INSIDE ASIAN GAMING | January 2014 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 Bigger than Macau I f last year’s share prices are any indication, investors are coming around—finally, some might say, and certainly en masse—to grasping the Macau market for the force of Nature that it is. While gaming revenues were climbing to a record US$45 billion in 2013, eventually blowing away 2012’s results by 18%, the listed companies behind the six casino concessions saw their equities appreciate in the range of 42-132%. This was against a benchmark Hang Seng Index that was up 3%. Which is as astounding in its way as the operational performance. It’s also giving some observers pause. When you’re obliterating the biggest companies on the Hong Kong Stock Exchange like this, what does it say about upside going forward? “Macau is expensive,” as an analyst with Macquarie Securities recently summed it up, “but it’s hard to push the ‘Sell’ button.” A shame, in other words, to walk away from the profit potential of China’s gambling obsession. A better idea might be to just walk across the border. There’s a business going on there in public lotteries that’s even bigger. It’s in supermarkets, gas stations, convenience stores, it’s sold at thousands of street stalls, it’s in dedicated betting shops, it’s on slot-style machine games, it’s online, it’s on people’s phones. It’s so big it’s become a problem for a central government that worries about addiction, anti-social behavior and official corruption and wants to take them in hand and can’t help but ponder at the same time how much bigger the business could be if they had the means to regulate and control it and promote it more effectively. It is, after all, the government’s own business, and last year it was looking to be good for close to US$50 billion. Results published by the Ministry of Finance had sales at more than 279 billion yuan ($45.6 billion) through November, a year-on-year increase of almost 19%. Forecasts call for 20% growth or thereabouts for each of the next three years, which implies that China will easily surpass the United States by 2015 to become the largest lottery market in the world. As opportunities go then, this one looks epic, and it will belong to those with the games and know-how and connections to take it forward. The problem from an investment standpoint, part of the problem anyway, is a typically Chinese one—transparency—no one knows quite where all the money is going. To tackle this, observers see the system moving toward centralization. Thousands of private sellers will be weeded out and operations consolidated around a handful of licensed and regulated commercial providers. This will occur around the two legally recognized networks: the Welfare Lottery, established in 1987 to help China’s then-fledgling market economy pay for poverty programs, health care, disaster relief and a national pension scheme, all of which, for a socialist country, remain shockingly underfunded, and a Sports Lottery set up in 1994 to promote public fitness, support sports organizations and fund Olympic training. Sales are administered at the provincial level, and as of 2011, only nine of these 34 entities gave any kind of public accounting of what they spent and how, according to a recent report in the Financial Times . It’s gotten so bad that a popular economist appeared on Guangdong television last year to call for a national lottery boycott in an interview that went viral on the Internet. Yet more and more people are playing, many because they believe wage labor will never get them onto the property ladder or secure for them and their families the finer things of the country’s booming consumer culture. Among city dwellers one player in five might spend as much as 60% of their monthly income on tickets, according to a survey of more than 24,000 players conducted mostly online over several months in 2011-12. The more developed and prosperous the location, the more players the survey found. But wherever it went no less than 60% of respondents said they were confident of eventually hitting the jackpot. The appeal was strongest among singles and younger people, young men especially. Under-30s made up 58% of those surveyed; more than 90%were male. Estimates of the player base nationally range from 200 million to 400 million, which sounds like a lot, but what they lose equates to less than 1% of public revenue. It’s a demand-supply profile every bit as attractive as Macau’s, and government is responding with smart advertising, bigger prizes and an increasing number of private-sector alliances to promote online and mobile sales and secure a pipeline of new, technologically sophisticated products marked by innovations like rapid-draw and virtual sports games and video play terminals that are slot machines for all intents and purposes. The survey found that 40% of participants were playing on their phones. Online sales have been estimated at more than US$2.5 billion. The vision is of a 21st century marketplace with broad consumer appeal, a distribution channel for every taste and demographic, and a potential for making money that is incalculable, and it’s quickly becoming real.