INSIDE ASIAN GAMING | October 2013 4 Inside Asian Gaming is published by Must Read Publications Ltd 5A FIT Center Avenida Comercial de Macau Macau Tel: (853) 8294 6755 For subscription enquiries, please email
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[email protected] EDITORIAL $70 Billion—That’s Not a Misprint T he big news among China watchers recently has been a rebound in manufacturing as reflected by two straight months of positive readings in the closely watched Purchasing Managers Index. The PMI is a gauge of sentiment generally viewed as a bellwether for the health of the country’s all-important manufacturing sector. A reading of 50 and above indicates an acceleration of factory activity. September’s came in at 50.2, slightly better than August’s 50.1. This has tempered some fears among analysts about the slowdown that plagued the world’s second-largest economy in 2012 and into the first half of 2013. What’s interesting about this for Macau’s various stakeholders is how gaming revenues have fared while the economy of their principal engine was underperforming. In 2012, driven by a 30% surge in mass market revenue, which largely dispelled the effects of a fairly steep drop in VIP volumes through a good part of the year, GGR was up a healthy 14%. It was up 15% year on year in the first quarter, 16% in Q2. August was up 17.6%. September came in at 21.4%. October is expeced to set a new record at +17%. As most observers are aware, the pace of mass growth is exceeding even these robust numbers, and by quite a lot, +31% year on year through July, driven in part by a 7% increase in visitor arrivals and a 10% increase in arrivals from the mainland, and of those, the number who came from outside Guangdong province increased by 21%. August set a new monthly record for visitation at 2.87 million, of whom more than 1 million came from provinces outside Guangdong. This is a big deal because the deeper Macau gets into China the more money it takes out, the typical spend of a visitor from outside Guangdong averaging more than twice Guangdong and Hong Kong averages, according to research by Deutsche Bank. Which is another way of saying that as Macau reaches deeper into the mainland it’s becoming less sensitive to the mainland’s ups and downs. This may seem odd, even contradictory. Yet certainly from a gaming standpoint things appear to be evolving in just this way. “History shows,” as Nomura Equity Research put it in a recent report, “that an undersupplied market grows despite macro uncertainties.” The August numbers, for example: what was astonishing was the 44% increase in mass table revenue, which blew away even the segment’s heady 33% growth up to that point. Part of this, an obvious part, stems from the table cap. At 5,500 units and limited to increases of 3% a year for the next 10 years, there will be no sating China’s appetite for action. This won’t even come close to accommodating the more than 3,300 tables the six concessionaires have incorporated into their expansion plans on Cotai. Which is interesting in itself, because in August, for the first time, Cotai’s share of mass revenues overtook the peninsula’s. The cap’s purpose—to help promote Macau as a more diversified destination by forcing the concessionaires to diversify their investments beyond gambling—is laudable enough, except that it’s had the opposite effect. The minimum cash bet at baccarat is now above US$200 on average, according to Deutsche Bank, a 37% bump year on year in the first half, +50% in August, a month in which we might roughly estimate win per mass table at better than US$335,000, implying, conservatively, more than $1.3million in drop per table. Based just on the populations of Guangdong and Hong Kong, Nomura figures the casinos are dealing with 1,891 people per gaming position. To put that in perspective, in the US it’s 227. To maximize profit from this woefully inadequate number of seats, the concessionaires naturally are focusing on their best cash players, the“premium mass”—the folks with theoretical values well into the six figures, high rollers by definition in any other market—who, not surprisingly, are being courted like high rollers with private gaming rooms and rebates on losses and “promo chips” and the like, incentives that elite players have enjoyed on the Las Vegas Strip for years. No wonder even the regulators aren’t certain anymore about what constitutes the difference between mass and VIP, which is perhaps the cap’s final irony as an exercise in democratization. But to focus overly much on this is to miss the forest for the trees. Even if the cap went away tomorrow, there isn’t anywhere near enough physical space to absorb existing demand, let alone the demand to come. Nomura points out that over the last five years, while the number of gaming positions has increased 39%, revenues have soared 180%. As for the demand to come, if we project 30 million visitors for 2013, the 60% we can expect to originate in China means Macau will see all of about 1.8% of the country’s adult population—less, if we contemplate repeat visitors. This is why Nomura, for one, believes it’s possible that in four years, GGR could hit $70 billion.