Inside Asian Gaming

March 2008 | INSIDE ASIAN GAMING 7 Macau, but if the time-frame is to be set in single-digits, it should at least be in years, not quarters. The lofty expectations that preceded the steep sell-off in gaming stocks were inspired by the spectacular casino boom that Macau embarked upon in 2004. Beijing’s easing of travel restrictions on mainlanders wishing to visit Macau and Hong Kong brought a huge influxof Chinese visitors toMacau,andcasino revenue soared over 44% year-on-year in 2004 to surpass the US$5 billion mark. The eased travel restrictions just so happened to coincide with the end of Stanley Ho’s effective 42-year casino monopoly, and the opening of the city’s first foreign-operated casino, Sands Macao, in May 2004. In accounting for the 2004 casino boom, analysts tend to overstate the importance of the introduction of a transformative new property—Sands—to a stale market, while understating the impact of the eased travel restrictions, which freed enormous pent-up casino gambling demand in China to find its only legal outlet in Macau. It seems analysts may have preferred the former explanation, which enabled the cultivation of a new stock market-darling, to the latter, which involves rehashing the tired analogy of throwing open the floodgates. The 2004 boom led to the widespread application of Sheldon Adelson’s supply- creates-demand thesis to Macau, even though the evidence also supported the pent-up demand thesis. After all, the crowds were three-deep around the tables of even the most run-down casinos in 2004, and several operators made quick profits by converting disused office and residential buildings into casino hotels. That is not, however, to deny that Sands Macao is great property, having outperformed the competition and continuing to draw crowds even as capacity has exploded, while the run-down and converted properties have been rendered obsolete. Sands Macao could arguably be better described as an evolutionary product— providing a more comfortable, attractive and spacious venue to gamble in—than a transformative one. After all, Macau already had an established table gaming market, and Sands tapped into it. To its credit, Sands played a key role in drawing crowds of mass- market gamblers to Macau, although it did abandon its exclusive mass-market focus to also pursue the lucrative VIP baccarat business, which continues to command the lion’s share of the city’s casino revenue. Although Macau was not entirely devoid of slot machines during the monopoly era, the slot market was virtually non-existent. The first Mocha Clubs outlet opened at a modest 3,000 sq ft venue at Hotel Royal in September 2003 to considerably less fanfare than Sands would open to eight months later, but Mocha was arguably the more transformative product, with its clear and exclusive goal of overcoming ingrained prejudices and developing the city’s slot market from a near-zero base. In 2003, slot revenue accounted for a mere 0.8% of Macau’s total casino revenue, compared to over half the casino revenue on the Las Vegas Strip and over 70% in downtown Las Vegas. There are several explanations for the erstwhile aversion to slots in Macau, ranging from Stanley Ho’s