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Why Melco Crown Employs Gaming Promoters

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Gaming promoters

Gaming promoters in Macau are independent third parties that include individuals and corporate entities. They are officially licensed by the Gaming Inspection and Coordination Bureau (or DICJ). Also known as junket operators, gaming promoters introduce VIP gamblers to the major casino operators such as Las Vegas Sands (LVS), Wynn Resorts (WYNN), and Melco Crown Entertainment (MPEL).

Like other casinos, Melco Crown Entertainment employs gaming promoters to help VIP gamblers arrange credit facilities, transportation, and accommodations. These companies are components of ETFs like the Consumer Discretionary Select Sector SPDR Fund (XLY) and the VanEck Vectors Gaming ETF (BJK).

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Casino revenues

Gaming promoters generate most of Melco Crown Entertainment’s rolling chip play amounts, contributing a major portion of MPEL’s casino revenue. Rolling chip volume is the amount of non-negotiable gaming chips wagered and lost by the VIP market segment.

For the years ending December 31, 2013, 2012, and 2011, MPEL derived 49.8%, 53.4%, and 61.0%, respectively, of its casino revenues from customers sourced through its rolling chip gaming promoters. For the six months ending June 30, 2014, ~44.7% of the company’s casino revenues came from these gaming promoters.

As of December 31, 2013, 2012, and 2011, Melco Crown Entertainment had agreements with 114, 107, and 86 gaming promoters, respectively, in Macau.

Gaming promoter commissions

In return for their services, gaming promoters earn a commission and receive other complimentary services. Commissions paid to MPEL’s rolling chip gaming promoters amounted to $391.9 million, $308.6 million, and $321.6 million for the years ending December 31, 2013, 2012, and 2011, respectively. For the six months ending June 30, 2014, these commissions amounted to $174.3 million.

Melco Crown Entertainment’s top five customers, and its single largest customer, were gaming promoters and accounted for ~21.8% and 7.1% of its casino revenues, respectively.

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