MACAU ON THE ROLL?

Posted: August 31, 2010 in Uncategorized

MACAU MOVING INTO LOW MARGINS TERRITORY FOR GOOD

31 Aug 2010   Tue
Contributed by: Peter Demoulin

My recent trip to the Special Administrative Region (SAR) Macau was really an eye opener.

Contrary to the maxim of “everything that goes up must come down”, gaming industry in the territory has been scaling high peaks one after another.

Casino revenues were not affected even during the 2008 – 2009 global financial crisis. Gaming operators continue to leverage on the huge pool of demands from mainland China and Hong Kong.

But a talk with someone across the bordergate through a private introduction points out the underlying current and what the future will be for this tiny territory, the king of all gaming hubs in the world.

Let me summarize some of the key issues in the context of this SAR:

From experts in Macau as well as the mainland, the mass pool of gamblers that come across from the bordergate has long been “stablized” at current level. It is unlikely to increase in number in the foreseeable future until the central government in Beijing is happy with Macau’s overall economic development to be transformed away from its casino centric model.

China’s revival of its internal tourism markets, i.e. the provinces travels, has become one of the key factors to divert away mass market travellers from Macau.

In that same light, contribution to casino gaming revenue will continue to heavily relied on junket induced players churning, increasing credit risk exposure for both junkets and casinos’ chip draw down incentive payment. Casinos will continue to generate less in profit margins, just to rely on huge turnover promised by junket syndicated groups.

So i was enlightened by my Chinese friends that such approach to casino gaming regime will be continued into the future, a route of no-return. Will the churning bubble burst? It is unlikely to see such scenario happen because, so long as the funding channels stay efficient from the mainland through what they called the “underground banking channel” with hot monies flow into the territory, things stay the same. The recent tough policy on Macau’s construction labour supply is a signal sent by the authorities – the SAR and Beijing.

I was also told that so long as Macau does not move agressively to open up its non-gaming sectors for more balanced economic growth, the territory will see “the end of the road” for the vision of Aisa’s Las Vegas.

Editor: Asian's Money Hub

By editor: 

We believe that though in general Macau is definitely in the territory of low margins play, however a few of the operators like Sands, Wynn and Lisboa are still able to corner the limited mass gaming market as good mitigation to their profit margins to remain  in the top three leading positions. But for the rest, things may not look that promising now and future.  Mega resorts cannot be sustained without critical pool of mass market coupled with low margins.
 

 

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