Macau
needs decades to go beyond
gambling By Muhammad Cohen
MACAU - While gaming revenue soars to new
records, Beijing and Macau officials are preaching
the gospel of diversification. Casino operators
are hearing the message and trying to expand
Macau's menu for visitors. But don't expect Las
Vegas-style shows and attractions to outshine -
and out-earn - gaming any time soon. Instead, the
response is diversification with Macau
characteristics.
Among Macau's six casino
licensees, non-gaming revenue tops out at 16% for
Sands China, which operates the Venetian Macao.
Opened in 2007 as a flagship integrated resort and
an anchor for the new gaming area in Cotai, the
landfill joining Macau's outer islands of Coloane
and Taipa, the Venetian includes a 93,000 square
meter shopping mall, an even larger convention
center, 3,000 hotel rooms, Cirque du Soleil's
Zaia, and a 15,000 seat
arena. Other operators
struggle to reach double-digits in non-gaming
revenue. By contrast, before things went bad for
Las Vegas in 2008, up to 60% of casino resorts'
revenue came from non-gaming activities.
"That didn't happen overnight," American
Gaming Association president and chief executive
Frank Fahrenkopf said of diversification in Las
Vegas earlier this month during the annual Global
Gaming Expo (G2E) Asia in Macau. "We've been
coming to the Venetian [Macao] for four years. You
could have shot a cannon through the mall our
first year. Now, it's full. We're not where Las
Vegas was before the crash, but we're well on the
way in Macau. People will come for shops and
shows. But that's evolutionary. It's not something
that just happens."
Full spectrum
momentum Jonathan Galaviz, chief economist
for tourism and leisure consultant Galaviz and Co,
believes Macau needs to add a "full spectrum of
leisure activities, with gaming a small piece of
the picture" to move up the global tourism ranks.
"The momentum to build a full-blown leisure
destination is there, but it will take decades,
not years" he said. "That's okay as long as the
business decisions are heading in the right
direction."
Those decisions are getting
pushed in that direction by the Chinese
government's 12th Five-Year Plan, which pledges to
support Macau's development as a "world tourism
and leisure center", and the Guangdong-Macau
Cooperation Framework Agreement signed earlier
this year. Under that agreement with its
neighboring mainland province, "Macau is expected
to transform from a largely casino gaming city to
a more family and business travel destination,"
according to University of Macau associate
professor of business economics Ricardo Siu.
"To achieve this end, nevertheless, is not
a one- to two-year project," Siu said. "For
example, related infrastructure, such as the Hong
Kong-Zhuhai-Macau bridge, the light monorail in
Macau, the transportation system which supports
the construction of a one-hour living area in the
PRD [Pearl River Delta], and other elements, must
be completed in the coming decade before Macau
could really diversify its existing gaming-based
economy. In the coming five years, at least, the
pace of Macau's diversification may still be
slow."
To speed Macau's diversification,
Sands China parent company Las Vegas Sands
chairman and chief executive Sheldon Adelson
suggests "the government ought to develop a
matrix: if you want to build a casino, then you
have to develop a series of amenities". Under such
a regime, gaming licensees would be incentivized
or punished in terms of the size of their overall
project, or perhaps just the size of the casino,
based on what non-gaming amenities are provided.
What happens in Vegas... Given
Macau's constraints, including limited land,
regulation and local talent, there's already been
surprising effort toward diversification. Nearly
all of the gaming operators are trying to expand
their offerings beyond gaming, or least giving lip
service to it. But what happens in Las Vegas, with
non-gaming revenue accounting for a majority of
resorts' revenue, won't happen in Macau.
The Las Vegas model that over the past
decade has relied heavily on MICE - meetings,
incentives, conventions, exhibitions - isn't
working in Macau. (Nor it is working very well in
Vegas at the moment.) The beauty of MICE is that
visitors are using corporate funds - other
people's money or for small businesses and the
self-employed, their expenses can reduce their
taxes - so spend more freely than typical leisure
travelers. MICE hasn't taken off in Macau for a
variety of reasons, including lack of direct
flights from the United States and other key
markets, limited language skills, and a dearth of
meeting planning professionals. There are also
aren't that many huge conventions in Asia and
there is fierce competition to host them.
