IAG May 2015 - page 8

inside
asiangaming
MAY2015
8
EDITORIAL
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Gazing Into theAbyss
Andwhen you gaze long into an abyss, the abyss also gazes into you.
—FriedrichNietzsche
A
s the stocks of Macau’s six casino operators—all still traded on the Hong Kong Stock
Exchange—languish near their 52-week lows, investors are wonderingwhen the sector will
hit bottom.
Las Vegas Sands Corp Chairman and CEO Sheldon Adelson commented on the uncertain
outlook forMacauduring an earnings call lastmonth: “We are sailing inunchartedwaters, and I hope
we don’t sink like that boat off in theMediterranean.”Wynn Resorts’ SteveWynn agreed during his
ownearnings call that “there’snoquestion that uncertainty is theplaguingwordof theday inMacau.”
There’s a perception that local authorities are adding to the uncertainty by allowing the decision
on allocation of gaming tables for soon-to-open Cotai resorts—including Phase 2 of Galaxy Macau,
scheduled for a27thMayunveiling—togodown to thewire, not tomentionfloating the suggestionof
capping the number of visitors allowed into the tiny city, which is strainingunder the loadof well over
2million arrivals amonth. “Hopefully, our government inMacau will calm that down and put some
certainty back into thepicture,” saidMrWynn.
In reality, table allocations and the mooted limit on visitor numbers are mere distractions from
the well-documented causes of Macau’s current malaise, including Beijing’s ongoing corruption
crackdown, theweakeningChina economy and tighteningof illicit fundflows out of the country, along
withMacau’s total smokingbanonmain-floorgamingareassinceOctober.Another important factor is
the evolving tastesof China’smiddle class, andparticularly the sophisticated younger cohortwithin it,
whoare increasinglydrawn tomore exotic and experience-richholidaydestinations, and, it seems, like
their counterparts inAmerica, arenot as interested ingamblingas thegeneration that preceded them.
Macau’s table cap—originally intended as ameans to rein in the overheating gamingmarket—
has become somewhat irrelevant following the precipitous drop in demand that has left hundreds of
gaming tables idle around the city. Shuffling tables out of existing properties intonewones is looking
increasingly like the best way for operators to manage capacity. The latest consensus view is that
GalaxyMacauPhase2will begranted 150new-to-market tables, allowing it toopenwithapproximately
200 total, though the company had saidpreviously the property has capacity for 500 tables and 1,000
EGMs. Clearly one result is amajor opportunity for EGM suppliers tofill thegapswhere tables should
have been.
As for the suggestionof capping visitors, “The chancesof that happening are [the same as] Iwake
up tomorrowmorning and all my hair will be grown back,” saidMr Adelson. He added: “I have been
told that it isnot adecisionby thegovernment. It’sonly a suggestionby oneof theministerswith very
good intentions, but it hadn’t been thought out.” After all, a visitor cap would seriously hinder the
hoped-for diversification of the local economy. Mr Adelson offered an example of how it would affect
thevauntedMICE—meetings, incentives, conferencesandexhibitions—industry: “Iwouldnever, asan
organizer, book an event inMacau if I knew therewas apossibility that the guywho came through the
[border] beforemewas the last guy [whowouldbe allowed in].”
For bargain hunters, the big question is: When is the appropriate time to go bottom-fishing for
Macau casino stocks? It’s still tooearly to saywhen revenuemight rebound, but thebearish tide could
be turning. Renowned Swiss investorMarc Faber, one of the world’smost notedmarket contrarians,
whose negative views earned him the moniker “Dr Doom,” is uncharacteristically optimistic about
Macau’s prospects, recently saying on his blog: “In the next six months, I would accumulate some
Macau-relatedgambling shares.”
The landscape for Macau’s operators has been utterly transformed. Gone are the days when
players crowded threedeep around tableswithinhastily convertedofficebuildings as gaming capacity
struggled tokeeppacewithdemand. The real growthnowwill have tocome from thecity’snon-gaming
offerings. It’swhat Beijing, the local government andChina’s newgenerationof consumers is looking
for. And it’s fortunatelywhat theupcomingwaveof Cotai resorts promises todeliver.
Dr Doom’s recent bullish call on Macau has merit. If Chinese demand could propel Macau’s
gaming revenue tomany times that of the Las Vegas Strip, surely it could do the same for its hotel,
entertainment,MICEandF&B revenuesaswell. Thequestion theoperatorsnow faceas they gaze into
the abyss is whether they have themettle to compete on a world stage for Chinese consumers’ non-
gamingdollars.
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