Macau’s gaming revenue witnessed a rebound in July, fueling hopes for an upturn in casino-related firms on the stock market.
Investors should, however, bear in mind that Macau casinos are still heavily dependent on mainland customers. Also, the industry faces a growing threat from mobile games.
A consortium of Chinese investors announced Saturday that it will acquire Playtika, the social and mobile games unit of Caesars Interactive Entertainment (CIE), in a US$4.4 billion deal.
The Chinese consortium includes Yunfeng Capital, the private-equity fund of Alibaba founder Jack Ma.
CIE’s parent company, Caesars Entertainment, is a Nasdaq-listed entertainment firm with 79-year history. One of the oldest casino operators in the US, it currently runs over 50 casinos and hotels in Las Vegas and other cities.
However, Caesars Entertainment filed for bankruptcy protection last year due to a huge debt pile. The company was forced to sell some assets to repay the debt.
CIE has built Playtika into a major player in the world of smartphone-based casino-style games in recent years. Caesars Entertainment and its sister company Caesars Asset were worth only some US$2.6 billion, while CIE’s Playtika unit was sold for US$4.4 billion.
The Chinese consortium that is buying Playtika is led by Shanghai Giant Network Technology, which is owned by Ma’s good friend Shi Yuzhu, founder of Giant Interactive Group.
Playtika marked the second largest deal overseas in the sector by a Chinese group, after a previous acquisition by Tencent.
In June, internet giant Tencent spent US$8.6 billion for a controlling stake in the Finnish game maker Supercell.
Caesars Entertainment was forced to sell Playtika as the gaming industry has been suffering in Las Vegas in recent years. The city has faced intensifying competition from casinos in other parts of the world, as well as online gaming.
Last year, Las Vegas saw its gaming revenue drop to US$6.35 billion, down 7 percent from the peak in 2007. By contrast, US online gaming revenue soared to US$1.97 billion, nearly 10 times more than the 2007 level.
It’s expected that online gaming revenue would be equivalent to half of that of Las Vegas casino revenue by 2020.
Online gaming revenue is estimated to have cannibalized commercial casino revenue at a rate of 27 to 30 cents on the dollar, according to research from Professor Kahlil Philander of the University of Nevada.
In the past, people in Hong Kong had limited gambling options, such as Mahjong, poker, horse-racing or Mark Six. Making a trip to Macau and visiting the casinos was the most exciting prospect. However, people now have far more choices in the internet era.
The Pokémon GO mobile game craze that we are seeing now is a cause for worry for casino operators.
As with gambling, players need a lot of luck in Pokémon GO. Gamers get very excited when a rare Pokémon pops up, offering an adrenaline rush similar to gambling.
A young person who might have earlier considered going to Macau over a weekend might now decide to stay put in Hong Kong and play the addictive mobile game.
One can argue that Macau and Las Vegas still depend mainly on middle-aged customers, who are less familiar with online games.
That’s true but it doesn’t mean that casinos can rest easy. If the industry is not able to attract the younger generation in sufficient numbers, one can’t say that its prospects will be bright.
Many of Playtika’s games, like Slotomania and Bingo Blitz, are free to play, and users can also pay for virtual currency and items to enhance their gaming experience.
That said, it remains unclear whether Chinese regulators will accept gambling-style mobile games.
This article appeared in the Hong Kong Economic Journal on August 3.
Translation by Julie Zhu
[Chinese version 中文版]
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