Macau’s slots market is heading for its best year ever, and Bally-SHFL’s Ken Jolly is making sure the reels keep spinning
If we’ve learned anything from Macau’s current travails it’s that its future depends on its transformation into a true mass gambling destination. Fortunately, it’s a future that is already unfolding. The evidence is there to behold on its slot floors.
Just ask Ken Jolly, who runs Asian operations for Scientific Games’ newly acquired Bally and SHFL brands. He’s had a front row seat from the beginning.
A decade ago, when few could have foreseen the enthusiasm with which the Chinese would embrace slot machines, Mr Jolly was general manager for Aristocrat’s Asia Pacific division. He led the division in those seminal years from the end of the monopoly era to the beginnings of the massmarket boom on Cotai when the Australian slot giant led the way in identifying what players wanted and developing the maths and themes that would fit the bill. It was all new then, and the experience would allow Aristocrat and Mr Jolly to play an instrumental role in shaping those tastes.
Fast forward to today and machine gaming is motoring forward in Macau more powerfully than ever. While the city’s total gaming take has fallen almost 19% since the first quarter, battered mainly by sharp declines in VIP play, slot revenue through the third quarter is up 6.5%. It’s a fact that’s largely been lost amid the general handwringing. And what’s really impressive about it is that it’s been achieved in defiance of substantial declines in slot numbers. The average of 12,900 units for the January-September period is down 22% from 2012’s peak of 16,585. Yet revenue this year is on a pace to hit a record MOP15 billion, surpassing 2012’s by more than 13%. That’s a US$1.87 billion market. Those 12,900 machines are booking US$400 each in average daily win, a performance any other jurisdiction in the world would die for.
With Bally-SHFL, Ken Jolly is still in the forefront. He’s got a portfolio at his disposal that is unmatched in the industry for breadth and sophistication. SHFL’s Duo Fu Duo Cai linked progressive has taken Macau’s casino floors by storm and is growing in popularity not only across Asia but worldwide. Bally’s Asia focus is becoming steadily more compelling as well. The Fusion line of live and virtual-dealer electronic table games is delivering top sellers in markets from South Korea to Singapore. In utility products for the pit the company is No. 1 in the world, a position that’s been enhanced recently with the release of the innovative Safe- Bacc, an eight-deck shuffler for baccarat that delivers cards directly to the shoe.
Inside Asian Gaming caught up with Mr Jolly at last month’s Macao Gaming Show, where he shared his thoughts on the future of machine gaming in the region and the integral part that SG-Bally-SHFL will play in helping to take it forward.
IAG: It’s been a challenging year for Macau, as we know. What’s your take? Where do you see the market headed?
Mr Jolly: It’s interesting that we’re now for the first time really seeing a reduction in gross gaming revenue in the market, and what’s interesting about that is whilst we’re coming off on revenue at a fairly high rate, like [October’s] 23%, when you look at the quarterly reports, each one of the concessionaires is still showing strong EBITDAs. Obviously, what’s happening is that you’ve got your junket operations run on a very low margin coming off at a fairly big rate, but there’s been growth in the premium mass, the market that the casinos are going after themselves on the high end, plus electronic gaming is compensating for some of the drop in VIP. There’s an equilibrium thing going on at the moment, and in some ways there should be more focus put on the companies’ EBITDAs than there is on the number that is publicized by the government every month: gross gaming revenue. I feel that it’s time to really rethink how the numbers are actually portrayed to the market. The exciting thing for companies like ourselves is that electronic gaming, whilst not, particularly on the slot side, growing massively in units, the average earn per machine is growing, and hence, the numbers are going up. It’s also going up in electronic table games, and there are more companies now looking to bring more of that product into this market. As we get into the openings of the next six big properties and the two smaller ones in the next three or four years, and with the table cap leaving operators not really sure whether they’re going to get the numbers of tables they’re looking for, I think electronic units are going to increase. Because when they don’t get their table numbers, or if they don’t get their table numbers, say they get cut back to 50% of what they want, they’re going to fill their floors up with something, and it’s going to be slots and/or electronic table games.
So despite the gloomy forecasts, for you guys it’s perhaps one of the best times in the last 10 years, precisely because of all the new openings, both in Macau and region wide?
I guess when you look at it from a business perspective, as a vendor, looking at Macau since 2004, which is when really it started to move, there have been a couple of periods where we’ve had enormous growth, and we’ve had flatter periods. Given what’s going on now, all the new construction, there’s obviously a real growth spurt coming, and with the size of the orders they’re talking about for the new properties, the next three years look promising certainly. You’ve got new openings in the Philippines. There are still some opening in Laos and Cambodia even though they are smaller. So it’s promising at the moment. After 2018, when the next round of Macau gets done, it will all depend on what happens after that and how the product that comes into the market over this period is accepted and adopted, and how Macau grows as they bring in more non-gaming related activity to drive tourism, which should also help drive revenue growth.
