Inside Asian Gaming

INSIDE ASIAN GAMING | August 2011 2 Editorial Inside Asian Gaming is published by Must Read Publications Ltd 8J Ed. Comercial Si Toi 619 Avenida da Praia Grande Macau Tel: (853) 2832 9980 For subscription enquiries, please email subs@asgam.com For advertising enquiries, please email ads@asgam.com or call: (853) 6680 9419 www.asgam.com Inside Asian Gaming is an official media partner of: http://www.gamingstandards.com Publisher Kareem Jalal Director João Costeira Varela Editor Michael Grimes Business Development Manager José Ho Operations Manager Sarih Leng Contributors Desmond Lam, Steve Karoul I. Nelson Rose, Richard Marcus James Rutherford, Sudhir Kale James J. Hodl, Jack Regan William R. Eadington Graphic Designer Brenda Chao Photography James Leong Michael Grimes We crave your feedback. Please email your comments tomichael@asgam.com Designated Driver This magazine has been accused on some occasions of being too bearish about the Macau VIP market. We prefer to think of ourselves as the designated driver on a big night out. It’s our job to stay sober and focused while Macau and its supporting cast of investors and some analysts get stuck into the party punch, celebrating runaway growth in gross gambling revenue (48% year-on-year across the VIP and mass segments in July). Our point is not the well-rehearsed one that all markets go in cycles. It’s more about the fact that the industry’s regional expansion is principally a side-effect of China’s rise, not working independently of it. And that growth at present is lopsided in favour of VIPs. A whopping 74% of Macau’s gross came from VIP baccarat in the second quarter, according to Macau’s regulator, the DICJ. That lopsidedness reflects, in turn, the over-representation of China’s seaboard provinces and of the manufacturing and property development sectors in China’s GDP growth. There are some dark clouds gathering that could hit the VIP segment fast and hard. Domestically, the Chinese government is trying to rein in credit issuance at retail and wholesale level and thereby control consumer inflation. The latter is always a toxic witches’ brew for any country regardless of a government’s political complexion. Internationally, the grotesque pantomime of American lawmakers of left and right putting party political interest ahead of national interest by holding the federal government to ransom over its budget is a sharp reminder of the persisting risk of a US dollar crisis and double-dip US recession that could suck the world down with it. The global financial crisis of 2008-09 showed that when theWest catches a cold, China at the very least sneezes. China’s domestic consumption is not yet powerful enough to suck up the entire surplus output from the nation’s manufacturing sector if the US and Europe stop buying Chinese goods. China is a huge country, but there are only so many high-speed railway lines and bridges that the Chinese government can build by way of economic stimulus. The phenomenal growth of the Macau VIP market is very welcome. But if the global debt crisis has shown anything, it’s the value of diversifying your investments. In the Macau context, that involves building mass-market gaming and non-gaming revenues as a hedge against any major and sudden downturn in high roller business. Creating infrastructure like that seen on Cotai is a start. But in likelihood, the only real cure for Macau’s currently lopsided market is time. It will take time for China’s middle class to grow in size and spending power. In the meantime, Macau must carry on bleeding the rich—and one day hope it can milk the burgeoning middle classes more gently but in rather greater numbers and on a better margin. ‘Friending’ the VIPs ‘Friending’, ‘unfriending’, ‘personal walls’, ‘blogosphere’—they’re all words that anyone under 40 and quite a few over that age will be familiar with. Now a Macau junket operator plans to ‘friend’ high roller gamblers online and recruit them for its VIP rooms. What’s more, it plans to do so on a cash buy-in basis. As Lenin proved, if you’re going to start a revolution, you might as well go to the mattresses. Whether the online-recruited, cash VIP model will have anything more than niche appeal, time will tell. But it shows that innovation is still the name of the game in the Macau VIP trade. Ultimately, such innovation could deliver greater value for investors and for players.