I received a copy of Union Gaming’s latest Macau Almanac (July 2017) the other day. Written primarily by their Managing Director Grant Govertsen it’s a substantial 186 page compendium with an intended audience ranging from institutional investors, gaming operators, governments and industry watchers.
For a report that contains numerous data sets and analyses, it’s a surprisingly good read even for the layperson such as me!
Whilst the conclusion is that the ongoing broader market recover is encouraging, and the trajectory of the mass market being especially exciting, there are certainly looming threats. “Outside of Macau all eyes are on Japan which is widely expected to become the world’s second largest gaming market within the next decade”, Govertsen writes. (As a side track, did you know that Japan had a USD30 billion pachinko market 2016, almost the same as Macau’s entire gaming market last year! Pachinko in Japan is currently very fragmented but it is expected to get even huger.) Then there’s the impending license expiry of the Big 6 licensees – the first expirations come in early 2020.
But an emerging theme that may be even more worrying is what Govertsen and his colleagues call ‘the boredom factor’. They think that Macau’s gaming concessionaires and sub-concessionaires have failed to continuously reinvent their properties in a similar manner to how Las Vegas Strip properties are constantly reengineered. This mainly because the old mantra in Macau for the first 10 years since Sands opened in 2004 was ‘build it and they will come’. Not so now. From Union Gaming’s studies over the past 7 years of mainland China they have noted that the Chinese consumers, Macau’s main gaming market, are starved for entertainment. “When they take their first trip to Macau they are generally blown away by the quality of the experience – not to mention the ability to gamble legally! But over repeated visits the allure begins to fade, especially as other regional options become more attainable.”
Las Vegas on the other hand has spent USD6.1 billion in improvements, without a single new casino. The Las Vegas of 2017 looks and feels different than the Las Vegas of 2007, and different again from 1997. They stay fresh and attractive, with millions of dollars spent on non gaming facilities, from mega clubs to a never ending cycle of new restaurants, shows and theaters – and this leads to a consistent growth in visitation. In Govertsen’s view, “the average mainland visitor to Macau is much more sophisticated and savvy than he was when Sands Macao first opened 13 years ago and now not only has the desire to see more of the world, but more importantly has the ability to see more of the world via lowered visa requirements and improved transportation infrastructure.”
What should Macau do? “As hokey as it may seem, we strongly believe that heavily themed properties can be very successful in Macau (as witnessed by the foot traffic and resulting cash flow at Venetian) – even if that ship has sailed in Las Vegas.” Of the most visited international destinations, the majority are Asian countries given the relative convenience to China. However there are two very aspirational countries to note; the US and France, and themes from these countries resonate soundly (hence Parisian Macao).
In Hengqin Island, the Chimelong Ocean Kingdom theme park with its ghastly and cruel (my words) animal exhibits has drawn a reportedly 7.5 million visitors in its second year of operation. Nothing special to Western eyes, but it clearly holds significant appeal to mainland Chinese. Govertsen argues that “the entertainment bar is pretty low and large crowds can be drawn for anything viewed as differentiated. To date in Macau, has there really been that much differentiation outside of being able to offer casino gambling?” Macau needs at all costs to avoid being considered ‘boring’.
Govertsen spent 12 years on Wall Street predominantly in equity research covering the gaming sector; with Deutsche Bank Securities he covered global casino operators and gaming technology companies. In 2009 he co-founded Union Gaming, being responsible for establishing and developing the company’s presence in Asia. Today he remains the only gaming analysis based in Macau.