These concentrations of openings, for you, as a publicly listed company, it’s a bit of a challenge, isn’t it, in terms of maintaining constant revenue streams?
You think back to when The Venetian opened in Cotai, the only one over here on this side except for the Galaxy Grand Waldo, there wasn’t that acceptance of “Let’s go to Cotai”. It was more, “Let’s stay on the Macau Peninsula”. It’s a little different today when you look at the volumes of people that are in the Cotai properties, particularly The Venetian, every weekend. People are coming to the Cotai area and are recognizing the Cotai area as the mass-market area. So I think that, yes, whilst because of the amount of product coming on line there are obviously going to be some slow periods, the acceptance rate is probably going to be better than it was back when The Venetian and City of Dreams tried to establish this side of Macau.
And it is still obviously a very small market, but once you get to the scale of an Australia then the replacements become your regular revenue.
You’re right. You look at Australia, 200,000 odd machines across the market. You look at North America, now about 900,000 machines, a lot of which have come in the last few years because of the amount of openings in new states. But when you look at the Asian markets, probably about 70,000 legal machines. It’s quite small in overall numbers. But because of the competitive nature of these markets, people are more inclined to update machines or replace nonperforming machines faster than we’re seeing in other markets. Where we see it today, I mean, Macau, particularly, has become such an aggressive, competitive market, and it’s mainly because Macau is such a small place, 30-plus gaming venues, you can walk from one venue to the next, they’re side by side in most cases. So the operators are being very aggressive and competitive, much more than you see in North America or you see in Australia.
Each square foot of gaming space is more precious.
Much more critical.
Electronic gaming revenue in Macau, as you mention, is continuing to rise despite the overall drop in revenue, and especially the drop in VIP. What people have often thought is that most of the slot revenue was driven by VIPs. But that isn’t the case, is it. It’s a lot more diverse?
Well, it’s not only coming from the top players, who, yes, certainly have been hit, the ones being attracted by some of the bigger operators here. I think there’s been growth generally, an acceptance generally, across the marketplace. Electronic games are being accepted by the Asian and also the mainland Chinese player.
Which suggests that it’s really become more of a mass-market phenomenon. Does this indicate also a market that is maturing?
Since 2004, when the first non-SJM casino opened, the market’s learned a lot, and we’re all starting to understand more what the player who is coming to Macau today wants to play. And I think that’s why we’re now seeing an acceptance with electronic gaming, because we’re actually focusing and targeting to the right audience. And as infrastructure and all the other things that are happening here get better, and as the travel reaches further into China, I can only see electronic gaming continuing to grow. I think as Macau, from an economic tourism point of view, continues to grow, electronic is going to be a part of that growth.
How has this changed your focus, and what you do in terms of product, from the days when the industry was trying to introduce the Chinese player to machines and trying to get the machine side tuned to where it is now?
Well, if you go back, if you look at the bigger picture first, if you look at the time that I’ve been in the market, nearly 10 years now, when we first came to market we all brought Australian product, we all brought product that didn’t even have Chinese language on it, we didn’t have Chinese themes. If you look at what’s out there today, it’s really gone heavily into Asianizing, or China-sizing, the product. Duo Fu Duo Cai is a classic example, very, very Chinese-themed, heavily developed graphically towards that player, and with also the maths packages to suit the market. When we built Duo Fu Duo Cai we actually built it for the Macau market. And it’s quite a step away from what have been the traditional maths packages that most companies bring here. It’s a very complex piece of maths. It shows a lot of volatility, and it works well. We’ve been rolling it out into other markets in Asia, and it’s been successful there. We’re now rolling it out around the world, because if you look around the world there are a lot of Chinese players.
Reports are it’s doing great in the US.
That’s our main sales. We are getting the results on it.
It’s interesting. Do you see a similar influence coming from the US in the opposite direction? As the player base here matures, is there an opportunity to introduce Macau to entertainment-style games geared more to time on device?
Not for a number of years. I think the market’s got to mature a lot more. When you look at what the draw of the market is, it’s mainland Chinese players, some 80-something percent, and if you look at that, they’re bringing 30 million visitors a year to the market, and that’s growing, but still we’re only tapping a very small part of the Chinese market. There are a lot of people, particularly as you head further into China, who have never been to Macau. So I don’t think the market is ready for time-on-device, entertainment-style games yet. They’re still looking for that “I want to come here, I’m here for a short time, I want to have a big win.” And I think volatility does that, and that’s what’s proving to be successful. To go to the maths models that we need for some of the other markets, where it is more mature, it’s too early for Macau. I think Macau is still very much an emerging market.
Standalone progressives have been introduced at various times, Bally’s Fu Dao Le being a recent example: Does the same thing apply?
