Inside Asian Gaming

A 13 12 short time ago it would have been difficult to imagine Manchester United, Rog- er Federer, Pete Sampras and NBA basketball stars visiting Macau in the same decade let alone the same year. That’s all changed now that gaming operators are planning to in- troduce world-class ‘software’ (i.e., entertain- ment) to go with the world-class ‘hardware’ (i.e., new casinos, shopping malls and hotels) they are building in the territory. The ability to pull in visitors with head- line events and then keep them inside your casino venue by giving them lots of different things to do, could be an important element in building revenues and maintaining share in an increasingly crowded market. Macau already had non-gaming ‘soft- ware’ to offer visitors even before Stanley Ho’s gaming monopoly ended in 2002 and investment from foreign casino operators started flooding in. The Macau Grand Prix, which celebrates its 54th anniversary this year, is a world-class event, and the list of past winners reads like a Who’s Who of motor racing. The event is a marketer’s dream, pulling Sporting Draw Macau’s development as a world-class entertainment venue could be good news for investors in tens of thousands of well-off visitors from all over the world and sending hotel oc- cupancy (and room rates) sky-high for one heady weekend per year. Research from the Macau Government Tourist Office suggests the average visitor during Grand Prix weekend is significantly more upmarket in terms of income, educa- tion and spending power than the average visitor at other times of year. Macau also hosted the East Asian Games in 2005, building 11 facilities from scratch using public funds, including the US$75 million, 8,000-seat Macao Dome. The new sport infrastructure was used to host the Lusophone Games for Portuguese-speaking countries in October last year, and the city will also host the sailing competitions of the Beijing 2008 Olympics. The Macau Open, an annual golf tourna- ment that marked its 10th birthday in May, is likely to boost its profile with support from the gaming industry. Jose Tavares, acting chairman of the Macau Sport Development Board, thinks the prize money could rise to US$1million next year with help from the pri- vate sector. He says:“I expect the gaming sec- tor will be very interested to join in theMacau Open as sponsors in future, because most of them don’t have their own golf courses.They need to use the existing facilities.” Golf and motor racing are sports with upmarket audiences that sponsors want to reach. The problem is, until now there hasn’t been much for well-heeled sport tourists to spend their money on once they got to Ma- cau – other than pure gaming and nightclubs. The Grand Prix gold rush – which includes a five per cent tax on hotel room charges that goes to help sports development in the terri- tory – was rarely replicated beyond that one weekend in November during the casinomo- nopoly years. The rest of the time (with the exception of Chinese New Year and spring’s Golden Week), room occupancy rates and visitor spending in Macau have traditionally settled back to levels that suit the wallets of mainland Chinese visitors. Now there are big changes. Chinese people are getting richer, and quickly. Not all are, and not all at once, but enough out of a population of 1.3 billion to make their disposable income too tempting to ignore. The new investors in Macau plan to cash in by giving them new things to do. Data collatedby investment bankGoldman Sachs and CEIC, the economic research com- pany specialising in emerging markets, sug- gest that in 2005, GDP in six out of eight major mainland cities neighbouring Macau grew by at least 10%,and in two cases,more than 19%. Crucially – from the perspective of inves- tors in Macau’s tourism industry – between 1992 and 2006, mainland consumers’ spend- ing on recreation, education and culture rose from less than 10% to more than 50% of total expenditure, suggests Goldman Sachs. This bullish outlook is backed by Gavin Ho, an analyst at CLSA Asia-Pacific Markets, a leading provider of investment and broker- age services in the region. His latest report, on Macau, called Macau Mania II, says:“While per capita income in China has been posting a 12% Cagr [compound annual growth rate] over the past five years (2000-05), the more affluent segments have been in fact growing even faster, with the top-10 percentile ex- panding at 18% Cagr during the period. The faster growth in high-end spending power will facilitate the consumption of higher-end products, including vacations.” Sheldon Adelson, chairman and principal shareholder of Las Vegas Sands Corporation (LVS), the company instrumental in changing the tourist market in Las Vegas and making it less dependent on pure gambling, is con- vinced China’s newly rich consumers will be just as eager to be entertained as their coun- terparts in the US. His chief method of attract- ing upmarket visitors is to establish a conven- tions business in Macau, and a non-gaming resort in neighbouring Hengqin Island across the Chinese border.The effect of complement- ing this hardwarewith the right entertainment software shouldn’t be underestimated. LVS has already generated huge amounts of free publicity by announcing plans to bring in top sports stars and entertainment spectacles to Macau.At the moment it has lit- tle competition. The other operators haven’t completed their integrated resorts, while LVS’s arena at the soon to be opened Vene- tian can seat 15,000 to 18,000 depending on the event.The Macau government isn’t really competing in the same market as far as con- certs are concerned. It has traditionally con- centrated on providing entertainment for a domestic audience, and followed the Euro- pean model of subsidising highbrow con- certs by artists deemed culturally worthy. Mr Adelson is more of an impresario in the swashbuckling American tradition. Forbes. com’s biography of him mentions he had voice training in his youth. He also brought Phantom of the Opera to Las Vegas in 2006. His love of show business may account for his fatherly indulgence toward the new Cirque du Soleil production being prepared for The Venetian. On a recent visit to the territory he admitted with a smile the budget had already reached US$160 million without a trapeze be- ing swung in public. He believes though he will make the money back very quickly. “There is no doubt in my mind about the viability of the [Integrated Resort] concept.In order to deny this concept you have to be- lieve that Asian people are different from any other person in the world. Every adult wants to be entertained,”Mr Adelson says. The issue may be less about whether Chinese and other Asian people want to be Galaxy’s Fury in Macau – Super Fights Positive synergies within the PRD region Chinese consumers are moving up the “consumption ladder” fast 16 14 12 10 8 6 4 2 0 1992 1994 1996 1998 2000 2002 2004 2006 Food (RHS) 55 50 45 40 35 % share in total expenditure % share in total expenditure Recreation, education and culture Housing Transportation Medicine & medical service Source: CEIC, Goldman Sachs Economics Research

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