Inside Asian Gaming

INSIDE ASIAN GAMING | January 2009 4 Editorial Editor and Publisher Kareem Jalal Director João Costeira Varela Business Development Manager Matt Phillips Operations Manager José Abecasis Contributors Michael Grimes, Desmond Lam Steve Karoul, I. Nelson Rose Richard Marcus, Shenée Tuck Andrew MacDonald James J. Hodl William R. Eadington Graphic Designer Brenda Chao Photography Ike Inside Asian Gaming is published by Must Read Publications Ltd Suite 1907, AIA Tower, 215A-301 Av. Comercial de Macau - Macau Tel: (853) 6646 0795 For subscription enquiries, please email subs@asgam.com For advertising enquiries, please email ads@asgam.com or call: (853) 6646 0795 www.asgam.com Printed by Unique Network Printing Factory Ltd. Tel: (853) 2828 2832 Fax: (853) 2828 2830 E-mail: unique@macau.ctm.net Waiting for Better Days Macau’s air quality has improved discernibly following the suspension or slowing of construction on several major casino resorts in the city. The clear skies contrast with the cloudy outlook for the gaming industry. In this issue’s “Rolling Downhill,”“Plodding On” and “Cotai Stripped”, we attempt to lift the fog by offering analysts’forecasts for the Macau market in 2009. The overriding sentiment: Be prepared to slog through a tough year, and wait for better days ahead. Hong Kong-based Citigroup gaming analyst Anil Daswani believes “it’s not so much the global downturn that’s having an effect on Macau; it’s the visa restrictions that are having the most impact.” He adds: “Clearly there was way too much capital coming into Macau, and the mainland is trying to cool the economy.” In the first half of 2008, the world tumbled into recession but Macau’s casino revenue continued its spectacular year-on-year growth as aggressive competition for VIP players led to the offering of higher junket commissions, which in turn drove revenue higher. Even the visa restrictions in their initial form could not halt the revenue growth. China had to progressively limit the frequency with which mainlanders could travel to Macau until finally, in September, a combination of the deteriorating Chinese economy and sufficiently limiting travel restrictions turned back the revenue growth. Though the restrictions were so recently imposed, it was hoped they would soon be lifted in light of the rapidly deteriorating economic conditions and credit-crunch driven delays in the opening of several crowd-pulling mega resorts in Macau. ChineseVicePresident Xi Jinping’s visit toMacauon January10thoffered the ideal occasion to announce a rollback of the travel restrictions. Unfortunately, no such announcement was made. Instead, Mr Xi urged Macau to diversify its economy away from the current over- reliance on gaming. Thus, it seems unlikely that Beijing will extend a lifeline toMacau’s casinos anytime soon. In 2009, Macau’s casino revenue is likely to contract for the first time since China began easing travel restrictions on Macau-boundmainlanders in the second half of 2003. In addition to freer travel (which has now been curtailed), the mainland visitor deluge was also fed by a steady stream of new world-class casino properties coming online from 2004, following the liberalization of the gaming sector two years earlier and ending of Stanley Ho’s 40-year monopoly. Since then, growth spurts in Macau’s visitation and casino revenue have coincided with the opening of dazzling new casino resorts. Several ambitious mega resorts originally scheduled to open this year have now been shelved, which will hold back growth further in an already difficult year. The dark clouds from the current financial crisis have spread from their epicenter in the US and are creating ripple effects. The unexpected speed and magnitude of the slowdown in the US and Europe created an unexpectedly sharp impact on China’s factories. High-rollers playing high-stakes baccarat in private VIP rooms contribute around 70% of Macau casino revenues. Since many of those high-rollers are owners or investors in China’s manufacturing sector, Macau’s VIP rooms face a murky year ahead. It also does not help that an increasing number of Communist Party bosses and government officials in China have been caught pillaging state funds, company accounts and municipal treasuries in order to fund their gambling in Macau. This has become a big source of embarrassment to Beijing. A study of 99 high-rollers from mainland China conducted last year by Zeng Zhonglu, a professor at Macao Polytechnic Institute, showed that 59 had some sort of state affiliation: 33 were government officials, 19 were senior managers at state-owned enterprises and 7 were cashiers at state businesses. They were typically men, between 30 and 49 years old, and lived in mainland areas close to Macau. The government officials reported losing an average of US$2.7 million each, state managers lost an average $1.9 million each, and cashiers dropped $500,000. Most said their gambling careers lasted less than four years before they were found out. Their losses at the tables bankrupted at least 10 companies. An editorial in the Beijing Youth Daily said gambling by public officials “threatens the safety of the national treasury.” Many of the party bosses and officials caught misappropriating funds to gamble in Macau have been sentenced to lengthy prison terms. For at least 15 who were executed, there will be no better days.