New Implications for Macau Casinos

Posted: November 10, 2010 in Uncategorized

Contributed by:  Casino Panelists

10th Nov 2010   Wed

Another watershed being created for Macau gaming landscape...

Many analysts start to question once again, about Macau casino industry and its future outlook.  New doubts arise because of the territory’s VIP gaming landscape seems to be ballooning with hot air.  American casinos such as LV Sands and Wynn Macau have been benefiting from the heat of casino money pouring in from mainland China.  Only one local casino (SJM) is able to compete head-on with the Americans and still holding on to an impressive 30% market share. 

Inside Asian Gaming has raised the only one sensible question of whether Junket VIP driven market demand is sustainable?  Yet there is no sign of this situation will ever changed in the near future, albeit Beijing’s intervention from time to time.  It is a forgone conclusion that Macau’s Junket network for VIP players will continue to command a larger market share in casino revenue so long as the gaming tax regime remains at 40%.  Casino operators in Macau have been squeezed into tight corner by the gaming tax coupled with huge capital investment needed, they have basically run out of other viable options but to allow Junket syndicated groups to take the lead in order to churn up rate of turnover and top line revenue.  As the casinos need to pass on credit risks (coupled with high volatility) of VIP gaming to Junket syndicates. 

Mass gaming is not everybody’s forte apparently.  Among the big six in Macau, only LV Sands, Wynn and Lisboa are capable of rallying Mass market shares to beef up their otherwise volatile VIP business and low margin operation.  Galaxy Entertainment, MGM Grand and City of Dreams are still trying to align their products for the mass market but to no avail.  Therefore, only half of the Big Six manage to succeed in achieving higher operating margin (i.e. at 18 – 22%) on average. 

Soon Chinese premier Wen will visit Macau and many are speculating that he will pull the plug on the casino overheating problem.  New measures may be released in due course to control illegal funding coming into Macau for the casinos.  Beijing has been tracking the trends and has good reason to be worried, in that more and more Chinese officials are involved in casino gambling as well as involved with syndicated networks for money laundering.  It is not a good situation when American casinos increasingly get to master the list of Chinese officials who are visiting their casinos and worse still, with list of officials who are in huge gambling debts. 

Macau government has been constantly under pressure by Beijing to re-start their long-term economic plans/engines without heavily relying on casino business.  In the long run, the trade-off of social well-being for casinos in Macau will be a huge price to pay.  Utimately, the situation may inevitably affect the outlook of One-country, two systems.  Macau’s society may implode because of this runaway train – casino driven political & economic policies.

It is therefore, to envisage that Macau has arrived a new watershed in this juncture.  New economic policies will be released by Beijing to push the territory, with a stronger mandate to divest capital for non-casino developments.  There is continued control of importing labour for Macau’s casino industry developments so as to slow down any further expansion.  Further tightening up of travel visa to Macau can be expected too. 

The basic broad strategy that is apparently used by Beijing has moved towards creating “saturation point” for major casino operators (i.e. the Big Six).  Over time, if only half of the Big Six can survive on low margin war among them, the territory’s casino landscape will grind to a hault with no further expansion is viable and businesses will inevitably divest capital for non-gaming development.  Natural attrition will take its course. 

To survive under such a challenging future, casinos such as Galaxy Resort, City of Dreams and MGM Macau will need to seriously adopt a strategy called “Profitable Zones”.  Simply put, those below the par casinos/resorts need to create uniquely attractive zones within their resort landscape and drive hard on those product mix within which that can produce higher margins.  For the Zone strategy to work effectively, these casino-resorts should focus on integration of systems-customer cycle management.  The objective is to drive mega customer attraction onto casino resort’s uniquely designed product-service zones and sustains much longer duration of attraction than their competitors could.

The year 2011 will be a time to watch how the Big Six in Macau adjust themselves to take on new challenges. Greater pressure is on Galaxy Resort, City of Dreams and MGM Macau though, to prove their wits and capability in creating greater margins and net profit.

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