IAG September 2015 - page 4

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Chief ExecutiveOfficer
AndrewW. Scott
Founder andEditor
EditorAt Large
PaulDoocey, JohnGrochowski, JamesHodl,
MattPollins, I.NelsonRose
Rui Gomes
Latte Iao
Ike, GaryWong, JamesLeong,
WongKei Cheong
Keeping theFaith
hen it comes to China, policy risk is ever-present. And it could hit when you least
expect it.
No reasonwasgiven for the last-minutecancellationofBon Jovi’sfirst ever concerts
inChina thismonth, butmedia reports suggest that it stemmed from the discovery by
state censors that theUS rock band had used an image of theDalai Lama as a backdrop at a gig five
yearsago.Maroon5also recentlyhad itsshows inChinacancelled,with themost likelycausepositedas
abandmember’sdecision to tweet theDalai Lama towishhimhappybirthday in July.
Macau, suffering fifteen straight months of steep gaming revenue declines, has been hit
particularly hard by adverse government policies, including Beijing’s ongoing corruption crackdown
and tighteningof illicit fundflowsout of the country, aswell as local authorities’ total smokingbanon
main-floor gaming areas sinceOctober. Themistake, however, is to think, as some analysts suggest,
that the negatives are already factored in. A new campaign or policy reversal fromBeijing could take
a further bite out of themarket at any time. And locally, the threat of a full smoking ban in casinos
looms large, including a ban on smoking in VIP areas—currently, smoking is still permitted on 50%
of VIP floor areas—and removing all smoking lounges within casinos, including those currently in
operationonmass floors.
Beyond policy risk, market dynamics don’t appear to favor Macau’s casino operators right now
either. China’s weakening and highly leveraged economy could conceivably tank, taking the city’s
plummeting gaming revenue on a death spiral. Another important factor is the evolving tastes of
China’smiddle class, andparticularly the sophisticated younger cohortwithin it, whoare increasingly
drawn tomore exotic and experience-rich holiday destinations, and, it seems, like their counterparts
inAmerica, arenot as interested ingambling as the generation that preceded them.
And yet amidst this unprecedented environment of pessimism, Macau’s casino operators
continue to plough billions into developing new resort capacity on Cotai. It’s their best chance of
remaining competitive in light of several new projects targeting Chinese players—who are still the
most covetedcustomersof theworld’sgamingcompanies—comingonline inotheremerginggaming
jurisdictions around the region.
Macau’s operators are focused primarily on boosting their non-gaming offerings to attract
the mass market, which has not only overtaken the hitherto dominant VIP sector in terms of its
contribution to their bottom lines, but also recently surpassed VIP in absolute terms. Last month,
VIPbaccarat accounted for 52%ofMacau’s reportedgaming revenue, havingdeclinedsteadily froma
peak of 74% in the third quarter of 2011. However, owing to themove by casinos to reclassify a good
chunk of their premium-mass business as VIP following the main-floor smoking ban in October, a
truer adjusted estimate of VIP’s current share of total revenue is around 46%. So themassmarket
nowoutweighs theVIP segment, something that just three years ago seemedunlikely tohappen this
sideof 2030.
After a decade-longVIP-focuseddetour,Macau is in the process of reinventing itself, and is now
finally on course tobecomingwhat the local governmentwashoping forwhen it decided tobreak the
city’s 40-year casinomonopoly and invite concessionbids fromnew international operators in 2002:
a truly diversified tourismdestination that’sChina’s—andpossiblyAsia’s—answer to LasVegas.
Ultimately, Vegas’ evolution into amajor leisure and entertainment hub relied on its permissive
laws. At theoutset, its advantage came from legalizedgaming, of course, but even after casinoswere
permittedelsewhere in the country, LasVegas retained itsedgeand reputationasa liberal destination
forpleasureseekers. For example, the tremendoussuccessof thecity’snightclubs,whereboozeflows
freely all night—then continues to do so at its popular dayclubs and pool parties—derives in large
part from the California law requiring bars and clubs in the neighboring state to observe a 1.30 a.m.
last call for alcohol. That’swhy theHollywoodA-list issooftenspottedpartying inLasVegas,Nevada,
a four-hour drive from LosAngeles.
TheMacau special administrative region similarly stands as a bastion of permissiveness within
China, despite the fallout it’s suffered recently becauseof unfavorablepolicy emanating fromBeijing.
Bon Jovi’sMacauconcertson25thand26thSeptemberatTheVenetianMacaoareset toproceed.
Sands China’s decision to go ahead with the shows despite the bans in Beijing and Shanghai is an
important one, demonstrating thatMacau really has thepotential tobeChina’s answer toLasVegas.
It’s the kind of thing that China’s savvy, westernized new generation—who over the coming decade
will become the country’s dominant consumers—will takenoticeof.
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