Inside Asian Gaming

January 2016 inside asian gaming 33 Blast from the Past capital due to rapid economic growth in China, India and other Asian economies. Such cost increases are pushing up the capital outlays required for various pipeline projects in Macau, and are dampening the expected returns on invested capital. This leads us to constraints. The major constraints impacting Macau are those on labor and infrastructure. One issue surrounding labor is the protectionist stance taken by the Macau SAR to protect its own constituents from imported low- cost labor from China and elsewhere in the region. This has led to the circumstance where, by law, only Macau citizens can be employed as staff working on the casino floor by the concessionaires. While initially this was seen as a positive for theMacau population, it has meant that a relatively small and static Macanese population of less than half a million has had to cope with a burgeoning casino industry over the past few years. The unintended consequence of this has been to relegate Macau citizens to base-level dealing jobs within the casino sector (where demand is strongest) while inhibiting opportunities for promotion (because such workers cannot be legally replaced with non-Macau citizens). This has undermined staff loyalty and increased movement among concessionaires by gaming staff. Furthermore, with a limited pool of available labor and demand for casino staff being so high, various other sectors in the Macau economy have been confronted with significant upward pressures on wages and other costs of doing business. There is also the question of how these changes in the local labor market impact the social fabric of Macau in the long term. Many young people in Macau are being attracted into the casino sector and away from either continuing their education or entering public service-related fields. While the concerns to the investment community are more isolated to the increased cost of labor and its limited availability for casino operations, the broader issues for Macau have relevance at both the policy and political levels. What may result is a legislated differential wage structure for Macau and non-Macau citizens, or quotas introduced that would allow a certain proportion of staff working on the casino floor to be foreign workers. Given the pipeline of capital projects presently under way, along with the expected future levels of operations in the casinos and other tourist-related businesses, the need to permit more foreign workers into Macau is already an issue whose importance can only increase in the next several years. Thus, the policies chosen that will affect the cost and availability of labor in the Macau SAR will have a major bearing on the industry structure in the future. Yet another constraint that may well limit the prospects of Macau in the near future is infrastructure. The infrastructure in Macau has lagged the development of the casino industry and the ever-increasing number of visitors to Macau. The airport and ferry terminals both require physical expansion as well as enhanced servicing by customs and immigration personnel to cope with the numbers coming into Macau. Taxi services are another aspect of Macau that has been under pressure, as has been the road system in general. Dramatic upgrades to critical support services are required if Macau is to one day host more than 50 million visitors a year, as is expected. While much infrastructure expansion and improvement is under way, the intra-Macau transport situation is lagging behind the development of the major resorts, and must be escalated in priority. As with Las Vegas, it is possible that Macau may be heading to a situation where gridlock occurs far too frequently at peak demand periods. Consumer Profile Another concern in the minds of some is the current consumer profile. The growth in the VIP market has been astounding, and it has so far overshadowed the growth exhibited in the mass market. In market share terms, VIP baccarat revenues accounted for around 70 percent of gross revenues in the first quarter of 2008. Since margins for the VIP sector are so much thinner than the mass market sector, this may not be a good sign for investors. Possibly a greater source for worry, however, is the issue of mass- market retail, an important part of the so-called non-gaming spend. In recent years, the percentage of revenues in the largest Las Vegas Strip casinos coming from non-gaming sources has climbed to 60 percent or higher for many properties. Galaxy’s Waldo Wynn Macau , with Grand Lisboa in the background June 2008