In this regular feature in IAG to celebrate 17 years covering the Asian gaming and leisure industry, we look back at our cover story from exactly 10 years ago, “Critical mass”, to rediscover what was making the news in October 2012!
Believe it or not, this is not the first time Macau commentators have pointed to mass market gaming as the future of Macau. Back in October 2012, Inside Asian Gaming penned a lengthy analysis of Macau’s gaming sectors, which noted that while VIP revenue had accounted for a record 73.2% of total revenues in 2011 – up from 72% a year earlier – the rate of growth had been showing significant decline in recent months.
From an annual growth rate of 70% in 2010 and 44.3% in 2011, the VIP sector fell to just 7% growth in the first six months of 2012 – it’s lowest since 2009.
Naturally, this prompted an analysis of the nature of Macau’s dominant feeder market, mainland China, and the potential for the SAR to become a little more like the mass market model favored in Las Vegas.
“Not because those high-rollers are going away,” IAG wrote at the time, “but because there are so many more Chinese who live and work in the real world, and as they become more affluent, and outbound travel becomes steadily less restrictive, they’re visiting and spending in their own way in increasing numbers.
“Macau’s casinos, in turn, are getting better at identifying these people and their preferences, to better provide their immense numbers with a bang for the buck that makes them want to come back and spend more.”
Galaxy Entertainment Group Chairman Lui Che Woo said at the time that this “mass market is now the market’s growth engine.”
So what was behind the 2012 slowdown in VIP revenues? Analysts outlined several reasons, most of them related to the economic and political dynamics of mainland China. These included a slackening in global demand for exports, falling residential real estate prices, the domino effect of the real estate slump on asset prices as a whole, and the fact that VIP, being almost entirely credit play, is especially sensitive to this kind of volatility. “With a global economic recession and leadership changes in China, VIPs are cutting back,” said Union Gaming equities analyst Grant Govertsen. “This means that junket operations have less working capital on their hands and so they would be less able to extend credit to the gamblers.
The velocity of money in Macau will slow down further and affect casino revenue.”
Junket operators also told IAG at the time that challenges facing a number of Macau’s smaller junkets were contributing to the slowdown. As we now know, mass market gaming looms as more important than ever for Macau given China’s recent crackdown on cross-border gambling and the collapse of the junket industry following the demise of Suncity Group and Tak Chun. Time will tell what the market looks like in another 10 years.
