Inside Asian Gaming

INSIDE ASIAN GAMING | December 2011 2 Editorial Inside Asian Gaming is published by Must Read Publications Ltd 8J Ed. Comercial Si Toi 619 Avenida da Praia Grande Macau Tel: (853) 2832 9980 For subscription enquiries, please email [email protected] For advertising enquiries, please email [email protected] or call: (853) 6680 9419 www.asgam.com Inside Asian Gaming is an official media partner of: http://www.gamingstandards.com Publisher Kareem Jalal Director João Costeira Varela Editor Michael Grimes Operations Manager Sarih Leng Contributors Desmond Lam, Steve Karoul I. Nelson Rose, Richard Marcus James Rutherford, Sudhir Kale James J. Hodl, Jack Regan William R. Eadington Graphic Designer Brenda Chao Photography Ike, Alice Kok, James Leong, Wong Kei Cheong Michael Grimes We crave your feedback. Please email your comments [email protected] Field of Dreamers The recent announcement that SJM—the casino operating company founded by Dr Stanley Ho—would in future create more three-star rooms in its Macau casinos is welcome. But it is also an acceptance of market realities. Around 75% of Macau’s gaming revenues come from VIP baccarat. And gambling as a whole accounts for about 95% of all tourism revenue. But on most nights of the week you could fit all the VIP gamblers in Macau into just one of the fancy new hotels that have been built since the start of the boom in 2004—with rooms to spare. China’s reforming leader Deng Xiaoping—who ultimately is the one who really got things rolling for the Western casino operators in Macau—once reportedly said of his economic changes: “Do not care if the cat is black or white, what matters is it catches mice”. It might be argued that Macau’s casino-hotel operators have focused rather too much on the colour of their cat—in the attempt to catch high-spending ‘MICE’. It’s claimed in figures collated by Macau’s Statistics and Census Service that five-star hotels had an occupancy rate of 78.7% in September. Frankly, we don’t believe that. We think some of Macau’s five-star hotels sell more fudge than an English country tearoom when it comes to claims on occupancy rates. Naturally, the fact these five-star hotels are nearly all in casino resorts and that most of the operators are heavily leveraged to pay for their infrastructure is merely coincidental. And as long as gaming is booming so much, who cares if Macau room rates are over the top for the market? There are all sorts of ways for hotels to cook their occupancy statistics, but one is specific to Macau. This is to count rooms assigned to junkets and junket players as‘occupied’—even though in reality the room itself may not even be inhabited and certainly won’t be independently generating any revenue beyond the operator’s netted share of the rolling done by the high roller. And if you’re basically giving your rooms away—whether to junkets or to low-spending (if relatively well-heeled) package visitors, you’re not generating the sort of revenue per available room that does justice to your headline occupancy rates. The proof of the ‘Macau is a world-class general tourism destination’ thesis is in the tasting. When the average length of visitor stay sticks stubbornly at 1.5 nights after a six-year building boom for luxury hotels, that looks like the market telling us something. Our feeling is this has come about partly because of a wilful failure of casino resort operators to acknowledge the current wealth distribution realities of the mainland Chinese market—possibly due to their eagerness to please their investors and calm their bankers. Casino operators can quote China’s GDP growth figures until they are blue in the face. But when 128 million Chinese people are living at or below the World Bank’s definition of the poverty line (US$1.25 per day based on purchasing parity rates), that should tell us something about the priorities and outlook of the remaining 1.17 billion. For most, the priority is not to rejoin the 128 million ‘have nots’, thank you very much. And yet in September, a whopping 65% of Macau’s 21,837 available hotel rooms were five-star standard. A further 20% were four-star; 11% were three-star, and only 4% were two-star. The occupancy rates for the four- and three- star properties (where the casinos are either small or non-existent) have all been consistently higher over the last 12 months than for the five-star venues. The average nightly rate for an entry-level five-star hotel room in Macau in the second quarter of the year was MOP1,800 (US$225). A basic five-star London hotel room cost on average £212 (US$331) per night in the first half of 2011, according to the tourism guide Lonely Planet. The average annual wage in the United Kingdom in 2010 was £25,543. The average annual wage in Guangdong—from where the majority of Macau’s mainland visitors are currently said to hail—was Rmb36,355 in 2010, according to China’s State Statistics Bureau. That’s just 14% of the average annual wage in the UK. And yet, a Macau five-star hotel room currently costs only 32% less than one in London. No doubt the Macau casino resorts will say their pricing is a function of supply and demand. But if their figures for demand are being cooked in the first place, that makes a nonsense of the whole pricing strategy. Build it in Macau at that price and they might come—for one night. Then again, they might not.