Macau Growth Under Threat as Chinese Travel Farther

Wynn Casino MacauMacau is facing threats to its growth from China’s slowing economy and greater foreign competition, escalating the need for the world’s largest gambling hub to diversify from its casino gaming roots.
“I’d say the slowdown in the economy and the fact that now the foreign destinations might become competitors” are the biggest risks to Macau’s growth, Pansy Ho, co-chairman of MGM China Holdings Ltd, said in an interview with Betty Liu on Bloomberg Television in Hong Kong.
As Chinese tourists travel more frequently and farther afield, the city could gradually lose its appeal, said Ho, who’s nicknamed “casino queen” by local media. “We’re already beginning to see that the customers coming through our doors are more demanding, they now know how to differentiate.”
Chinese tourists have been powering the growth of Macau which leapfrogged the Las Vegas Strip in 2006 to become the world’s largest gambling hub. Casino operators such as Ho’s MGM China and Sands China Ltd. have added shops, restaurants and entertainment shows to draw mainland travelers as high-stakes gamblers cut spending amid a cooling Chinese economy.
Ho, whose father Stanley Ho held a 40-year gambling monopoly in Macau until 2002, is helping lead a drive to transform the city into a global tourism destination. The 51-year-old sees the need to cut the territory’s reliance on gaming halls that raked in $45 billion of casino revenue last year.

The city has been affected by a slowdown in gambling growth in recent months as bettors cut spending amid a cooling economy and a nationwide crackdown on corruption in China. China’s President Xi Jinping’s clampdown on lavish spending has hurt sales of luxury goods such as Rolex watches and Prada bags.
MGM China fell 2.3 percent, the most since June 10, to HK$27.95, while Sands China declined 1.6 percent to HK$58.95 at the close of trading in Hong Kong. The benchmark Hang Seng Index was little changed.
Macau’s July gross gaming revenue could decline as much as 11 percent from a year earlier, Bank of America Merrill Lynch analyst Billy Ng wrote in a report today.
Macau’s casinos have borrowed from other cultures to re-create features in the past and now mainland customers can afford to travel overseas to experience the original, “real things,” said Ho, who has a net worth of $4.9 billion according to Bloomberg’s Billionaires Index.
To draw more Chinese patrons, MGM China, the Macau unit of MGM Resorts International (MGM), has been adding local flair by playing up the Macanese and Portuguese influences at its properties, said Ho. Sands China competes with Italian singing gondolas and Galaxy Entertainment Group Ltd. with Parisian cabarets.
Macau is the only place in China where casinos are legal. Mainland Chinese tourists accounted for two-thirds of the total visitors to the former Portuguese enclave in the first quarter.
Ho is now extending her family’s footprint to Hengqin in China, an island next to Macau that’s connected by a bridge and is earmarked for non-gaming purposes. She will achieve that with Shun Tak Holdings Ltd., a property to transportation conglomerate set up by her father in 1972 and now run by her.
“We’re building hotels, serviced apartments and a shopping center,” Ho said of a $118 million project. “We’re immediately connected to the custom checkpoint, so we’re almost the first stop once you clear customs.”
Stanley Ho, 92, held a gaming monopoly in Macau that helped build SJM Holdings Ltd. (880) into Asia’s biggest casino company. The Macau government opened up the market in 2002 to foreign rivals such as Sheldon Adelson’s Las Vegas Sands Corp. (LVS) and Steve Wynn’s Wynn Resorts Ltd.

“US Casino groups have obviously invested too much and too quickly in Macau” said Pierre Gervois, Publisher of China Elite Focus Magazines, a publishing group specialized in luxury travel magazines for High Net Worth Chinese travelers. “I remember having a conversation in 2011 with one of their executives in Shanghai, he was very excited about investing more in Macau, and I warned him that the new generation of Chinese gamers wanted to go to Vegas, not Macau. I distinctively remember he did not believe me!”
While Pansy is in charge at Shun Tak, her younger brother Lawrence Ho, whom she described as a “friendly competitor,” has gone his own way. He set up Melco Crown Entertainment Ltd. in a joint venture with Australian billionaire James Packer.
“For me, I try to step out of my father’s shadow and do something on my own,” Lawrence said in a separate interview at City of Dreams, Melco’s biggest casino in Macau. “I’ve been trying to prove myself.”
The company is building casinos in Macau and the Philippines, and is also keen on expanding into Japan, the world’s third-largest economy. It plans to invest more than $5 billion in Japan if the country legalizes casinos, said the Melco Crown co-chairman and chief executive officer.
Lawrence’s endeavor to push into Japan is part of his strategy to expand overseas as he sees constraints such as land and labor shortage at home.
Melco Crown, which currently operates two casinos in Macau, has almost doubled its revenue to $5.09 billion in 2013 from $2.64 billion in 2010. SJM had $11.3 billion revenue last year from 20 casinos in Macau.
Melco Crown (MPEL) dropped 2.1 percent to HK$92.20, while SJM fell 2.4 percent to HK$20 at the close in Hong Kong trading.
“Lawrence really wants to grow his gaming enterprise beyond Macau and grow his portfolio,” said Pansy, his elder sister. “In my case, I’d like to really do more for the general well-being of Macau, promoting Macau as a destination.”

