IAG April 2015 - page 4

inside
asiangaming
April2015
4
EDITORIAL
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Waitingon theTableCount
I
n amarket currently plaguedby aperfect stormof regulatory risk, thenextmajor indication
of where things areheadedwill be the allocationof gaming tables for theupcoming second
waveof Cotai resorts.
The final decision on the table allocation for Phase 2 of Galaxy Macau, scheduled to
openon 27thMay, is goingdown to thewire.
On 19thMarch, Francis Lui, vice chairman of Galaxy Entertainment Group, said “We believe
that we will start soon the discussions with the government on the number of tables [that will
be allocated].”With an exact number needed to finalize crucial opening-day details such as staff
count and layout of the casinofloor,Galaxywill need tobehighly responsive toadjust towhatever
it receives.
Alsoanxiouslyawaiting its tableallotment isMelcoCrownEntertainment’sStudioCityMacau,
expected to open in the third quarter. Both Galaxy Phase 2 and Studio City were designed with
capacity for 500 tables. Phase 2 is priced at US$2.5 billion, with a further $641 million spent on
the adjacent Broadway at GalaxyMacau, which will open on the same day on the former Grand
Waldo site. Studio City costs $2.3 billion. Recouping those investments could be difficult given
expectations of an allocationof around 200 tables at each.
Analysts at UBSSecurities Asia note theMacau government’s allocationof tables remains “a
near term overhang” for the sector’s battered share prices, and warn that the eventual outcome
couldwell disappoint on thedownside.
There are two possible explanations for why the government has left the decisions to the last
minute. Thesimpleone is that they’redisorganized, anassessment corroboratedby lengthydelayson
several critical infrastructure projects. Amore positive view is they’re perhapswaiting to seewhether
there’sany let-up in themarket’ssoftnessover the followingweeksbeforefinalizing theallocations.Of
course, continuedweaknesscouldsignal to thegovernmenteither that it shouldsupport theoperators
by giving themmore tables or, alternatively, that given declining demand, operators simply need to
move the lessproductive tablesat their existingproperties into theirnewones.
Thegovernment first resolved to limit themarket-widenumber of gaming tables inMarch2010.
At the time, there were around 5,000 tables throughout
Macau, and thegovernmentsaid the totalwouldbecapped
at 5,500 through 2013, after which the annual increase
wouldbemaintainedat 3%.
The government has already demonstrated
willingness to disregard the cap. The market-wide table
count at the end of 2013 was 5,750—250 in excess of the
limit. By the end of 2014 the gap between the cap and
reality had narrowed, with the market’s 5,711 reported
tables just 46more than the notional ceiling. There’s not
muchchance thatgapwill narrow further, however. Even if
thegovernment allocatesamere 150 tableseach toPhase
2 of Galaxy Macau and Studio City, it’d exceed the 2015
limit by 176. Continued failure to stick to the cap could
encourage the government to increasingly disregard it.
These are also starkly different times to 2010, when
the government felt compelled to rein in the overheated
gamingsector.Now, thereseem tobe toomanybrakeson
the industry, includingChina’swidespreadanti-corruption
campaign and slowing economy, the crackdown on illicit fund flows out of themainland and the
impositionof a smokingbanon allMacaumain-floor gaming areas fromOctober.
There’s talkofMacauseekinga“newnormal,”but surely thepath to thatnewgrowth trajectory
doesn’t have to entail such big steps backwards—the 49% year-on-year decrease in gaming
revenue in February is expected to be followed by a 39% drop in March. The hoped-for relief
brought bynew resort openingscouldbehindered if they’renot givenadecent allocationof tables.
The question then is howmuchpain is theMacaugovernment willing to inflict on themarket
toget it onto a sustainable growth track that encourages economic diversification?
Year No. of Tables
2013
5,500
2014
5,665
2015
5,835
2016
6,010
2017
6,190
2018
6,376
2019
6,567
2020
6,764
CapacityConstrained
Notional Limits Imposed
byMacau’s TableCap
1,2,3 5,6,7,8,9,10,11,12,13,14,...48
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