INSIDE ASIAN GAMING | August 2008 2 Editorial Editor and Publisher Kareem Jalal Director João Costeira Varela Business Development Manager Matt Phillips Operations Manager José Abecasis Contributors Michael Grimes, Desmond Lam, Steve Karoul, Richard Marcus Graphic Designer Brenda Chao Photography Ike Inside Asian Gaming is published by Must Read Publications Ltd Suite 1907, AIA Tower, 215A-301 Av. Comercial de Macau - Macau Tel: (853) 6646 0795 For subscription enquiries, please email
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[email protected] Still Waiting for the Vegas-Style Visitors Macau’s casino revenues continue soaring, reaching 58.7 billion patacas (US$7.3 billion) in the first half of 2008—a 54.6% year-on-year increase.VIP baccarat contributed 40.9 billion patacas, or almost 70% of all casino revenue, having outpaced the growth in the mass market to rise 62.3% year-on-year in the first half of the year, while the mass market grew 39.5%. Owing to cutthroat competition and diminishing margins in the VIP sector, Macau’s casino operators need to cultivate the mass market and non-gaming revenue streams in order to resume the previous high growth in their profits that had prompted spectacular rises in their share prices, which have since come tumbling down. Before the local gaming market got crowded, Las Vegas Sands Corp (LVS) famously recouped its US$265 million initial investment in Sands Macao within ten months of opening in May 2004.This led to visions of a similarly speedy return on investment at the company’s mammoth follow-up property, the US$2.4 billion Venetian Macao, which will hold its first anniversary on August 28 with the unveiling of a new permanent Cirque du Soleil show at a specially designed 1,800-seat theatre. Given the lacklustre performance of the Venetian’s other non-gaming spectacles to date, many doubt the show will play to capacity crowds nightly, as Cirque shows in Vegas do, even if LVS hands out free tickets by the bushel, as it has done for shows by Beyoncé and the Pussycat Dolls. One of the faulty assumptions underlying analysts’ previously lofty valuations of LVS was assuming that because the ‘Vegas-style’ Sands Macao was successful, other Vegas-style non-gaming offerings would also draw great demand. If Sands Macao was more successful than other gaming properties in the city, it was because it offered a more spacious and comfortable environment for players, especially those on the main floor. It also benefited greatly from the easing of travel restrictions on mainland Chinese wishing to visit Macau—restrictions that have recently been tightened. Sands Macao is a gaming-focused venue, catering to Macau’s still-dominant day-trip market. With the 3,000-suite Venetian Macao, LVS had hoped to cultivate a new multi-night stay market in Macau.That new demographic of visitor has not yet arrived in meaningful numbers,as borne out by Venetian Macao’s latest financial results. In the second quarter of 2008, the property reported total revenues of US$493.7 million, with casino revenues of US$415.6million,hotel revenues of $46.5million,retail and other operating revenues of $36.8 million and food and beverage revenues of $15.4 million. This means that even in the Macau property boasting the widest array of non-gaming offerings, gaming still contributed 84% of total revenues. Another effect of Venetian’s arrival was some cannibalisation of business at Sands Macao,which reported total casino revenues of $262.3 million in the second quarter of 2008 (with total revenue of $268.2 million, showing the minimal contribution of non-gaming revenue sources at the property), compared to $317.4 million in the same quarter of 2007 (prior to Venetian’s opening). Sands, with an initial investment of only about a tenth of the mammoth Venetian Macao, achieved casino revenues that only fell about 37% short of that achieved by its crowd-pulling big sister. The Venetian’s results to date show that not only is demand still relatively weak for non-gaming offerings in Macau vis-à-vis gaming, but importantly, that impressive surroundings do not necessarily draw more players—or at least not to an extent commensurate with their cost. After all,as of March this year,by far the highest-grossing property inMacau was the 216-roomCrown Macau, which has no shops and only a handful of restaurants, but offered the highest commission rate to junket operators bringing VIP baccarat players to casinos. By June, the 600-roomWynn Macau clawed back the lead as Macau’s highest grossing single property, again thanks to its strength in the VIP market. It could be that many VIP players would rather avoid the mass market crowds drawn by Venetian Macao’s artificial canals. One disappointed analyst quipped the Venetian amounted to a free theme park for the 80,000 or so visitors, mostly from mainland China, who arrive at the property daily, usually having taken the free shuttle bus from the border. Most of these visitors walk around the resort and leave without appearing to play, buy or eat very much. Perhaps the Venetian Macao has still not hit its stride because it is the only property of its kind in the city. Wynn Macau bills itself as a destination resort, but apart from featuring a handful of high-end boutiques, restaurants and a spa, it is very much a gaming-focused property. Only Venetian Macao, with its 1.2 million sq.ft each of retail and convention and exhibition space and a 15,000-seat arena,in addition to the 500,000 sq. ft casino, warrants being called a true Vegas-style mega resort, standing alone in the midst of a string of modest-sized casino hotels that offer gaming and not much else. The addition of further integrated resort capacity will draw more of the new multi-night stay crowd LVS is after, and to that end, it is developing a further 17,000 resort rooms along the Cotai Strip.The city’s other casino operators are building thousands more. Macau’s stock of hotel rooms is expected to more than double from 16,300 rooms by the end of last year to 34,800 by the end of 2010, with much of the new supply coming online at mega resorts on the Cotai Strip.The rooms will be accompanied by a bevy of non-gaming draws, and the operators are hoping this will finally create sufficient critical-mass to draw a Vegas-style visitor demographic to Macau.