Macau Revenue Breakdown
A relatively unlucky month at the hands of high rollers pushes Sands China to third place in the local market share race, while ‘House of Dancing Water’ at City of Dreams has done little to drive the property’s main floor revenuesWednesday, 01 December 2010
Macau’s casino revenues are dominated by VIP baccarat, which, in turn, is heavily influenced by shifting fortunes, as measured by volatility in the VIP baccarat win rates experienced by operators from month to month.
For example, the industry average VIP baccarat win rate was 2.91% in October, compared to 3.33% in November. The differing win rates meant that even though VIP baccarat turnover was 22.9% higher in October—owing to the week-long Golden Week holiday to mark China’s National Day from 1st October—than in November, actual VIP baccarat revenue recorded in October was a mere 7.6% higher than in November. Meanwhile, total table gaming revenue was just 8.2% higher in October.
The headline result in November’s table gaming revenue figures was Sands China’s slide from second place among the six operators in the local market share rankings to the third spot, with Wynn Macau assuming the number two position. Inside Asian Gaming undertook a closer examination of the numbers, with the breakdowns of the revenue figures for November and October shown in the boxes below. The statistics don’t include slot revenues, which currently account for less than 5% of total gaming revenue.
Sands China’s relegation was largely the result of a slide in its VIP baccarat win rate, from 4.08% in October to 3.42%—its lowest level this year—in November.
Wynn Macau, by comparison, had a relatively lucky November, with its VIP baccarat win rate for the month rising to 3.77% from 2.61% in October. Wynn Macau had recently fallen to the fourth spot in the Macau market share race, being overtaken by Melco Crown, but as we pointed out in our Asian Gaming Intelligence e-newsletter last month, this was in large part the result of relatively lucky months at Melco Crown versus relatively unlucky months at Wynn Macau. In November, the VIP baccarat win rates of Wynn Macau and Melco Crown came back close to parity, allowing Wynn Macau to regain a comfortable lead. Furthermore, according to our sources, the recent increase in VIP business at Melco Crown has been driven by the aggressive extension of credit to junket operators—a strategy that has proven in the past to be risky and short-lived.
In October, MGM Macau for the first time rose from last place among the six operators in the local market share rankings to the fifth spot, overtaking Galaxy Entertainment Group. Although MGM Macau maintained its lead over Galaxy in November, both October and November have seen Galaxy suffer particularly unlucky months at the hands of high rollers, whereas MGM Macau has enjoyed especially lucky months. Galaxy generates far greater VIP baccarat turnover than MGM Macau (HK$52.3 billion versus HK$39.4 billion in November), and if both operators had experienced market average win rates in October and November, Galaxy would have comfortably maintained its lead over MGM Macau in both months.
Also, it appears the VIP baccarat turnover generated by both Galaxy and Wynn Macau has remained resilient in spite of the VIP baccarat price war reportedly instigated by neighbouring MGM Macau, which has, according to sources, begun offering major junkets a 47% share of revenues for basing their operations at its property (compared to the industry norm of 42%).
Varying VIP reliance
The Macau market has become increasingly dominated by VIP baccarat this year. While VIP baccarat accounted for 70.7% of all table gaming revenue in 2009, it contributed a whopping 84% in October this year and 77% in November. Sands China is the operator least reliant on VIP baccarat—which comprised 62% of the operator’s total table revenue in November—thanks to its sprawling main gaming floors at Venetian and Sands Macao and its diversified entertainment offerings. Sands China stands in stark contrast to the other Macau operator which currently boasts significant mass-market crowd-pulling potential: Melco Crown, operator of the expansive City of Dreams resort, located across the street from Venetian Macao on the Cotai Strip.
City of Dreams unveiled its much-hyped HK$2 billion (US$200 million) ‘House of Dancing Water’ show in September, but the results in October and November suggest the water show has yet to provide a significant boost to the property’s mass market table gaming revenue. Venetian Macao continues to provide a far superior mass market draw, generating main floor table gaming revenue of HK$681.0 million in October and HK$550.1 million in November, versus City of Dreams’ HK$327.7 million in October and HK$302.8 million in November.
Commission price wars can be decisive in the war for VIP baccarat revenue share, as Melco Crown proved by grabbing a quarter of the local VIP business at its modest—in terms of size and surrounding neighbourhood—in size and surroundings—Crown Macau (now Altira) on Taipa by offering an unprecedented 1.35% commission agreement with junket consolidator AMA International in late 2007. Melco Crown launched the price war at Crown Macau after the property had struggled for six months from its May 2007 opening to generate business using only its self-proclaimed six-star amenities.
On the other hand, the contrasting main floor performances of the US$2.4 billion City of Dreams and the equally-priced Venetian Macao just across the street demonstrate that the battle for the mass market will be decided by less tangible factors. These range from the ease with which visitors can find their way around the property—City of Dreams’ layout is often accused of being user-unfriendly—to the relevance of the entertainment, dining and other non-gaming offerings.
Galaxy is currently Macau’s most VIP-reliant operator, deriving 88% of its table gaming revenue from VIP baccarat in November. This is not surprising given the small footprint of its flagship StarWorld property, necessitating a strategy focused on a relatively small numbers of customers (namely, VIPs). However, Galaxy has significant mass-market capacity in the pipeline, with industry analysts predicting an opening for its Galaxy Macau mega resort on Cotai by May or June 2011. Galaxy Macau is tipped to be the only major new Macau casino property to open next year, and pundits are speculating on whether it will be able to draw mainland Chinese and other Asian tourists in the same way as Sands China has managed to do with its Venetian Macao property—effectively a ‘must see’ for the bulk of visiting Asian tourists from mainland China and, increasingly, India.
The latest estimate for total investment in Galaxy Macau is HK$14.9 billion (US$1.9 billion). That’s a smaller outlay than was made for City of Dreams. Whether Galaxy Macau eventually offers a better rate of return on investment than City of Dreams may depend on whether Galaxy does a better job of anticipating what the mass-market visitors arriving in Macau truly want.