Tuesday, September 17, 2013

Asian Casinos: Gambling on Growth

Now chasing after children

This Economist article on Asian casinos provides an insightful update of the continuing evolution of a sector that continues to grow bigger and more broad. In short, the piece highlights two related trends – one, the chasing by neighboring countries (e.g. Singapore, Philippines, Russia, Australia, Korea) to lure the high end Chinese gambler away from Macau, and two, Macau’s reaction by broadening its appeal to the mass markets and families.  On the first point, the fact that Macau’s size has handily eclipsed Las Vegas as the largest gambling destination in the world (Forbes magazine puts Macau’s gaming revenues at six times that of Vegas) speaks volumes about the immense firepower of the high end Chinese punter. However, the Chinese government’s recent crackdown on corruption and the flaunting of wealth has made Macau a less popular destination than before. “Beijing has too many cameras watching us in Macau,” says one former patron. Other governments are therefore trying to lure these players to their shores, implicitly offering discretion as one strong enticement.

However, there’s no need to pity the poor ex-Portuguese colony of Macau. Losing some of the high-end players is a natural evolution towards a more durable and less risky business model. The Chinese high-end customer has traditionally been a lower-margin segment of the market, primarily due to the necessary subsidies and incentives (e.g. free suites and fine dining, money laundering services, “companionship”, cuts paid to the junket tour operators). So while securing these customers has been an essential part of Macau’s early success story, the future lies in luring the vast Chinese mass market – the "great unwashed”, so to speak. To ease their journey, billions of dollars are being spent on improving the road, rail and bridge links between Macau and other neighboring Chinese cities, including Zhuhai, Shenzhen and Hong Kong.  A key future draw is a nearby island, Hengqin, that is being developed with theme parks – think of it as building an Orlando next to Vegas. The model is similar to what Las Vegas itself has done over the past decade, evolving into a destination where non-gambling revenues now constitute the majority.

Early signs of the market transition for Macau have been encouraging for its license holders. Despite the government crackdown on the high end, Macau’s monthly revenue and year-to-date growth has grown by 15-20%, fueled largely by the broadening of the customer base.

So while other markets try to court away China’s kings of gambling, Macau is not likely to lose its crown any time soon. At least, don’t gamble against it.

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