G2E Asia: Analyst says Macau can learn from Vegas, expresses caution on Japan

G2E Asia: Analyst says Macau can learn from Vegas, expresses caution on Japan

  • David McKee, CDC Gaming Reports
August 24, 2022 8:53 PM
  • David McKee, CDC Gaming Reports

Gambling in Macau could be back on top, perhaps as early as this time next year. That’s the outlook of Morgan Stanley Asia Managing Director Praveen Choudury.

Addressing the Global Gaming Expo Asia attendees remotely (the conference is being held at Marina Bay Sands in Singapore), Choudury said Macau could take lessons from Las Vegas, mainly that “penetration will rise as supply grows. When [Vegas] hotel rooms stopped growing, penetration peaked.” He added, “Don’t worry about demand. When travel comes back, Macau will show a similar recovery.”

Also, while Las Vegas has tapped the entire United States market, Macau has accessed only 16 percent of neighboring Guangdong Province and two percent of China as a whole.

“Demand is still there,” Choudury maintained. “It’s a matter of bringing more hotel rooms and then, of course, removing the travel restrictions.” At present, Macau is bumping along at 10 percent of pre-COVID visitation, whereas Las Vegas is at 95 percent.

There is also the gaming-centric nature of Macanese revenue. Whereas 65 percent of Vegas’ casino income is non-gaming in nature, “Macau is trying to force everybody to bring more non-gaming amenities and more international customers,” although Choudury expects no great changes to come.

VIP play in Las Vegas represents 10 to 15 percent of gross gaming revenue (GGR) and has fallen to 16 percent in Macau, with Choudury not expecting it to rise much past 20 percent when normalcy returns. Meanwhile, Macanese slot play is “slowly creeping up” past nine percent of GGR (compared to 65 percent in Las Vegas). Since slots offer higher margins for casinos than VIP play, he anticipates this trajectory to be encouraged and continue.

While VIP play has trended sharply down, mass-market play is on the rise, and could soon be bigger than in 2019, perhaps as early as the second half of 2023.

“VIP business is gone,” Choudury said, “and it may not come back forever,” due to the Chinese extirpation of junketeers and with them, the 1.2 percent rebate on losses by high rollers. Choudhry’s only hope for a VIP recovery (down from $20 billion in the Pacific Rim in 2019 to $4 billion) is if China allows junket play to return to pre-COVID levels.

Before COVID, most Macau casinos were doing quite well in terms of return on investment, led by Galaxy Entertainment’s StarWorld at 104 percent and Venetian Macao at 50 percent, with Melco Resorts & Entertainment’s City of Dreams (13 percent) and MGM Cotai (nine percent) bringing up the rear.

As far as renewal fees on its casino concessionaires, “If I were Macau, I would not push them further,” Choudury opined, due to the absence of rival bidders for the six concessions. Also, the forward-looking costs “could be much lower,” since the enclave is largely built out.

Although Macau represented two-thirds of the Pacific Rim casino market prior to COVID, Choudury characterized it as a “Maturing and Slow-Growth” area, while Singapore was labeled “Matured and Flattish.” “High-Growth and Expansion Markets” were the Philippines and Cambodia, while India, Japan, Thailand, and Vietnam fell into the “Early Development” bucket.

Choudury had nothing to say regarding India and Vietnam, but was critical of Japan, saying it made it a mistake by not being generous in its tax rate, which discouraged entrants.

“The problem is we don’t even have three bidders.”

While he thinks it could be as much as a $20 billion-a-year source of gaming revenue, that depends on how much has already been captured — and will be retained — by pachinko parlors.

The analyst was more upbeat regarding Thailand. “It’s not going to be a quick fix and we need to be patient,” he advised, but predicted a $2.5 billion-per-year gambling market, judging by its gross domestic product.”

Neighboring Cambodia, meanwhile, is not recovering as fast as other Southeast Asian casino jurisdictions, due to its heavy reliance on international customers.

No such problem faces the Philippines, which is “growing very rapidly.” It was a $3.5 billion per year territory pre-COVID (not counting government-controlled casinos) and “It’s only a matter of time before the Philippines overtakes Singapore.”

Choudury blamed the flatness of the Singaporean market on its having been completely built out right at the beginning of the casino duopoly between Las Vegas Sands and Genting Group, although he thinks Marina Bay Sands’ addition of 1,000 hotel rooms will help. The city-state is already returning to pre-COVID levels of GGR, with 55/45 percentage split in Sands’ favor.