Inside Asian Gaming

FEBRUARY 2016 inside asian gaming 7 Cover Story “Ultimately, the rise of the middle class is what drives growth in Macau and Asia,” Melco Crown Co-chairman and CEO Lawrence Ho declared at the Studio City opening. He says Studio City’s location, virtually adjacent to the Lotus Bridge border crossing, destined it to be a mass market property even before Macau’s VIP market collapsed. Last year high roller revenue fell 39.9%, while mass market gaming was off 26.3%. It was just over a year ago, after VIP gaming revenue fell 10.9% in 2014 while mass win rose 13.8%, that Mr Ho wondered “how many more billionaires are going to drop out of trees in the next ten years” in China, underscoring the pivot to middle class customers. Even with the mainland’s economic growth falling below 7%, its lowest rate in 25 years, China’s middle class will expand to as many as half a billion people within a decade, and that group that will account for the bulk of the projected 200 million Chinese outbound travelers expected annually by 2020. The question that’s most relevant is how many of those middle class travelers, not only from China but the rest of Asia, will drop into Macau and whether they can make up for the shortfall in high end visitors. Citing various sources, Institute for Tourism Studies (IFT) Assistant Professor IpKin Anthony Wong estimates the Chinese middle class numbers between 109 million people with net worth of US$50,000 to US$500,000 and 340 million individuals with annual earnings from US$6,000 to US$25,000. China Market Research Group Principal Ben Cavender describes China’s middle class as earning US$9,000 to US$35,000 and conservatively estimates that group numbers 10% of China’s 1.3 billion people. Multiple observers, including Global Market Advisors Partner Andrew Klebanow, note that official reports likely understate actual mainland income. Depending on which numbers you prefer, Macau is capturing between 6% and 30% of the mainland middle class market, assuming that all mainland travelers to Macau are drawn from that pool. In reality, Macau visitors span the mainland economic spectrum, so there’s substantial room to increase its middle class penetration. MIDDLE MUSCLE Some question whether there’s enough spending power in that middle class to replace Macau’s missing high end players. Mr Wong estimates Chinese visitor spending at MOP$5,000 (US$625) per capita. Macau’s Statistical and Census Service’s third quarter Visitor Expenditure Survey puts per capita mainland visitor spending, exclusive of gaming, at MOP$1,776. The most recent IFT Visitor Profile Survey, conducted during last year’s second quarter, finds 50% of mainland visitors spent more than MOP$2,000, excluding gambling. It also found that 75% of the 1,000 people surveyed said they didn’t gamble at all (a statistic IAG has previously raised questions about), and among those that tried their luck, 57% spent MOP$2,000 or less. Those spending levels indicate Macau would need a substantial increase in visitor numbers tomake up for last year’s MOP$120 billion “Ultimately, the rise of the middle class is what drives growth in Macau and Asia.” Lawrence Ho , at the opening of Studio City