of a dealing table while preventing fraud and errors.

Sharing is winning

Paradise is the only gaming machine manufacturer to have secured profit sharing agreements with Macau casino licensees, while all other suppliers are restricted to either lease or purchase agreements.

Paradise currently has profit sharing agreements with two of Macau’s six licensees, SJM and Galaxy Entertainment Group. Mr Park says those agreements were struck thanks to the company’s “local connections,” especially those of Chairman and CEO Jay Chun, who “has tremendous experience in Macau and knows everybody in the field here.”

Paradise bears all installation, maintenance and tech support costs, as well as paying the salaries of promotional staff for LIVE Baccarat. In return, SJM and Galaxy provide the venue and dealers and give Paradise a share of net wins from the terminals.

Paradise unveiled the largest e-table casino in the world in Macau on December 28, 2007. The Paradise Casino, which houses 280 of the company’s LIVE Baccarat terminals, operates under the license of Stanley Ho’s Sociedade de Jogos de Macau (SJM), and brings the number of terminals deployed around Macau by the company to 540—the company has an additional 160 terminals placed on a profit sharing basis at a Philippine Amusement and Gaming Corporation (PAGCOR) venue in Manila. According to Mr Park, the company’s target is to have 1,200 terminals installed across Macau by the end of 2008, including an additional 100 terminals at the Paradise Casino.

The Paradise Casino is located on the third floor of the Kam Pek site, which was previously home to the flagship outlet of Melco PBL’s Mocha Slot, before Melco PBL acquired its own local casino license, forcing Mocha out of the SJM-owned site for regulatory reasons (Mocha previously operated under SJM’s license). If all goes to plan, Paradise hopes to also take over the first and second floors of the Kam Pek site in the near future.

Mr Park points out that as Paradise demonstrates the value proposition of its product and its bargaining power with casino licensees increases, it has now been able to command a greater share of the gaming revenue generated by its terminals. Whereas Paradise previously received a 31% share of net wins on its machines at SJM venues (with 40% going to the government as gaming tax, and the remainder to SJM), the company receives 40% of net wins on the 280 terminals at the new Paradise Casino at Kam Pek.

SJM has been steadily switching its profit sharing agreements with all its 40:40:20 partners—40% to the government, 40% to the property owner, 20% to SJM—to a new 40:55:5 arrangement, whereby SJM only takes a 5% cut, but the property owners must assume all labour costs. Paradise expects to switch to that arrangement in the near future.

Paradise is in a unique position to benefit from assuming labour costs, as the major value proposition of the LIVE Baccarat system is a more than 90% reduction in labour costs. Dealer costs in Macau have been spiralling since the government liberalized the local gaming industry in 2002 leading to an explosion in the number of tables, while the government has maintained a strict ban on casinos hiring foreign workers as dealers.

The lower labour costs allow LIVE Baccarat to offer a minimum bet of just HK$20 (US$2.6), compared to the HK$100 minimum on normal baccarat tables. Given the relentless increase in the number of regular baccarat tables around Macau, Mr Park says: “Some people ask ‘won’t they have no choice but to lower their minimum bet from HK$100 to HK$50? How will you compete then?’”

Mr Park does not think casino operators in Macau will ever introduce significant numbers of baccarat tables with minimum bets below HK$100, because at that level, with labour costs so high, “there is no reason to actually go and launch that table to begin with.” Any tables with minimum bets below HK$100 would be “loss leaders in order to bring in people, so they’ll go and play other games. But in that case, the casinos are really crossing their fingers that those people who are betting less than HK$100 per hand are going to go and lose money somewhere else,” argues Mr Park. “How are you going to justify paying somebody HK$15-16,000 per month in salary, and you’ve got a table with a minimum bet of less than HK$100? It doesn’t make sense.”

The Paradise Box™

The opening of the Paradise Casino saw the introduction of the company’s Paradise Box™, the second generation terminal for its LIVE Baccarat system. The Paradise Box is the result of the company’s quest to provide products responsive to the needs of players in Macau and the rest of the region. The Paradise Box is an attempt to provide a more intense and immersive gaming experience to players at the LIVE Baccarat terminals.

