Asia’s Gaming Hub Indicators

Posted: June 20, 2009 in Uncategorized

Asia’s Gaming Hub Indicators – CoD & Venetian Macau

Contributed by: Expert IR    

June 20, 2009       CoD Opens

The following statement published in the recent e-News of Destination Macau should be taken with great concern. It is not a prophecy per se but I would reckon that it is the watershed of Asia’s gaming market.

It is understood that the big new property on Cotai has been averaging a win per day of about MOP 3 million on the mass gaming floor. If this trend continues for the rest of the month, COD’s June total could be in the region of MOP 100 million. That would be truly disastrous, and cannot be explained away by win percentages.”

The launch of City of Dreams (CoD) serves as the ‘final’ indicator for Asia’s gaming hub – Macau. My reasons are as follows:

–          If the quoted daily gross gaming revenue for CoD’s mass gaming floor (MOP 3 million daily) is of any significance, then it merely reflects an extremely difficult state of affair for CoD; it works out to approximately MOP10,000 – 12,000 daily win per table at best!!! This is much reduced figures as compared to the levels of close to MOP40,000 (USD5,000) win/table to be expected from mass gaming returns to be viable, in such a high capital investment and competitive market.

–          The next step for the gaming industry is to follow closely on Sands /Venetian Macau’s second and 3rd quarter performances. It is expected that Sands Macau gross gaming revenue will be diluted by City of Dreams. In fact, LVS Inc. stock prices are already in decline. 

–          The major issue that continues to plug the heavily invested casinos in Macau (i.e. Sands, Melco-PBL, MGM, Wynn, Galaxy… etc.) is: Lack of Value-added Multipliers (Vamps). Macau has been developing various ‘Vamps’ such as convention, incentive meetings, luxury goods retails, and even heritage tourism to support its Asia’s Las Vegas development. However, combination of factors had failed to align to make all these initiatives work for the goal. Without effective ‘Vamps’ been established, the territory’s gathered assets – mass gaming budget will continue to head south. Indeed, the Lion City’s IR will soon have to face the same predicament.

–          Another broad indicator for the Asia’s gaming hub is the split between Mass and VIP gaming. To turnaround Macau’s gaming industry, mass gaming revenue should be steered up to at least 50 – 60% of total casino revenue, while able to maintain close to USD10 – 12b in total annual casino revenue. Only through this the casino operators could regain healthy growth under a policy-driven market imposed by China. The 3,998 gaming tables in Macau do not yield the right levels of EBITDA margins at all. (Currently the EBITDA is hovering at a pathetic average of 12.5%). But operating costs and Capex remain high.

–          I dare to bet on this…. One of the ‘Vamps’ (in case that readers forget, it means value-added multipliers) for Macau would be the Slots. Yes, I say Slots! With much less than 3% of total gaming revenue generated by the 11,971 slots (or electronic gaming devices) the equation for greater margins is thrown out of the window! Anyone still claiming that VIP gaming will save the day? If the slots revenue could not be improved drastically over the next five years, say up the slots revenue to come close to at least 20 – 25% of total gaming takes, personally I would pain a very challenging landscape for the industry players. In this respect, I would speculate that the Lion City’s IR will do much better than Macau, in its Slot market share.

It all seems very down to basic and simple. Indeed it is the case. However, the myths of VIP gaming (and the Las Vegas guys referring them as big whales) had created an illusive picture and mirage in the desert, coupled with blind spots that some investors and analysts alike chose to ignore…

There’s this book written by someone more than 10 years ago, it was entitled “Hope Is Not the Method”. Many in the territory are still hoping for the master (Central government) to release more F.I.T. travelers soon…when a new CE (Chief Executive) comes aboard.

We all hope so…

 

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