The authorities want to see more spending on non-gaming activities and international visitors. Muhammad Cohen visits the leading hub for casino gambling in the world and finds that some things are working.
Macau’s casinos were extremely busy despite being closed for nearly three years to all countries outside of mainland China.
Six casino operators in the China Special Administrative Region competed for 10 year gaming concessions that included obligations of US$14.7bn collective investment. This is in addition to the billions they spent on improvements and additions at their properties, despite Covid’s cash crisis. Cotai has become the most dazzling cluster of guest rooms in Asia, and is likely to be the most profitable casino hub on earth.
SJM Holdings honors Stanley Ho’s vision for Macau to be Asia’s Monte Carlo by building the Grand Lisboa Palace as its first property in Cotai.
Ho, who was the casino monopoly kingpin in Macau from 1962 until Sands Macao opened in 2004, helped create the history of Macau with this 1,872-room integrated hotel.
Three hotel towers of the Grand Lisboa Palace surround an elegant Jardim Secreto. Enjoy Cantonese dining in the Palace Garden, surrounded by Suzhou silks and some shopping at Cotai’s first supermarket.
Grand Lisboa Palace Hotel is a perfect example of east meets west, with Macau’s heritage and Chinese art adorning the contemporary comfort. Karl Lagerfeld’s and the newly-opened Palazzo Versace Hotels place their respective fashion houses in a Chinese setting.
Sands China has transformed Sands Cotai Central to Londoner. The hotel faces Venetian, Parisian and features a replica of Big Ben and multiple Winston Churchill Statues. It also includes two all-suite hotels. Londoner Hotel is replacing the Holiday Inn, a four-star hotel, with a classic British design updated with David Beckham Suites.
The top rooms
Londoner Court and Four Seasons Grand Suites, located across the street are two ultra-high-end residential products that were created from Sands abandoned desire to sell Cotai condos. Anthony Lawrance, Intelligence Macau’s managing director asks: “Who could have imagined that Sands China will one day dominate the VIP segment?”
The Las Vegas Sands division has historically focused on the mass market. The arrest and conviction of Suncity’s Alvin Chau, then Tak Chun’s Levo Chan have erased Macau’s high roller model. This has stripped operators’ security blankets. The junkets gave credit to high rollers on the mainland, despite gambling debts not being legally enforced in China.
Desmond Lam, a business professor at the University of Macau, says that the demise of the junkets affected how concessionaires conduct their businesses. I feel that it’s a step necessary to create a healthy Macau gambling industry. It isn’t always seen by mainlanders and internationals as a positive social livelihood.
The High End Appeal
MGM Cotai’s high-end appeal is extended with Emerald Villas. The brighter, redesigned gaming floor has led to a market share increase of 50% or more on the mass-market side.
MGM China’s first-quarter mass revenue exceeded 2019 (market-wide mass revenues reached 65% Q1 2019) and MGM Cotai reported record EBITDA. MGM China’s first quarter mass revenue surpassed 2019 – market-wide mass revenue reached 65% of Q1 2019. MGM Cotai posted record EBITDA.
Melco Entertainment opened the Epic Tower, a 338-room hotel, in April at Studio City. This is the property located closest to Hengqin Island’s border. The movie themed resort has expanded its non-gaming credit with a new indoor waterpark.
Galaxy Entertainment has softly opened its 16,000 seat arena and convention center, Macau’s largest. Galaxy Entertainment will debut its MICE-focused Andaz Plus Raffles hotel in an impressive golden tower.
Premium mass mantra
Galaxy wrote to iGaming Business, “We are able to deliver world-class events that will be well received by our overseas customers.” Many of these visitors are mass premium tourists, who are, in our experience, more likely to consume and spend on a wider range of lifestyle products.
This is exactly what the authorities of Macau and Beijing are looking for. Macau’s operators are required to increase non-gaming revenues and find more customers outside of mainland China under the new gaming laws and concession agreements. These official intentions are more pronounced in light of the crackdown on junkets and efforts to limit outbound money transfers.
Murray International Chairman Niall Murray said: “There may be severe implications if IRs don’t take concrete and tangible steps to diversify. This could include a reduction in electronic games or table games as well as a potential risk of their gaming license.”
Morgan Stanley Hong Kong analyst Praveen Chaudhary estimates that first-quarter VIP revenues will be 16% higher than 2019 levels. Gross gaming revenues are expected to reach 46%. JP Morgan estimated that May VIP revenue improved by 25% compared to 2019. Mass was at 85%, and the overall figure at 60%.
Choudhary, Choudhary, and their colleagues note that Macau’s economic recovery is behind Las Vegas’ and Singapore’s. They write: “[We] expect Macau will catch up in the next few months.” The shortfall could persist, however, due to Beijing’s strict anti-gaming laws, increased scrutiny of small travel agents and lingering Covid concerns.
Vitaly Umansky, a gaming analyst based in Hong Kong says that the biggest impact was on large-scale players’ money flows. Without the kinds of tools at the junkets’ disposal, much of this business will not be replicateable.
Young hip trippers
Macau’s mainland visitors are younger and more likely to be in family groups. Lawrance says that “better-spending tourists” are more common. Influencers from Xiaohongshu, China’s Instagram-equivalent, are driving this traffic. This is a major change. “They spend money on gaming and non-gaming.”
The first quarter figures don’t yet reflect this. The gaming revenue and EBITDA of concessionaires accounts for 46% each of the 2019 totals. GGR in May totalled US$8.05bn – 52% of 2019 but still far short of the post-Covid booms.
