Inside Asian Gaming

INSIDE ASIAN GAMING | February 2013 8 COVER STORY With Macau penetrating only about 1.3% of mainland China, the impact of this middle class is proving to far exceed its numbers. Mass-market tables and slots, though they constitute less than one-third of revenues, are driving 50% of earnings, most of it coming in the form of high- margin cash play at the public tables at bets in the range of HK$500-$5,000, the bigger bettors comprising the coveted “premium mass” segment. This was the story of 2012, when mass-market GGR, tables and slots combined, soared 32% year on year, and it’s certain to dominate the conversation this year amid growth estimates that range from 20-28%. “With profit per unit in mass now equal to profit per unit in VIP in the market overall,” the sector will be the“key”to 2013, as analyst Grant Govertsen of Union Gaming Research Macau sees it. Few, if any, would disagree. In the fourth quarter, mass-market tables delivered revenue growth of 31% and slots and electronic table games, which the government counts as “slots,” 15% (16% for the year), both well exceeding the 9.9% growth in Q4 for the market as a whole. This is particularly noteworthy for having been achieved in the absence of a meaningful increase in visitation, which ran basically flat with 2011 at +0.03%, just a China Retail Sales Note: China retail sales refers to sales of consumer goods by above designated size enterprise; Source: National Bureau of Statistics 9,000 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (%) (Rmbbn) 22% Cagr China retail sales YoY (RHS) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 45 40 35 30 25 20 15 10 5 (5) 0 0 Estimates of how large vary. In China, “middle class” can be somewhat of a misleading term, at least as it’s understood in the West, because the costs of living are so different. Generally, a household is considered to qualify if one-third of its income is available for discretionary spending. This can take in anywhere from the US dollar equivalent of $6,000 in annual income to $60,000, an enormous band that has ballooned with the quadrupling of urban disposable incomes since the turn of the century. It’s a relatively youthful demographic, too, most of its members under 50 years old, homeowners many of them, aspirational, hopeful about their material prospects, possessed of a desire to see the world—more than 70 million Chinese traveled abroad last year—and eager to indulge a decided taste for luxury brands. A conservative estimate would put their numbers at 25%of the total population, about 325 million people, larger than the entire population of the United States. “If you start thinking about Macau as a consumer category then you need to understand what’s happening in China, and what’s happening all over Asia, which is very obvious— the middle class expanding massively. We’ve understood how high the appetite to gamble is in Asia, and when you combine that with the massive explosion in wealth, it results in a very large market.”