INSIDE ASIAN GAMING | March 2008 Surprise Turn in the Revenue Race Editorial Editor and Publisher Kareem Jalal Director João Costeira Varela Business Development Manager Matt Phillips Operations Manager José Abecasis Contributors Michael Grimes, Steve Karoul Graphic Designer Brenda Chao Photography Ike Inside Asian Gaming is published by Must Read Publications Ltd Suite 1907, AIA Tower, 215A-301 Av. Comercial de Macau - Macau Tel: (853) 6646 0795 For subscription enquiries, please email
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[email protected] Fickle weather could not cool the ardour for chasing fickle fortune in Macau. From mid-January, China suffered its severest winter weather in fifty years, with snow storms paralysing large parts of the country. In such conditions, it can be difficult to muster the will to step out of home for non-essential purposes. Yet crowds of mainland Chinese did just that to make their way to Macau. Visitor arrivals from China rose 23% year-on-year in January, and the city’s casino revenue for the month reached a new all-time high of 10.43 billion patacas (US$1.3 billion)—a whopping 70% year-on-year increase. If the January performance is sustained, Macau will continue its climb up the international casino performance leaderboard. Macau grabbed international headlines when, in 2006, its casino revenue overtook that of the fabled Las Vegas Strip. As Macau left the Vegas Strip in the dust, the next logical rival to pit it against in a casino revenue race—a totally arbitrary construct,designed to feed the hunger for headlines supporting the Macau hype—was all of Clark County, encompassing the Strip, downtown Las Vegas and other southern Nevada cities. In what turned out to be a close race that brought the Macau hare onto the rear claws of the Clark County tortoise in full-year 2007, casino revenue at the former soared 46.6% year-on-year to US$10.38 billion, while revenue at the latter made a measly 2.1% gain to US$10.87. Macau was poised to finish off Clark County this year, after which an even greater race rival would have to be found.In a surprise turn,however,Macau overtook both Clark County and its next logical race rival,the entire State of Nevada,in January,when Nevada casino revenue fell almost 5% in the month to US$1.06 billion. Although the race has eleven more months to run, and one month does not a trend make, Macau has an early lead in clinching more hype-worthy headlines. Las Vegas had,until now,avoided the slump in casino revenue seen throughout much of the US over the past year, and has not experienced a dip in earnings since the country’s sense of security was rocked in 2001. Major Vegas operators have made a point of drawing attention to signs of market weakness observed at the beginning of 2008. Steve Wynn lent his voice to the chorus calling for realistic expectations when he commented: “It would be unsophisticated to think Las Vegas is a magical island unto itself immune from the effects of the communities that serve it and its visitors.” Mr Wynn has already suffered the fallout of unrealistic expectations.Wynn Resorts was among the US casino companies that suffered a sharp correction in its share price following the realisation that analysts’ expectations for Macau were wildly optimistic. Given how wildly successful Macau has actually been over the past year, these expectations can rightly be viewed as magical. The expectations were based on the spectacular casino boom Macau embarked upon in 2004, which led to the belief that operators could enjoy immediate, explosive demand for any new product they brought to the market.The trouble is, while explosive growth in Macau’s casino sector has become a hot international news topic, it is only because the growth came against an already established base,so that the revenue increase was substantial in both relative and absolute terms. Explosive growth from a negligible base, however, will take time to ramp up and generate significant absolute gains. At the time of the 2004 casino boom, Macau had almost no other established markets for visitors, such as retail and entertainment. Even the casino market did not extend beyond table gaming. This issue of Inside Asian Gaming profiles Macau’s slot pioneer, Mocha Clubs, which cultivated the slot machine market from an insignificant base in 2003. Slot revenue has showed much more explosive growth in percentage terms than the overall casino market, but because it essentially started from near zero,will take time to develop to the levels seen in Vegas,where it commands the lion’s share of total casino revenue. Many look to the evolution of Las Vegas to postulate howMacau could develop.The foundation for the future development of Las Vegas was laid by the development of the“casino resort”on what was to become the legendary Las Vegas Strip.The first of these was the El Rancho, pictured above, which opened in 1941 at a location several miles out of town in order to benefit from cheaper land and to avoid city taxes. And so the Strip was born. Over four decades,LasVegas transformed itself fromobscure desert town to the self-proclaimed entertainment capital of the world. While Vegas casino operators once virtually gave away food and entertainment to support their gaming operations, the revenue mix of Strip properties has shifted steadily in favour of non-gaming sources, which now contribute over 50% of total revenue. While Macau has taken an unassailable lead in the casino revenue race, the real indication that bullish investment in the city has succeeded in driving a Vegas-style evolution on an accelerated time-frame will be Macau’s emergence as a contender in the non-gaming revenue race. El Rancho