Standalone progressives really don’t work because you can’t get a big enough jackpot on a standalone progressive. They really haven’t been successful in Macau. Maybe outside Macau they work much better. Hence, why most of the product that we bring from Bally-SG going forward is going to be linked product. It’s links where you can get a group of machines contributing to a large enough jackpot to make them attractive. And that’s the volatility factor coming into play as well.
What about licensed games, another strong suit for Bally. The Michael Jackson series, for example, has played well in this part of the world.
Everyone’s wondering what the right license theme is for the Chinese market. Certainly we’ve all tried a few, the Michael Jacksons, we’ve got Titanic at Bally now, we’re waiting to see how that adopts. We’ve done The Flintstones in the SHFL range. But typically, across the market, the licensed themes haven’t worked so well. I guess it’s how do you get something that is really, really Chinese, that is a licensed theme, and what is that? If you’ve got any ideas let me know.
But in Asia it’s a little different outside Macau, right? Isn’t there more of a market for a Western-style slot experience?
It’s interesting. While a good game is always a good game everywhere, when you look across the product portfolio that we have, what you find, particularly in markets like Singapore, even though it’s a fairly new market, the club markets have been there, and the players have traveled to Genting [Highlands], they’ve traveled to other gaming facilities in the regional area, or they’ve played in the Singapore clubs. It’s much more mature than what I think the Macau market is. The Macau market, because of its big numbers, we just haven’t had the volume of people through here yet. But they’re coming.
For SHFL, of course, the opportunities must be sizable as well, in Macau and regionally.
With SHFL utilities we’re very happy at the moment. Tables are growing. As a company obviously we’re developing new products for the portfolio. We just recently, or about a year ago, released our Chip Star machine, which is the new chipper. That’s getting great acceptance across the marketplace. We have a new baccarat shuffler, Safe- Bacc, that shuffles and dispenses the cards without human intervention between the shuffler and the shoe, which we’ll be launching in Asia shortly. It’s been launched in the US. It should hit Asia before the end of the year. We’re looking at changes to the one2six [blackjack shuffler]. And we’ve got a few other projects in the pipeline which over the next 12 to 18 months will be released into the market. Utilities as a whole is a great business for us and we’re going to continue to develop in that area. We dominate the world in it, and we’re going to continue to dominate it.
Electronic table games, another core strength, of course. What’s new there?
We’ve rebranded all our electronic table games Fusion. Now you have the Fusion Hybrid, which has got the live dealer. We have our Fusion which has got the virtual dealers. We’ve got the roulette products, where you might have eight or 10 stations sitting around an automatic wheel. And we have the new TableMaster, where you’re playing either blackjack or Ultimate Texas Hold ’em at this stage: five terminals played like a table, left to right, but done with an electronic dealer and treated as a fully electronic product, where it’s not counted as a table. We’ll be bringing other proprietary games onto that platform. And that’s interesting to mention also. Our proprietary table games, we now have something like 25 titles. So whilst in Macau, because of gazetting, we only have Caribbean Stud, Casino War and Three Card Poker, if you look into Singapore, if you look into the Philippines, now we’re getting a number of our other titles into those markets.
And the proprietary table games are all recurring revenue?
Earlier you mentioned the expansion on Cotai and the demand that implies for e-tables. In terms of the live-dealer product, where do things stand? Do you see an opening for Fusion Hybrid?
We do see an opening for the live hybrid here in Macau. There is no impediment to us for a customer to put our live dealer product on the floor in Macau today. We’ve been very successful; in fact, we’re probably No. 1 in market share outside of Macau, throughout Asia, with that product. We are rolling it out in Korea now, about four installations. We still hold the biggest floor print at Marina Bay Sands with 435 terminals. We’re in Resorts World Sentosa. We’re in Genting [Highlands]. We’re on cruise ships. We’re in NagaWorld with 183 terminals. We’ve got it in Laos. We’ve got it in Vietnam. We’ve got it in Cambodia. So everywhere outside of Macau our product is accepted by players and operators alike. We have Macau operators that love our product, and I believe you will see it in this marketplace, and it won’t be too long.
Do you see opportunities for the virtual dealer tables in Macau, particularly as the new Cotai resorts come on line?
It’s interesting with virtual. If you go back to the early days of Macau, virtual was quite popular. Then it seemed to wind down a bit when the live-dealer products hit the market. We’ve actually got a couple of the virtuals out in a couple of spots. They’ve been there for a while. Virtual continues to grow in revenue, and one particular venue made us aware recently how much it had grown. So we believe it’s time now to bring the good new virtual products back into the market and to push them, and that’s one of the focuses we’ll be looking at in the next 12 months.
Finally, the merger with Scientific Games: How will it change the way you operate?
It’s an exciting time for the company. We can’t really talk about how the structure works. Obviously, there are going to be some synergies as we move forward.
How does it feel for you to be part of this new giant?
For me, being involved in mergers, bringing companies together and refocusing staff with product portfolios, bringing together two different cultures, from the point of view of my own career it’s something I haven’t done before, and it’s something I’m finding exciting.