Ben Lee, managing partner of iGamiX Management and Consulting says: “We believe that China uses the permit process in order to alter the demographics for mainland tourists coming to Macau.” We’re seeing more families and young people, with fewer hardcore gambling addicts. If they haven’t done so already, authorities are likely to use AI in the near future.
Umansky says, “If you’ve got a family who doesn’t make any purchases because they are on a bus tour, then that is not a very good customer.” If you have a couple who spends money at Sheraton, they’re able to do some retail and entertainment, as well as gamble for a bit of fun. They can also be very valuable customers for Macau and the operators. Both families are very different.
Chicken and egg
Umansky says: “There is a misconception about the profitability of not-gaming. Non-gaming absolutely can make money.” Two-thirds Las Vegas’ revenue comes from non-gaming, and many hotels are still profitable even without casinos.
Umansky says, “It is the chicken-and-egg problem.” People come to Macau for a short time because of the lack of entertainment.
The scarcity of hotel rooms (pre-Covid, occupancy rates were 90%) keeps prices high and stays short. It also sabotages efforts to host conventions. Umansky says Macau requires “thousands of” additional rooms in order to accommodate a convention sector that is sufficient to generate a positive cycle of business travellers who spend more, stay longer and demand non-gaming goods.
Two percent milk
According to Wolfgang Arlt, CEO of China Outbound Tourism Research Institute, 2% or the mainland Chinese population can afford to pay a few hundred dollar daily for accommodation and other activities during a Macau multi-night stay. This is 30 million people, which is half of the population of France and the UK. It is both a matter of economics and political necessity that the focus be on visitors outside mainland China.
Macau has a gaming tax of 40%. The government’s carrot is to reduce it by 5%. Umansky believes that operators will use the tax reduction to increase player incentives, and not profit. Macau still can’t compete with lower-tax destinations like Singapore, Philippines, Korea, and Cambodia. He concludes that “the operators’ motivation to attract foreigners is simply to tick a box.”
Macau is trying to attract more foreign visitors since 2002-03. Lam, the master of Lui Che Woo College named after Galaxy chairman Lui Che Woo, said that this was a big task. Our product range is more complete than it was in 2002.
Umansky says that Macau has a Chinese-oriented market compared to the other markets in Asia for gaming, entertainment and leisure. If you’re not Chinese ethnically, or don’t speak Chinese, and have the option of going to Singapore, Vietnam, Thailand, then it might be better for you.
Macau Weaning
According to Leonardo (Don) Dioko, director of the Macau Institute for Tourism Studies’ Tourism Research Centre (also known as IFTM), the goal of the tourism industry is to diversify the source of visitors for the entire territory.
There is so much to be done, particularly in terms of manpower development and protecting rights, benefits and social safety nets. Also, there are many other areas that need attention, such as the treatment of workers and human resources, in sectors like hospitality, tourism and gaming, or in supporting industries.
Dioko highlights that Macau’s decision to expel foreign workers laid off by the pandemic (including many English-speaking Filipinos) and gradually replace them with mainland Chinese employees, sets back “the long-play” game of “weaning Macau and key industry players off their current source market.”
Lam says that Macau doesn’t need to have an English-speaking population to draw visitors. He cites Japan and Korea, two popular tourist destinations where English is not widely spoken.
Direct Approach
Macau’s tourism government office told iGB that it prioritizes markets with direct flights, like Thailand, Malaysia or Singapore, and international visitors who arrive in Hong Kong.
Arrival joy at Macau International Airport or the nearby Taipa Ferry Terminal ends there. Lawrance calls the old peninsula ferry terminal [still an important entry point] a disgrace. The arrival experience on the Hong Kong, Zhuhai and Macau Bridge was a joke.
At present, the bridge to Macau is connected by four buses. Three passports are also checked.
Mainland, Macau, and Hong Kong authorities could have facilitated this path – allowing multiple Macau entries for Chinese visitors coming from Hengqin a short distance from Cotai – but they didn’t.
The officials also did not end Air Macau’s monopoly, which hampers the full-service international airlines preferred by business travelers. They didn’t increase Macau’s meager taxi number or lift its ban on online services like Uber.
Exercise in Accounting
The US$14.7bn mandated investment by concessionaires could be another opportunity to tackle these issues. Wynn Macau responded to an iGB question about the specific steps it takes to accommodate guests from overseas by saying that the Macau SAR Government set a clearly defined direction for sustainable development over the long term, and eleven areas of focus were identified to do so.
11 priorities is better than none. It appears that the investment mandate will degenerate into a purely accounting exercise, with little in terms of measurable outcomes. Macau, on the other hand, lacks comprehensive initiatives involving gaming, government and stakeholders in order to tackle key issues such as connectivity, workforce skill and the headline attractions that highlight Macau’s status as the longest-running laboratory of East meets West.
Murray states, “The Macau Government has no experts or consultants who have the expertise or experience necessary to guide investors or concessionaires regarding specific projects or investment.” The IRs run professional businesses. “They will research and carefully develop non-gaming investments with the highest potential of success and return.”
Andy Choy, a long-time Macau gaming executive, says that while it may seem like the government is not addressing the infrastructure needs of Macau’s key sectors the positives outweigh any negatives. The government could always choose to fund these large, needed projects with public money.
Do not bet.
Muhammad Cohen, a former US diplomat who is currently iGB Asia’s editor-at-large, has been covering the Asian casino industry since 2006. He most recently covered it for Forbes. In 1997, he wrote Hong Kong On Air – a novel about television news, romance, betrayal and high finance.
