Inside Asian Gaming

INSIDE ASIAN GAMING | December 2012 34 2. Is there an economic moat protecting the business? The most important thing to me is figuring out how big a moat there is around the business. What I love, of course, is a big castle and a big moat with piranhas and crocodiles. Warren Buffett Macau gaming operators are protected by a strong moat, with only six gaming licenses issued there. We understand that the government has no intention of issuing additional permits, which installs a strong entry barrier. The government’s determination to tame table supply growth and to slow the pace of newproject approval are also key factors in driving gaming companies’ strong earnings and cashflows. The government has implemented a table cap of 5,500 tables to March 2013 and will allow about 3-5% growth thereafter with around 2,000 additional tables by the end of 2022. Further, Macau casino operators do not face much external competition. Over the next decade, Macau and Singapore Mass market vs VIP margin Macau gaming: Porter’s five-forces analysis Source: CLSA Asia-Pacific Markets Source: CLSA Asia-Pacific Markets from directly extending credit to players and thus creating opportunities for the junkets. Some perceive Macau as a place for corrupt government officials to launder money. But over the past decade, no gaming company has been prosecuted for any crimes or violating the anti-money laundering control procedures. In fact, some of the world’s most prestigious financial institutions have been charged with greater and more frequent financial crimes than the global gaming companies. Over the past 10 years, the number of criminal offences in Macau has remained low. In 2011, 12,500 crimes were recorded, representing a crime rate of only 2.5%, which is lower than all major US cities and significantly lower than the 4% in Las Vegas. IN FOCUS