Inside Asian Gaming

April 2010 | INSIDE ASIAN GAMING P redicting the growth of Macau’s gaming market appears at times to be as much about art as it is about science, though in truth the issue is not ‘whether’ Macau will grow, but how much growth it will experience. Predictions matter, however, because investors need an understanding of what kind of return on investment they can expect and over what period of time in order to feel comfortable about committing capital in the form of debt or equity at a particular price point. Investors also tend to seek to understand the regulatory and political demands of a market in which they are investing, and don’t much like situations where such an understanding is difficult to arrive at. The good news in this search for predictability is that the current Macau licence concessionaires and sub- concessionaires are effectively a ‘protected species’ as participants in a state monopoly divided between only six players, in a market growing year-on-year by 9.4% even in 2009, when the aftershock of the global credit crisis was being felt. Macau’s gross gaming revenues grew by an average of 66% year-on-year across the first two months of 2010. But so far, few analysts appear to have revised earlier, relatively conservative, estimates for 2010 performance of around 15% annual growth. That could partly be a function of the fact analysts are still crunching their numbers. It could also be a function of their caution based on the experience of previous stop-go factors inMacau’s gaming market. These include China’s exercising of its right—as the supplier of around 60% Mixed Signals CLSA predicts 30% annual growth in Macau during 2010, as the industry ponders a possible table cap Market Outlook of all Macau visitors—to control the ‘on- off’ tap by rationing individual visas to the territory. Another issue that could have an impact on 2010 gaming revenues in Macau is a potential downturn in China’s export orders if the weak economic rally seen in Europe and North America relapses into full blown recession in some major importing countries. Some commentators also fret over possible credit rationingmeasures by Beijing designed to cool the growth of Chinese assets, including real estate and equities. That, in turn, is likely to have an impact on the issuance of credit to high roller gamblers in Macau. In 2009, VIP play accounted for 66.8% of all gross gaming revenues from games of fortune in the territory. The rapid pace of gaming revenue growth seen in the first twomonths certainly 11