Inside Asian Gaming

inside asian gaming JUNE 2015 4 EDITORIAL Kareem Jalal We crave your feedback. Please email your comments to [email protected] Shifting Balance V IP baccarat’s share of Macau’s gross gaming revenue hit a peak of 74% in the third quarter of 2011, but has declined steadily since then. Last month, it accounted for 58% of reported revenue. However, owing to the move by casinos to reclassify a good chunk of their premium-mass business as VIP following the total smoking ban on all Macau main-floor gaming areas in October, a truer adjusted estimate of VIP’s current share of total revenue is around 50%. If the trend continues, as it seems likely to, the mass market will outweigh the VIP segment in a matter of months—possibly even this month—something that just three years ago seemed unlikely to happen this side of 2020 or even 2030. Slot machine revenue in May accounted for just 5% of Macau’s gross gaming revenue, a far cry from the respective shares of 67% and 53% it held across Nevada and on the Las Vegas Strip in April, the most recent month for which data is available. Most observers don’t believe that machines will account for a significant proportion of Macau’s gaming revenue any time soon. That consensus view is also likely to be proven wrong by the rapid evolution of the market. Slots in Macau used to be known as “hungry tigers,” a pejorative suggesting at best fear and at worst distrust. That’s probably because during Stanley Ho’s 40-year casino monopoly that officially ended in 2002, slot machines were merely a device for wringing any remaining change out of table players on the way out of the casino. The return to player (RTP) was horribly low (estimated at 60%), the machines were old and uninviting and their reputation among consumers was correspondingly poor. Macau’s current slot offering bears no comparison to the gloomy, wall-mounted, electro- mechanical monsters from yesteryear. The major slot suppliers from Australia, the United States, Europe and Asia have brought to Macau the very latest electronic ‘mousetraps’ with all kinds of bonus features and storylines to hold players’ attention. And thanks to the competition between Macau casino operators, those mousetraps have been marketed much more effectively both overtly—via the offering of major jackpots and carded play—and covertly, through dramatic improvements in RTP. Although there is not yet a mandated jurisdictional minimum RTP in the manner of Singapore, it’s generally accepted that in Macau no machines offer lower than 85% RTP. Clearly, electronic gaming still has a long way to grow in Macau. At the end of Q1 2015, there were 12,688 slot machines in operation across the city, the only part of China where non-VLT gaming machines can be offered legally to players. By comparison, there are some 200,000 slots across Australia, and around 100,000 in the state of New South Wales alone—meaning the replacement cycle of NSW is equivalent to Macau’s entire existing slot inventory. Conditions are ripe for an explosion in Macau’s EGM capacity. In particular, the local government’s cap on the market-wide number of gaming tables means that the string of new megaresorts scheduled to open on Cotai over the next two years will have to fill the spaces previously allotted for tables with electronic gaming machines. The tipping point is nigh, but hasn’t yet occurred. Galaxy Macau’s Phase 2 opened last month with fewer than 400 EGMs, although the property’s new gaming areas could handle closer to 3,000, and that’s where the count will probably soon expand to. If Cotai’s other upcoming new resorts follow suit, Macau’s EGM capacity could more than double over the next couple of years. The city’s slot machines earned US$363 million in the first quarter, while its dealer-assisted electronic gaming machine terminals took in an additional $67 million. Average daily win per device last quarter equated to a very respectable $320. Although the average daily win per device is likely to decline slightly as capacity increases, overall revenue could still almost double by the end of 2017, while table revenue continues to stagnate. Until recently, soaring growth of the live table market in general and the VIP segment in particular made it commercially impossible for operators to ignore that consumer demand. But the tables have now quite literally turned. EGMs will become more prominent across Macau’s future casino floors and adequate marketing resources will be allocated to nurturing their growth, feeding further expansion. The EGM offer to Asian players will also dramatically improve, as evidenced by the rich assortment of new releases from the world’s leading manufacturers developed specifically for the region’s players on display at last month’s G2E Asia expo at The Venetian Macao. The product is more enticing than ever, including electronic table games with side bets and other features that arguably make the ETGs more attractive than the traditional live-table versions. It’s early days yet, but if the rapidly evolving tastes of China’s fast-growing middle class is any guide, expect EGMs to soon become a force to be reckoned with under Macau’s “new normal.” Inside Asian Gaming is an official media partner of: www.gamingstandards.com 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 [email protected] For advertising enquiries, please email [email protected] or call: (853) 6680 9419 www.asgam.com ISSN 2070-7681 Publisher Kareem Jalal Director João Costeira Varela Editor At Large Muhammad Cohen Contributors Paul Doocey, John Grochowski, James Hodl, Matt Pollins, I. Nelson Rose Graphic Designer Rui Gomes Administrative Assistant Latte Iao Photography Ike, Gary Wong, James Leong, Wong Kei Cheong

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