Gaming will still dominate Macau for the
foreseeable future, and much of what's designated
as diversification consists of attempts to expand
the fringes of the market or to provide new
attractions along the margins, rather than create
new revenue streams to challenge gambling.
Reported double-digit growth in non-gaming revenue
was dwarfed by 58% growth in gaming revenue last
year and more than 40% this year.
Even
when there's a non-gaming hit, such as the
surprising popularity of the US$250 million House
of Dancing Water show at Melco Crown's City of
Dreams, the payoff is nowhere near the returns on
gaming. Along with the disappointing performance
of Zaia at Venetian, that helps explain the
lack of imitators lining up to create similar
stage spectacles in what has been a "Macau-see,
Macau-do" business culture.
Ponte to
ponder Instead, diversification with Macau
characteristics means working along the margins to
expand existing markets and synergize with
existing attractions. The self-proclaimed most
gaming-centric, China-centric of Macau's casino
companies, Sociedade de Jogos de Macau (SJM), has
got into the game with its Ponte 16 urban resort.
"Ponte 16 is part of an effort to
revitalize Macau's historic Inner Harbor
District," SJM chief executive Ambrose So said.
"As a centerpiece of the development, the historic
Pier 16 building [where Hong Kong ferries once
landed] has been preserved in its architectural
integrity and converted into use for dining and
shopping."
Ponte 16 is the best attempt to
date to bring together Macau's main attractions,
heritage and gaming. The resort is within walking
distance of the UNESCO-designated historic center
of Macau - as is SJM's flagship Grand Lisboa hotel
and casino. Along with its casino and other
facilities, Ponte 16 includes the MJ Gallery, a
mini-museum of Michael Jackson memorabilia, along
with a gift shop and MJ Caf. Jackson's tours
frequently included East Asia stops.
Resorts are experimenting with various
club concepts to see what, if anything, will work
in the market. Sands Macao opened the Playboy Club
last year, and the Venetian Macao is building a
Playboy Mansion. City of Dreams has transplanted
the popular Club Cubic from downtown Macau to
Cotai to a new, larger venue. "The new
location is a benefit to each other," a club
spokesperson said. "Club Cubic reinforces City of
Dreams' overall entertainment destination strategy
as the ultimate multi-day stay destination for
leisure and entertainment seekers across the
region." The jury is still out on whether Cotai is
hip enough for clubbers at this point.
The
third major resort in Cotai, the new Galaxy Macau
resort, also aims at diversification. "You can see
it with your own eyes," Galaxy Entertainment Group
vice president for public relations Buddy Lam
says. "Galaxy is a completely different product
from the products in Macau previously."
The complex targets Asian leisure
travelers with features like a rooftop wave pool
and white sand beach. Galaxy's three hotels
include Macau's first branches of Japan's Hotel
Okura and Southeast Asia's Banyan Tree, including
its renowned spa. The resort has luxury jewelry
and watch stores, as well as retail and food
outlets that appeal to more frugal middle class
holiday makers, and free attractions in its lobby
areas. For both local residents and visitors, the
complex will open a nine screen cineplex later and
its own club concept, China Rouge, later this
year.
"Everything has been thought
through," Lam said. "Souvenir shops are close to
the bus entrance, high end shops further away.
They cater to different markets."
The
centerpiece of Galaxy Macau is its 420,000 square
foot (39,000 square meter) casino, and that's
still what drives visitation and revenue. Macau is
working toward the full spectrum of leisure
activities consultant Galaviz speaks about. But
gaming still dominates the picture, and that's
unlikely to change without more operators making
more big bets on world-class non-gaming
attractions.
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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handover about television news, love, betrayal,
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