Inside Asian Gaming

INSIDE ASIAN GAMING | May 2012 48 unto itself in reporting its financial results, with its other directly owned properties (termed “other self-promoted casinos”) grouped together as a second category, and the satellite casinos collectively making up a third. In the first quarter of 2012, gaming revenues at Grand Lisboa were up 26% year- on-year, more or less in line with the overall Macau market. Of course, some of the 27% overall Macau market growth was generated by additional capacity at new properties that did not exist in Q1 2011, most notably Galaxy Macau. According to Union Gaming Research Macau, “on a same-store basis, we believe the Macau market grew by 16% year-on-year, suggesting that Grand Lisboa outpaced same-store sales by 1,000bps on a year-on-year basis.” Grand Lisboa’s strong showing proves SJM is clearly capable of thriving in the face of competition. Unfortunately, the company’s satellites and other self-promoted casinos— the latter category saw a 5% revenue fall in Q1—will continue to drag down its market share, and SJM faces a likely wait of three years or more before it gets to open another major new property. Arguably, cash-rich SJM should have been faster in developing new properties in light of the aggressive expansion plans of its competitors, especially now that its Cotai project is being held up by the government’s desire to restrain growth. Although Sheldon Adelson’s famous “supply-creates-demand” view on Macau appears to have been borne out over the past few years, SJM’s perspective on the city extends far longer. SJM has taken a prudent approach to developing profitable casino operations in Macau for over five decades (first as STDM, then SJM following the 2002 liberalization), and concern about shifting monthly market shares are unlikely to persuade it to commit to investing in any project it does not believe offers a strong return. Casino receipts at Macau’s glitzy new resorts continue to exceed expectations, but with a few notable exceptions, demand for the non-gaming offerings remains patchy and unpredictable. Even now, the survival of SJM’s older properties proves that for many big players, lavish surroundings and amenities are not essential. That is changing, however, as the new resorts strive to outdo each other, transforming players’ expectations of what constitutes an acceptable gaming venue. It’s a far cry from monopoly-era Macau, where pretty much all that mattered was having gaming tables. SJM’s older properties may be declining, but they have long since paid for themselves and made handsome returns for their investors. They also cost much less to build than the new breed of casino resorts on Cotai, which are grandiose by necessity. The first batch of Cotai properties needed crowd- pulling attractions to woo players away from the action on the Macau peninsula. Now that the bar has been raised, they continue striving to outdo each other to draw traffic. Furthermore, in keeping with the wishes of both the local government and the central government in Beijing to diversify Macau’s economy, approval of any Cotai project implicitly requires the inclusion of a significant and costly non-gaming component. Keenly focused on returns, SJM was understandably reluctant at first to rush into the Cotai fray. That initial reluctance has had the unintended consequence of delaying SJM’s arrival on Cotai even beyond the schedule dictated by its cautious approach to new development. When it does finally get there, though, the tables could well turn as SJM competes for market share on Cotai against the entrenched incumbents. Monopoly-era relic—Casino Jai Alai SJM Standout performer—Grand Lisboa