Inside Asian Gaming

INSIDE ASIAN GAMING | 42 INSIGHTS There are a couple of other macro indicators. We also look at the Guangdong export data because, after all, a big part of the business comes from Guangdong province. Although Macau gaming revenue is highly correlated to liquidity and export and manufacturing output in China, is that mostly relevant to the VIP sector, while the mass market is less dependent on these macro factors? The difference between VIP and mass is the relative rates of penetration. VIP is more penetrated. If you have supply and demand balance, and macroeconomic conditions adversely impact VIP players, you will see the sector immediately slow down, because the supply and demand match. But for mass it’s different. Mass is underpenetrated. Many more mass players want to come than those who already came to Macau. Even though the same customers’ spending will slow down, the increase in penetration will offset the slowdown. So today I may have 10 customers coming in here. They spend, let’s say, $100 each. Tomorrow they may spend less, it’s down to $95, but you have an additional three to five more players come in because of improved infrastructure which allows increased penetration. The increase in new players will be more than enough to offset the decline in existing players’ spending. That’s why even though we saw an economic slowdown in China last year, still the mass market registered 30% growth. It’s in part because of the increase in penetration. Not only is the mass market growing, but we seem to be moving up in the mass market, with minimum bets on tables having risen considerably in recent months. It’s a function of two things. One is we have more players coming in, it translates into more demand. And there’s a limited amount of gaming tables, so casinos can increase the pricing. The other thing is a lot of investors think mass-market growth is purely a function of higher table limits, but they are only seeing part of the picture. It is actually also the result of the customer-segmentation efforts of the casino operators. Most of the major casinos today have been around since 2007. Like Venetian, “If VIP players are tight on credit and their money is tied up in their businesses, they don’t have surplus money to gamble. So if it’s easy to get money either from bank loans or Social Financing, their liquidity is eased, then they have more money they can spend in Macau.” Macau casino operators and junkets as well as familiarity with the habits and preferences of local players. Inside Asian Gaming spoke to Mr Fong about the major factors driving the sector and what investors need to look out for. IAG : What are the key economic indicators in mainland China you look at in gauging demand for Macau casino operators? Mr Fong : On the VIP side we normally look at the loan growth, the monetary growth, as well as the amount of Social Financing [Total Social Financing is a term coined by China’s central bank to monitor aggregate financing apart from yuan bank loans. It contains six other categories: foreign-currency loans, entrusted loans, trust loans, bankers’ acceptance bills, corporate bonds and non-financial stock sales]. These are some of the macro liquidity indicators we normally look at because they directly affect how much money VIP players can get from their businesses. If they are tight on credit, and their money is tied up in their businesses, they don’t have surplus money to gamble. So if it’s easy to get money either from bank loans or Social Financing, their liquidity is eased, then they have more money they can spend in Macau.