Macau Looks to Middle-Class China, Non-Gamblers for Second Boom
A man walks past Galaxy Macau in Macau June 13, 2013. Paul Yeung / Reuters
Macau is looking for stable revenue sources, provided by Macau’s middle-class and non-gamblers, to insure its continued tourism growth. The first steps towards a new Macau include Las Vegas-style casinos and a near-by amusement island.
The game is changing for casinos in Macau, the world’s gambling capital, as fun-seeking middle-class Chinese visitors follow high-roller VIP gamblers in ever greater numbers to try their luck in the only place in China where casinos are legal.
The growth of the so-called premium mass segment is setting the stage for what executives hope will be a second boom in the former Portuguese colony, where a reclaimed swamp-turned casino playground known as the Cotai Strip has already been paved with gold by big-spending VIP gamblers from the mainland.
“In the next two to three years it is going to be the next wave of the golden age of Macau,” Lawrence Ho, chief executive of Macau casino operator Melco Crown Entertainment Ltd, said during a conference call this week.
The company, co-owned by Ho and Australian billionaire James Packer, said on Wednesday net income doubled in the second quarter thanks in part to strong growth in visits from members of China’s rising middle class. One of six licensed casino operators in Macau, Melco has two resorts there and is opening a new $3 billion property in mid-2015.
Melco and rivals such as U.S.-owned Sands China Ltd and Wynn Macau Ltd have traditionally made most of their profits from wealthy customers who spend more than 1 million yuan ($163,400) each bet. But as demand from big whale gamblers ebbs amid China’s economic slowdown, casinos are increasingly vying for the lucrative upper-middle-class market.
Revenue generated by Macau’s mass segment is set to grow by 30 percent this year compared with around 10 percent for VIPs. In previous years VIP growth eclipsed that of the mass segment.
Made up of newly minted customers who spend anywhere from a few thousand yuan to under one million yuan, premium mass customers generate higher margins and more stable revenue for the casinos than super-rich gamblers.
While China’s economic slowdown has kept away some wealthy customers, as shown by slightly slower growth in VIP visits, it has failed to dull Macau’s appeal for the country’s increasingly affluent middle class.
And the trend is set to continue as China expands its high-speed train network and develops projects such as the 38 billion yuan bridge connecting Hong Kong, Macau and Zhuhai, cutting the travel time from northern China. The bridge is due for completion in 2016.
The development of Hengqin, an island 200 meters (220 yards) across the water from Macau’s Cotai strip, is expected to further boost Macau’s appeal as a mass-market tourist destination.
No gaming will be allowed but the mountainous island, three times the size of Macau, is gearing up to open tourist attractions including a whale and shark aquarium.
The Chinese government, which is keen for Macau to diversify its heavy reliance on gambling income, is pushing to attract more leisure tourists to boost the city’s profile as an international tourist destination.
Macau gets more than 70 percent of its tax revenue from casinos and tourists come primarily to gamble, as opposed to Las Vegas where entertainment and restaurants contribute the bulk of revenue.
Evidence that Macau is trying to accelerate the shift to mass gamblers is the rapid expansion of the Las Vegas-style Cotai Strip with six large-scale casino resorts including hotels and restaurants expected to open in the next three years.
The building boom has an added urgency with the casino licenses set to expire starting in 2020. Industry watchers are concerned that the discussions for license renewals, expected to start in 2015, could increase regulations and costs.
Melco’s new project, Studio City, will include non-gaming elements to lure a broader spectrum of travelers. Studio City will be joined by properties including Sands chief Sheldon Adelson’s Parisian, boasting a miniature Eiffel Tower, and Steve Wynn’s floral-themed resort featuring an artificial lake and dancing fountains like the Bellagio in Las Vegas.
But with Macau’s gaming revenue growth expected to be 13 percent to 15 percent this year compared with up to 60 percent at its peak, casino operators are hedging their bets with resorts elsewhere in Asia.
Melco is building a casino in the Philippines with one of the country’s wealthiest men, Henry Sy. Ho is also building a casino resort in Vladivostok, on Russia’s east coast not far from the Chinese border.
Adelson opened the huge Marina Bay Sands integrated casino resort in Singapore in 2011, and is among several operators keen to expand in Japan pending government legislation to legalize casinos.
Editing by Stephen Coates.
Copyright (2013) Thomson Reuters. Click for restrictions