Inside Asian Gaming

1800 1600 1400 1200 1000 800 600 400 200 0 2001 2002 2003 2004 2005 2006 26 T he success of Macau’s casinos has masked an alarming decline in the fortunes of the Macau Jockey Club and the Macau Canidrome. Both operations are on track to record their lowest gaming revenues since the commencement of the casino liberali- sation process in 2001. The table shows the combined gaming revenue of the two since 2001. The share of total gambling revenue generated by Macau’s casinos has increased in every year since 2001, and is likely to ex- ceed 98% in 2006.When the market share of the basketball and football concession held by Macau Slot is added, it is clear that fixed * Estimate, based on results to Q3 Pari-Mutuels Under Pressure Will Macau’s casinos put its horse and dog racing tracks to the sword? odds betting products account for about 99% of all gambling revenue lawfully gener- ated in Macau this year. It is somewhat fac- ile to conclude that it is the more competi- tive offerings of the casinos alone which are responsible for this; pari-mutuel products the world over are losing out to fixed odds operations, large pool lotteries, and instant and quick draw lottery products. Indeed, it has been the decline in the attractiveness of horse racing , and on-course pari-mutuel bet- ting, in particular, which has resulted in the “racino” concept, which has re-vitalised race track operations in a number of US States and Canadian Provinces. The Racino Concept By establishing large scale slot machine operations on racecourses, tracks have achieved better attendances, better utilisa- tion of their facilities, and a better balanced portfolio of gaming product.The racino con- cept is not new; its genesis can be traced back to 1990, when the State of West Vir- ginia allowed video lottery terminals to be installed at Mountaineer racetrack. Today, Mountaineer has more than 3,200 slot ma- chines, making it one of the largest slot op- erations in North America. In the context of Macau, the concept is a virtual “no brainer”; the casinos cannot offer pari-mutuel prod- ucts, but it seems there is, and has been, nothing to stop either the Macau Jockey Club or the Canidrome from offering slots under the umbrella of, say, the SJM gaming concession. Indeed the Canidrome did have slots for a time, but they were poorly locat- ed and promoted, and offered superseded games and technology. Other Handicaps Aside from the casinos, there are three other fundamental reasons why Macau’s animal racing concessions are performing so poorly. First, the take out from the betting pool dis- tributable amongst winners has remained more or less constant since 2001. In the case of the Jockey Club, that take out has been maintained in the 19% to 22% range; the Canidrome’s has been between 20% and 25%. The take out has to cover operating costs, purses and taxes, with any surplus re- quired to be re-invested in the business of the two clubs. This compares unfavourably with the “hold”, or win, of Macau’s casinos. The casinos typically hold 2.6%-2.8% on bac- carat, and perhaps as much as 10% on slots; what they lose on hold, they make up for in drop…total amounts bet in Macau annually now exceed the drop recorded in all of the casinos in Nevada,the world’s largest gaming jurisdiction (measured by revenue). Even the other fixed odds offerings of Macau Slot, on football and basketball, have current holds of 5.75% and 7.97%, respectively, which may help account for them maintaining their niche in the market. Secondly, there are concerns about product integrity. The Clubs essentially self- regulate, within the terms of their respective concession contracts.They appoint their own stewards, establish their own rules of racing, and the qualifications for jockeys, trainers and animals who are involved in their activi- ties. How well animals race depends on many factors, including how they are handicapped, whether they are fully fit to race, the class of the field, and so on. Predicting winners is problematic, because the probability of win- ning associated with a particular animal is not able to be calculated with mathematical precision. This contrasts with casino games, where the theoretical house advantage can be determined. In truth, racing punters are taking a greater risk (the unknowns are not objectively quantifiable) for potentially less reward, since the size of the reward depends on how many others (unknown at the start of a race) the available betting pool must be shared with. Thirdly, the size of the betting pools themselves is considerably smaller than, say, Hong Kong. This means that exotic bets, such as tierce and quinella bets, are unlikely to offer the same return to winning punters as bets into larger pools can. Moreover, low pools mean that the capacity of the Clubs to offer prize money sufficient to support fea- ture races is diminished.The attractiveness of the racing product suffers accordingly. Slipping Away Certainly the Clubs, and particularly the Jockey Club, were hurt by the introduction of Hong Kong’s Offshore Gambling Ordinance, in 2002. The subsequent tax relief given by the Macau Government to the Jockey Club resulted in a year-on-year growth in Club gaming revenue of 75% in 2003, and 53% in 2004…the year in which the first non-SJM ca- sino opened. Since then, Club revenues have declined to a level lower than they were in 2002, when the Hong Kong Ordinance made it illegal for the Clubs to solicit business in Animal Racing Gaming Revenue 27 the SAR. On the face of it, both Clubs seem to have taken little action to arrest their declin- ing fortunes. It is anticipated that the Jockey Club will begin installing slot machines this month, under the umbrella of the SJM gam- ing concession. Will this have the same im- pact as, say, racinos have had in the USA, in reversing the declining fortunes of animal racing? Almost certainly not; the racinos have been adopted in US states which do not have commercial casinos. Here, full ser- vice casinos, operating 24/7, are at most a 5 minute cab ride from either Club. With the advent of Wynn, and the opening next year of Crown and the Venetian, the competition will not be limited to gambling spend; it will extend to dining, entertainment and retail spending as well. It remains to be seen how the two Clubs position themselves going forward; the casi- nos are category killers in many of the areas in which they operate. Perhaps the Clubs will slip quietly from view, allowing the develop- ment of the prime real estate on which they are situated. SAH