Macau doubles down on mega-resorts bet
By Muhammad Cohen
MACAU - At last month's Global Gaming Expo Asia, the company formerly known as ShuffleMaster showed its Free Bet Blackjack version of the standard casino table. In SHFL Entertainment's Free Bet, players can double their bets without risk. It seems like a can't-lose proposition, but instead of winning if the house gets 22, in that one instance all bets are off. It's a minor detail but enough to make Free Bet a losing proposition for the player.
For Macau's casino operators, it seems like they're getting a free bet as each of them builds a new multi-billion dollar casino resort, doubling down on their investments amid booming revenues. It
seems like they can't lose, but looks can be deceiving.
Macau set a new monthly gaming revenue record in March with 31.3 billion patacas (US$3.8 billion), surpassing 30 billion patacas for the first time. Macau reached the milestone despite slowing economic growth in China, its main source of customers, and stagnant visitor arrival numbers. Special circumstances pushed Macau over the top.
Revenue from high rollers rose 70% in 2010 and 45% in 2011, boosting its share of overall gaming receipts to 73%. But last year, growth in this VIP market stalled, especially in the second half of the year. That's partly because of the mainland economic issues. An estimated 90% of VIP revenue comes from mainland players.
Whale migration
The VIP slowdown was also linked to the mainland's long unfolding political leadership change that included pledges to crack down on corruption. Many observers link VIP play and corruption on the assumption that much of the money that's bet on the VIP tables originates from some form of illegal enterprise. True or not, some players felt the transition period was the wrong time to draw attention by flaunting their wealth.
By the time Xi Jinping officially took office as president in March, it was clear that the regime wouldn't declare a war on wealth or blindly punish visits to Macau. VIP play came roaring back after months of stagnation to grow an estimated 25% from a year earlier, accounting for 21.8 billion patacas, or 70% of March's 31.3 billion patacas total.
The record month established a new plateau: Macau's casinos now regularly take in more money in a month than they did in a full year a decade ago. Then, there was just one casino operator with a couple hundred tables. Now there are six operators and more than 5,000 tables. But the changes go beyond mere volume.
One of the reasons that Macau surpassed Las Vegas in gaming revenue in 2006 - Macau now does more than five times as much as The Strip - is that table stakes are higher. In Macau, limits start at HK$100 (US$13), while you can still find US$1 bets in Vegas. These days, minimums at many name Macau casinos have risen to HK$300.
Supply and demand
Macau can boost the minimums because tables are in limited supply, despite the huge expansion. A table cap limits additional tables to 3% annually, creating the illusion of scarcity. The rule that all dealers must be Macau residents and an unemployment rate of 1.9%, full employment for all practical purposes, also constrain table numbers. For players who want to wager less, casinos have installed electronic terminals for playing baccarat, sic bo (a Chinese dice game also known as big-small), roulette and blackjack with live or electronic dealers. Betting units are as little as HK$10 on the terminals.
The property that ended the casino monopoly of Stanley Ho and began the boom that has propelled Macau to its dizzying heights, Sands Macao, was at that time nothing more than a casino on the edge of downtown. A decade later, the new properties that each operator is building are full-scale resorts in Cotai, the landfill linking Macau's outer islands of Coloane and Taipa that was an unwanted swamp when casino liberalization began.
Cotai at present has four resorts and more than 14,000 hotel rooms and is fueling mass market gaming growth. Since the middle of 2009, when mainland authorities reopened the tap on visas and City of Dreams debuted as Cotai's second resort, mass market revenue has grown at least 30% every quarter. Mass market play provides a more steady and more profitable revenue stream than VIPs, so operators are glad to support the trend.
They're doing it by each building a new resort in Cotai, or in Galaxy's case substantially expanding the one they have. The new resorts will more than double the number of hotel rooms and gaming tables in Cotai at a cost in excess of US$15 billion. Like the existing resorts, the new ones will have plenty of retail, restaurants, world-class spas, and a variety of recreation and entertainment options, from hip clubs to indoor beaches to business meeting spaces. Since the prototype has worked so far, the casino licensees are doubling down on the mega-resort model for Cotai.
Act, don't analyze
But no one knows why or how it's working. Macau's visitor numbers, until an unforeseen uptick in arrivals in May, have been flat for a year. Despite the expansion of attractions, average length of stay remains stuck at around a day, more than half of visitors don't stay overnight, and more than 90% still come from the mainland, Hong Kong and Taiwan.
Some things in Cotai are impressive. Galaxy Macau, which opened in May 2011, is a comfortable resort with a distinct, coherent theme and attractions for a broad range of guests. City of Dreams' House of Dancing Water stage and pool spectacle and Club Cubic are best in class for Macau. Venetian Macao's sheer bulk makes it a must-see for visitors, whether they find it awe-inspiring or hideous.
But much of what is in Cotai is decidedly uninspired, with a distinct lack of personality and imagination. In resorts both in Cotai and on the Macau peninsula, the whole often falls short of the expected sum of the parts. The success of mega-resorts provides possible proof of what government lawyer Jorge Oliveira, a key player in bringing competition to the gaming market, said about Macau: "We being the only center in China where it is possible lawfully to operate casino gaming, it doesn't require a genius to make money with casinos there."
China Market Research Group (CMR) associate principal Ben Cavender noted at G2E Asia last month that mainland Chinese tourists are becoming more sophisticated and more of them are looking for new and exotic destinations, some of which, such as Phnom Penh and South Korea, also have casinos. "Macau needs to be clean, modern and easy to reach to attracting mainland tourists." That's especially true for those from provinces that may be closer to other resorts destinations than they are to Macau.
Macau has two aces in the hole. Late this year, Hengqin island adjacent to Cotai but part of the mainland's Guangdong province, will begin functioning as a satellite destination supporting Macau. Chimelong, known as China's Disney, is opening its Ocean Kingdom theme park and resort, the first of three properties it plans on Hengqin. University of Macau associate professor associate professor of business economics Ricardo Siu Chi Sen believes Chimelong will make Hengqin China's Orlando, as in the home of DisneyWorld in the US state of Florida. When development is completed, an estimated 20 million mainlanders are expected to visit Hengqin, within view of Cotai's casino resort towers, though they'll still need a visa to cross the border.
Morgan Stanley Asia managing director Praveen Choudhary notes that while half of Macau's 28 million visitor arrivals last year were from the mainland they were made up of no more 6 million different people. The Cotai double-down will show whether that fact represents an opportunity for Macau's casino operators, or an indictment.
Macau Business magazine special correspondent and former broadcast news producer Muhammad Cohen told America's story to the world as a US diplomat and is author of Hong Kong On Air, a novel set during the 1997 handover about television news, love, betrayal, financial crisis, and cheap lingerie. See his blog and more at MuhammadCohen.com.
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