The inexorable rise in Macau’s gaming revenue could lead to several undesirable consequences, explains Desmond Lam
There seems to be only one trend in Macau’s gaming market—that is UP! Macau‘s gross casino gaming revenue reached a whopping US$23.5 billion in 2010 and is set to achieve yet another year of extraordinary growth in 2011. That is provided no other drastic policies are imposed to deliberately slow growth. Macau’s VIP baccarat revenue has remained very strong at 72% of gross casino gaming revenue. There are now at least 22 game types in Macau’s casinos, with more than 4,700 gaming tables and 14,000 slots; a ratio of 1:3. That ratio pales in comparison to the roughly 1:20 (table/slot) ratio in Las Vegas, suggesting slots (which are closely associated with the mass market) have a long way to grow in Macau.
While all these are promising signs for Macau’s gaming industry, I feel that imminent danger lies ahead. Are we going the wrong way? The failure to control the explosive (and erratic) growth of Macau’s VIP gaming segment spells danger for everyone. It may consequently lead to more rounds of visa and other regulatory controls in the near future.
While casino operators rejoice and take pride in their ever-increasing gaming revenue (particularly VIP gaming share), my worry is that we are simply prolonging the pain. The ‘unstoppable’ growth of Macau’s VIP gaming segment, despite the financial crisis, is a major obstacle hampering the development of a more diverse and sustainable economy. The negative image and numerous issues associated with VIP gaming and operations will inevitably continue to haunt Macau’s international reputation.
When Macau liberalised its gaming industry in 2002, most people expected the mass gaming market to expand rapidly and that Macau will become somewhat like Las Vegas. When can we expect mass gaming to overtake VIP gaming? The openness of mass gaming differs significantly from the opaque nature of VIP gaming in Macau. Secrets get locked behind closed doors and lenient regulatory supervision can potentially lead to serious problems. Not only is problem gambling harder to monitor, but gambling-related crimes are also harder to keep an eye on. The heavy reliance on junkets to promote and draw players into gaming rooms is another major issue. It eats heavily into operators’ margins and is often perceived to be associated with illegal triad activities.
Some industry observers now feel that there is a need to clean up (or even de-market) Macau’s VIP gaming segment through greater regulatory control by following the example of Singapore. More specifically, there needs to be a more cautious selection of its VIP players and the channel members (i.e. junkets) who bring in these whales.
Others believe the Macau government may need to deliberately ‘de-market’ its VIP segment in order to force the casino concessionaires to redirect their efforts and resources towards achieving its vision and that of the Chinese central government—making Macau an international leisure and entertainment city that all Macanese and Chinese can be proud of, with a diversified range of resources like history, culture, shopping, entertainment (including mass gaming), food and beverage, MICE, and other sightseeing. In corporate Macau and socialistic China, businesses cannot simply care only about themselves and the profits that they can make. They have social responsibilities and must meet the needs and wants of their Chinese stakeholders. Casino operators in Macau are expected to give up more in order to ensure their own sustainability.
There is currently no official figure on the number of VIP versus mass market players coming to Macau. But we are probably looking at a few thousand ‘real’ VIP players (with one report suggesting over 70% of those are from mainland China) generating 72% of gross gaming revenue (mainly baccarat). The number of mass market players is many, many times greater. Although around 25 million visitors entered Macau in 2010, past surveys revealed that approximately 50% of all visitors to Macau claimed never to have gambled at one of the city’s casinos.
While a large ‘non-transparent’ VIP gaming segment has tarnished the image of Macau, the escalated development of a bigger mass gaming market can create many social problems. For example, the rate of increase in problem gambling prevalence among the local population since gaming liberalisation is a concern for some local politicians.
The 2003 survey revealed that around 4.3% of Macau’s population aged between 15 and 64 years were probable problem and pathological gamblers. Some research suggests that casino dealers display a greater rate of problem gambling than the general population. Internationally, several studies found that a problem gambler can potentially negatively affect from 3 to 14 people (including family members and friends. If that finding can be applied to Macau, problem gambling could potentially affect at least 20% (and easily more) of Macau’s population today. Adding to that, a more recent Macau survey found an increase in the rate of probable problem and pathological gambling from 4.3% of the population in 2003 to 6.1% in 2007. This represents a 40% increase after four years of rapid development without checks.
Still, the local population contributes only a small proportion of Macau’s gross casino gaming revenue. A 2002/3 survey of local Macau residents found more than 20% of respondents gambled in local casinos. The average money gambled per month per respondent was around US$87, or slightly more than US$1,000 per year. That would put the estimated gaming expenditure of local residents at around US$67 million in 2002/3, which though significant, constitutes only a small percentage of Macau’s annual gross casino gaming revenue.
What is more worrisome is the level of problem gambling among Mainland Chinese visitors to Macau. There is currently no study to measure the impact of an expanded gaming market on gamblers from overseas. This is important to Macau’s gaming industry as it affects Macau’s relationship with its neighbours, particularly Mainland China, Hong Kong and Taiwan. It also influences decisions on visa control and hence adds to the overall economic costs of the liberalisation of Macau’s gaming industry.
Anyone who suggests a more drastic change in government policies to advocate mass (leisure) gaming, while reducing the share of the VIP market, needs to consider the social impact of such a change. It does, of course, appear to be more in line with the government’s vision of making Macau a leisure and entertainment city—a city that attracts all types of visitors, rather than just hard-core gamblers. Inevitably, to support such an initiative, a strong industry-wide responsible gambling program must be put in place by the Macau government and all the casino operators.
One thing is for sure: Moving forward, Macau needs a stricter regulatory control system for both VIP and mass gaming segments. The recent cap on the number of gaming tables is just one of the many controls that can be put in place. By itself, however, it seems unlikely the table cap will have any significant impact on gross gaming revenue (especially VIP play) in the short term. However, any future measures will probably be geared towards reducing the relative size of the VIP market with respect to the mass market, and will lead to greater regulatory control over both segments. It may also lead to the creation of a stronger middle market (i.e. low VIP or high mass gaming).
More importantly, any new measures must include a more careful selection of players brought into Macau and the instalment of protection programs for players. During this process, Macau will most likely register a slower growth in gross casino gaming revenue due to a reduced VIP segment as a result of a tightened player and trade member selection process. This will, however, create a stronger and more sustainable gaming industry—one that matches the interests of all stakeholders, not just the casino operators or junket promoters/representatives.
Desmond Lam is an Associate Professor of Marketing at the University of Macau. He can be contacted at DesmondL@umac.mo. Visit Casino Enterprise Management magazine