A dealer on the LIVE Baccarat system currently handles two tables simultaneously (scaleable up to three tables), with each table linked to a separate section of 20 terminals. One hand is dealt to each section of terminals every fifty seconds—twice as fast as each hand is dealt at a regular baccarat table.

Chinese gamblers are renowned for the intensity at which they play, and Mr Park acknowledges the LIVE Baccarat players in Macau are “pretty hardcore.” Many of them want the game to go even faster.

“It usually only takes people ten seconds, maximum, to place a bet, so they have 40 seconds of downtime, and during that downtime they’re very fidgety,” Mr Park reveals, adding that at the first generation LIVE Baccarat terminals, “it’s not uncommon to see one person standing up and moving between both sections,” so that they can play two hands every fifty seconds—four times the pace at which they could play at a regular table.

Paradise responded by developing the second generation Paradise Box.

An additional screen at each terminal offers a server based slot game to keep players occupied during the downtime. “It’s the first electronic table game with a live dealer plus a server-based game,” says Mr Park.

The Paradise Box has three screens. The pair of screens on the left provides a live feed of a game dealt by a live dealer and the interface to place bets on it. The single screen on the right offers a choice of server-based slot games.

The right-hand screen of the Paradise Box currently only offers three games, which Mr Park believes is a big reason take up of the third screen has thus far been slow. However, “we believe we’re going to see a lot more people play that third screen when we launch more games,” he adds, targeting a total of 15 games on the server-based side by the end of the first quarter of 2008, and 50 games by the end of the year. Paradise also has an attractive proposition for game providers. “In order for us to go and attract the best game content and killer games, our plan is to profit share. We’ll be the only guys in Macau who will profit-share with game providers,” he reveals.

A key feature of the Paradise Box is the plush seating with arm rests and drink holders. There is also a two-person love-seat configuration. “Comfort is the most important factor. We want people to sit down at the machine for hours at time. We want to give them no reason to go,” says Mr Park.

The Paradise Box could be considered almost an extension of the hardcore gambler, reminiscent of the pilot seat in “The Matrix” films, suggests Mr Park.

Life-changing jackpot

Paradise has a patent on a progressive jackpot at regular baccarat tables, which could become one of the company’s biggest earners.

Paradise first launched the progressive jackpot as a side bet on LIVE Baccarat last year, and on January 16, 2008 launched it across 18 regular baccarat tables at the Galaxy-run Waldo Casino, located across the street from Sands Macao. Waldo now boasts “the largest number of baccarat-based progressive linked tables anywhere,” says Mr Park, with the side-bet standing at HK$20.

Progressive jackpots—“we call it the ‘life changing jackpot,’” says Mr Park—hold great allure for Chinese gamblers. Paradise’s trademarked Paradise Jackpot is the world’s first baccarat-based jackpot, which pays out when specific card sequences are dealt during a LIVE Baccarat game. The “Paradise Jackpot” pays out 100% of the pool when the five cards constituting a Royal Flush are dealt, while fixed payouts are also available for four of a kind, three of a kind and banker or player pairs.

In 2007, Macau casinos generated about US$9.0 billion in baccarat revenue—$7.0 billion at VIP tables, and $2.0 billion in the mass market, representing a combined 86.7% of the city’s total $10.4 billion casino revenue for the year. “If for each game 50% of players place the side bet, the pool will grow by about half a million a day. The potential payout will take about one month or even longer. I wouldn’t be surprised if the jackpot goes up to 50 million.”

It is early days at Waldo, which is a small, low-traffic venue, but if it proves successful, the Paradise Jackpot could be implemented on regular baccarat tables in larger locations.

Getting the Paradise Jackpot into VIP rooms is also a challenge, given the complicated structure and fragmented ownership of Macau’s VIP market. If any company has the local connections to get a new product into a large number of Macau VIP rooms, however, it is Paradise.

The company is poised to sign an agreement to supply its Paradise Jackpot on a further 120 regular tables at an as yet unnamed casino location, at which point the progressive jackpot will begin to grow quickly, along with interest in the Paradise Jackpot.

Mr Park is confident that “over time we would have a penetration for the majority of all baccarat tables in SJM and Galaxy.” If that happens, Paradise’s final ace will start paying off handsomely, and could become its biggest earner.

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