Posted: January 28, 2010 in Uncategorized

Commentary by:  Felix Ling (Guest Panelist)

28th Jan 2010   

Look for Dynamic Factors

In Chinese Chess games, the opening moves set the precondition for winning a game. The concept of good opening game aptly applies to Macau’s current situation immediately after global financial turmoil, with the territory showing an overwhelming 4th quarter gaming results.

And new challenges for Macau are being unfolded. Several factors discussed here would shape the Special Administrative Region’s mega-resorts (i.e. casino-resorts) new landscape. In broad, there are fundamental and dynamic factors to be examined.

Why the fundamentals are important. Investors of the gaming-resort industry would have to admit that Macau is not and would never, be a free-for-all market environment without government policy intervention. Beijing’s moderation of travel visa from mainland to the territory is very apparent and real, for the foreseeable future. This single but most effective measure serves a good purpose for sustainment of Macau’s long-term economic interest, prevents overheating of gambling activities and hence, preserves Macau’s social-economic stability. This policy allows the SAR to constantly kept-in-sight its vision of developing the territory’s limited landmass and resources for a more balanced economy that remains the ultimate goal of Macau government & Beijing. In a way, such moderation lever works and has been viewed by many as an acceptable constant fundamental. The good thing is it won’t kill Macau for sure; instead it safeguards the territory’s future.

Another fundamental factor that is crucial for Macau’s long-term gain and development would be the transformation of gaming industry to be more diversified within its sphere. Simply put, Macau’s mega-resort products and services need major make-over to bring the industry to the next level of competitiveness and entertainment standards in Asia. With the eventual achievement of this goal, Macau will be transformed into a truly exciting and compelling destination as Asia’s Las Vegas. The current situation of over-reliance on gaming revenue alone especially low-margin based Junket VIP gaming will be moderated over time; with more creative non-gaming products and entertainment to be brought in. Overall, Macau mega resort operators will gradually move towards higher margin product mix that generates compelling decision for mass and affluent consumption on volume base. VIP gaming business will remain to be the stability base for Macau.

Over the horizon, the competitions are gathering steam. Besides the soon to open Singapore Integrated Resorts, South Korea’s world largest Universal Studios theme park (early 2014), Ho Tram resorts in Vietnam, Taiwan’s Kinmen Island and Japan are gearing up to chip in on mega-resorts development. It is envisaged that over the next few years, with money and debt markets reviving from the financial turmoil, strong financing for potential mega-resort projects will return. Asia is definitely a region of main focus. As a result, Macau mega-resort operators could take opportunity of the up-rising trends once again, building the dreams of Asia’s Las Vegas within this window (good-weather) period.  

The above fundamental factors are just the macro conditions for change that Macau gaming industry would encounter and to flow along with the trends for a successful transformation.

However, to complete the transformation requires tactical moves like what will pave the way on a chessboard. Hence the dynamic factors will be examined and need to be effectively managed at operational level, allowing these factors become integral part of mega resorts’ business model.

The days of simply supplying the same range of products (gaming devices, hotel rooms, F&B, retails) at overwhelming volume in Macau is over. This simple equation would lead to further erosion of pricing and service standards. A mega resort that committed large sum of capital investment coupled with over-leveraged debt financing would find it extremely difficult to recoup from the investment, operating under labour intensive and high-cost structure in current development stage in Macau. Achieving good EBITDA margins is much harder (if not impossible) if a mega resort fails to drive home the contribution of dynamic factors as integral part of transformation. It includes but not limited to the following examples,

  •          Dynamic Zoning of mega resort is a more attractive proposition than creating a single theme. The issue in question is not to name a singular theme for a mega resort UNLESS it is truly unique (one of a kind) and in the same league as Universal Studios and Disneyland. Otherwise, a newly created themed mega resort will be just a fashion item and limiting factor, it will get out-of fashion very fast. Zoning of a mega resort goes beyond physical boundary arrangement. It should involve product mix, pricing mix, entertainment mix and event mix that can generate compelling decision for consumption.
  •          Making dynamic zoning part of performance management. This business process links the zoning of products, services, pricing, entertainment, events/promotion etc. with critical performance indicators. Without which, there will be no effective integration of systems and managerial accountability per se, for the mega resort.
  •          Margins & Gaps/Leakages. Critical evaluation of Peak, Average and Low traffic volume vis-à-vis main-stream, seasonal and high-end segments. Operational flexibility and change must be highly emphasized.

Between now and 2011, Asia will witness another wave of opening of new mega resorts and among them, Galaxy Mega Resort (Cotai), Venetian’s Plot 5 & 6 (Cotai) and the Singapore integrated resorts. It will be interesting to continue observe who will achieve greater value for both the customers and shareholders, by impressive broad stroke of opening game that brings about dynamic transformation to the next level of competitiveness.


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