Inside Asian Gaming

INSIDE ASIAN GAMING | October 2011 14 In Focus T here seems to be a consensus among Macau watchers that government policy on the gaming industry is focused on making sure the poor don’t lose out. That’s in terms of preventing less well- heeled visitors from mainland China and Hong Kong blowing too much hard-earned cash at the tables and slots and making sure that older and less well educated Macau residents don’t get left behind economically during the local gaming boom. In other words, policy is principally about controlling what happens in and around the mass- market rather than the VIP segment. Back in 2006, the VIP market was more of a headache for the authorities. At that time, managers of some state owned enterprises in China were allegedly embezzling money in order to fund high roller credit in Macau. That ended when the Chinese authorities— with the acquiescence of Macau— started putting undercover police officers on the casino floors. So an interesting question is how the ‘Son of Table Cap’ policy announced by Macau’s Secretary for Economy and Finance Francis Tam last month will help in controlling the growth of the mass market. As a reminder, there is currently (officially at least) a cap of 5,500 tables until the beginning of 2013. This matters because 95% of Macau’s gross gaming revenue (GGR) derives from live table games. The new policy revealed by Mr Tam calls for the live table cap to be extended so that only a 3% growth in table numbers will be allowed year-on-year between 2013 and 2020. Overweight in the VIP Macau’s live table mass-market GGR grew by 35.5% year-on-year in the second quarter of 2011. It climbed to MOP14.23 billion from MOP10.50 billion a year earlier. In the same period, the VIP table market grew by 49.9% (from MOP32.36 billion to MOP48.53 billion). Between 2Q 2010 and 2Q 2011, the number of tables in the market only grew by 8.4%. So how was such huge GGR growth achieved in the presence of the table cap? It seems by a combination of factors. They include: better utilisation of existing tables in the mass segment; conversion of existing mass-market table inventory toVIP table inventory or by taking tables out of storage and designating them as VIP ones. When SJM successfully applied recently to have VIP tables in its otherwise steadfastly mass-market Casino Oceanus, it was making use of its existing inventory. The VIP baccarat contribution to all live table gaming stood at 75.4% in 2Q 2010. By 2Q 2011, that had risen to 77.3%. It only takes a relatively small number of extra VIPs to make a big jump in overall GGR. Research by the University of Macau suggests that Chinese people’s demand for gambling is relatively inelastic—i.e. that the demand stays constant or strong even if the price goes up. So can controlling the supply of tables really control the revenue growth of the market as a whole? If the table inventory is only allowed to grow by a compound rate of 3% per year while visitor numbers (mostly in the mass segment) are rising at a compound rate of 8.3% year-on-year (as happened when comparing June 2010 to June 2011)—i.e. roughly three times the rate of table supply—then will that put upward pressure on minimum bet prices? Research by the University of Macau suggests that Chinese people’s demand for gambling is relatively inelastic—i.e. that the demand stays constant or strong even if the price goes up. The end result of any upswings in bet pricing is likely to be a boosting of operator margins, with no guarantee that the table cap policy will actually fulfil its implied function of protecting the public as well as cooling the market. Show Stopper Is Macau trying to put a champagne cork back in a bottle by extending its live table cap to the year 2020?