Three main trends will sweep Macau’s gaming industry over the next decade as the city government aims to achieve sustainable economic growth and maintain social stability, market watchers said.
Focus will shift to mass-market gaming tables from VIP business, traditional franchisee casinos will be replaced by those directly operated by the six license holders, and non-gaming revenue streams will account for a bigger proportion of the operators’ overall income, the observers said, citing Chief Executive Fernando Chui’s policy address on Nov. 12 and some industry experts.
Macau saw its gaming revenue climb 18.6 percent year on year to 327.29 billion patacas (US$40.99 billion) in the 11 months to November, the Gaming Inspection and Coordination Bureau said Monday.
While the world’s largest gaming destination continues to see phenomenal growth, the government is getting increasingly worried about the sustainability of such pace of expansion.
The gaming and related tourism industry contributed about 92.9 percent of the city’s gross domestic product in 2010, according to the World Travel and Tourism Council. An unexpected development such as a new global financial crisis or an outbreak of an infectious disease in the region will have a huge negative impact on the gaming industry and job market, the observers said.
In 2006, Macau surpassed Las Vegas to become the world’s largest gaming city by revenue, following its moves to open up its gaming market by granting six casino operating licenses from 2002 and Beijing’s decision in 2003 to allow individual mainland tourists to visit Hong Kong and Macau.
However, fissures started appearing in the social fabric. On May 1, 2007, Labor Day, thousands of angry local workers marched on the streets of the city to assail the government policy of importing large numbers of mainland laborers, saying their salaries and benefits were dragged down as a result. They also decried the high inflation and property prices.
A policeman’s warning gunshot helped control the chaotic crowd but it also sent an alarm to the central government, which then ordered the city to resolve its social problems.
Since the incident, Macau has delivered cash and other social benefits to help its citizens bear the economic hardships. But some external crashes continue to brew social and economic storms in the city.
In November 2008, for example, 12,000 workers in Macau lost their jobs as gaming operators halted the construction of their casino projects after Las Vega Sands China (LVS.US), parent of Sands China Ltd. (01928.HK), recorded a 97 percent drop in its share price in the United States from a year ago.
Gaming table cap
The need for Macau to diversify its industry mix has become more urgent. Between 2010 and 2012, the local government capped the total number of gaming tables at 5,500. Only 250 tables were added this year. The government has also set a 3 to 5 percent annual growth in the number of gaming tables for the coming decade.
However, such moves have been unable to push gaming operators to invest in non-gaming facilities. About 90 percent of their revenue still came from gaming while the rest was from retail, entertainment and other non-gaming services.
“The base of gaming revenue is so big that it almost does not matter how fast non-gaming grows, it is always going to be a very small part of the pie,” Grant Govertsen, managing partner at Macau-based Union Gaming Research, told the Hong Kong Economic Journal’s EJ Insight in an earlier interview.
One of the main reasons for this inflexibility is that the city’s gaming industry is dominated by junket operators, who run their own VIP gaming rooms for high-rolling gamblers to generate up to 70 percent of the overall revenue in the sector, some analysts said.
Junkets also contribute a lot of revenue for the 18 franchisee casinos, which are usually operated alongside mid-range hotels and have no initiative to offer non-gaming facilities, they said. Of the 35 casinos in the city, the remaining 17 are directly operated by the six license holders.
The government is offered a rare chance to persuade the city’s six gaming license holders to diversify their business mix during the interim review of the licenses in 2015. It could also enhance cooperation with neighboring areas such as Zhuhai, Zhongshan and Nansha to broaden the city’s tourist mix.
Macau is still lagging behind Las Vegas in many ways as the latter’s non-gaming sectors, including retail, entertainment and convention businesses, accounted for 60 percent of the casino operators’ total revenue, an industry expert, who declined to be identified, told EJ Insight.
During the 2015 review, the six license holders will probably be urged to fulfill certain requirements in their investments and space allocation for cultural, convention, sport and retail activities, he said. Also, they may have to achieve a certain ratio of non-gaming revenue to total revenue by 2020 and 2022, when they need to renew their licenses, he said.
In view of the government’s policies and the opening of the Hong Kong-Zhuhai-Macau bridge in 2016, several trends in Macau’s gaming industry will be seen over the next decade, observers said. Franchisee casinos will continue to lose market share while some of them may go bankrupt. Mass-market gaming tables will become dominant in casinos while choices of non-gaming activities will also increase, encouraging visitors to stay longer.
– Contact the reporter at [email protected]