Macau’s Gambling Problem

Written on March 20, 2007 by admin

As we mentioned before, there is too much of a good thing in Macau! A small population of 508,000 with a workforce of 260,000 people, that needs to be 400,000 people by 2010. This is to support all those new casino’s, hotels and resorts that will be sprouting up all over Macau. And we have not even talked about the drop in per table take which since 2002 has been a whopping 300%!
Global gaming and entertainment operators have been doubling down on new casino development in Macao. Yet it could also be heading for a nasty shakeout thanks to a looming casino glut, some analysts warn.

At first glance, the casino development spending spree seems justified. Macao’s gaming revenues are growing an average of nearly 20% per year and were just shy of $7 billion last year, earning the enclave more than the entire Las Vegas strip. Avid Chinese gamblers, who account for 50% of the bettors, up from virtually zero five years ago, arrive in ever growing numbers.

But behind those headline-grabbing numbers a less glittering picture starts to emerge. The average take per table, which peaked at $10,000 per day in 2002 when Hong Kong mogul Stanley Ho still had a monopoly on the gaming industry, has been steadily falling this decade.

In 2006 the average take was just $3,200 because of the rapid overall expansion of gaming tables. It’s going to get worse: As ever more properties come on stream in the next few years, that figure could reach as low as $1,800 by 2010, figures Morgan Stanley gaming analyst Rob Hart. “We’ve been warning investors,” he says.

Indeed, the number of tables is expected to increase fivefold from 2,000 at the beginning of this year to 10,000 by the end of 2010. And the culprit is seemingly nonstop new casino development.

So far this year, Stanley Ho’s Sociedade de Jogos de Macao has opened its $384 million, 300-table Grand Lisboa casino. Even now, there is a massive shortage of croupiers—table dealers who throw dice, spin roulette wheels, and deal cards—on the island. That’s already putting the squeeze on margins, say analysts.

Later this year, Las Vegas Sands will take the wraps off its $2.3 billion Venetian Macau, with 800 tables and 2,000 slot machines, complete with gondolas, a convention center, and 3,000 luxury hotel suites. The MGM Grand Macau will follow this fall with an additional 340 tables.

Before Stanley Ho’s gaming monopoly ended in 2002, Macao was primarily a V.I.P. market, where high rollers accounted for about 74% of gaming revenues. But at the Sands Macao, which has been steadily stealing market share from established operators since it opened in 2004, about 55% of revenues now flow from mass market gamblers.

Ordinary mainland punters obviously spend less, and usually don’t seek out high-end accommodations or spend small fortunes on Prada handbags and Tag Heuer wrist watches. Yet the more frugal gamblers are clearly driving growth now and likely will soon eclipse the big-spending segment.

In fact, Morgan Stanley’s Hart estimates these consumers will overtake the VIP business by 2008.

Las Vegas Sands Chairman Sheldon Adelson and Steve Wynn have argued in the past that their resort complexes, artificial waterfalls, glitzy stage acts, and opulent hotel rooms will keep well-off families and business covention-goers coming back again and help upgrade Macao’s lowbrow image.
Right now, though, Macao is showing all the signs of an overdeveloped pleasure palace that may bring disappointing returns to the world’s biggest gambling entertainment concerns.

Source | Business Week

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