Source: Bloomberg

Connecticut’s casinos target Chinese customers

While the economy drains Connecticut’s casinos of valuable revenue, their investments in Asian gamers hedge those losses.
“There’s no question it has held up better,” said Anthony Patrone, senior vice president of marketing at Mohegan Sun in Uncasville. “We are happy about that, but we are not taking it for granted.”
Since their openings in the 1990s, Mohegan Sun and Foxwoods Resort Casino in Mashantucket offered games such as baccarat, sic bo and pai gow that attract Asian gamers. As the heavy Asian populations in New York and Boston responded in strong numbers, the casinos rolled out more tables and eventually separate gaming areas for the Asian market.
Those investments, along with Asian-specific entertainment and marketing, paid dividends from the beginning, but they are especially vital now as Foxwoods and Mohegan Sun report overall drops in gaming revenue.
The latest figures for slot machine revenue — released for May — show Mohegan down 7 percent and Foxwoods down 9 percent for the year. Both casinos have lost more than 15 percent of their slot revenue over the past five years. The month was the slowest May for slot machine revenue since 1997 for Foxwoods and since 2002 for Mohegan Sun.
Although not reporting specific figures on patrons, Foxwoods and Mohegan both say that Asian gamers constitute 20-25 percent of the casino visitors. The vast majority are Chinese with Korean and Vietnamese players also coming in significant numbers. Japanese and Cambodian patrons also frequent locations.
After Mohegan Sun opened in 1996, the casino saw an 8-10 percent increase in Asian gamblers every year, Patrone said. That culminated in 2007 with the opening of Sunrise Square, a specific gaming area including popular Asian table games like baccarat. The popularity increased until 2009 when the recession slowed business throughout the casino.
Sunrise Square boasts 50 table games with room for 368 players. Throughout Mohegan Sun, there are 75 tables for baccarat, pai gow and sic bo totaling 536 seats, the most of any location in the United States, Patrone said.
Foxwoods boasts 51 Asian table games with the 34 baccarat tables being the most popular on the property, said Steve Ma, Foxwoods vice president of Asian marketing. The games all are located in one area, so the patrons that frequent them don’t have to travel far.
Baccarat was small part of Foxwoods offering when the casino opened in 1992, but more Asian tables and games are added each year.
“After we increased the tables, we just have to make sure we fill them; and we’ve never had to take tables away,” Ma said. “The Asian customers like to gamble.”
Gambling has strong traditions in the Chinese culture, and that has permeated to the surrounding counties, although to a lesser degree, said Vera Schwarcz, director of the Freeman Center for East Asian Studies at Wesleyan University.
“It hasn’t been frowned upon like in Christian cultures,” Schwarcz said. “Finding shortcuts in the dream of realizing wealth is something that’s more acceptable.”
Chinese men go out to drink and gamble, and Chinese women stay home to gamble with friends, sometimes in large groups, she explained. The Chinese people believe strongly in luck, which coincides with their feelings toward fate and fortune.
“It’s not like if you go out and gamble that you are a bad family man,” Schwarcz said. “If you gamble and win, it goes toward your social status of having more money.”
Asia, especially China, has become the new hotspot for American casinos to drum up new business. For a long time Las Vegas casinos have sought out high rollers in Asia to fly into Nevada, Patrone said. Now casino companies build properties in the Far East, particularly Macau.
The Connecticut casinos count on the regional market and don’t devote much time to enticing millionaire high rollers from Asian countries, the way Las Vegas casinos do, Patrone said. The competition for those whales is too much to overcome unless they are in the Northeast for business in New York or visiting a student in Boston.
While Connecticut’s Asian population is below the national average of 4.4 percent, New York and Massachusetts are above average, particularly in the New York City and Boston areas where 1 in 12 people — or 1 in 5 in some areas — are Asian, according to the U.S. Census.
To make sure they have a steady supply of gamers, Mohegan Sun and Foxwoods run buses from these heavy Asian population centers where patrons receive complimentary food or casino credit to offset the bus ticket cost. Foxwoods runs 48 buses per day while Mohegan Sun claims to have more. Most Asian gamblers arrive in the morning and afternoon, Ma said.
As said Patrick Cooke, Vice-President of Sales and Marketing of China Elite Focus, the Seattle-based marketing agency specialized on affluent Chinese tourists “For wealthy Chinese inbound tourists in the US, gambling is an important part of the global travel experience. It’s as important as a luxury shopping session at a Louis Vuitton store”
To compete with Atlantic City casinos for the New York City customers and with each other for the Boston customers, Foxwoods and Mohegan Sun aggressively market to those populations.
Foxwoods has a variety of Asian promotions, such as Chinese concerts, shows, baccarat tournaments, and different summer offerings for the buses, Ma said.
Mohegan Sun sends out Chinese-language and Vietnamese-language mailings; features four Chinese TV stations in its hotel; hosts the Miss NY Chinese beauty pageant; and showcases 10 or more concerts every year featuring Chinese stars, each garnering 7,000-8,000 attendees, Patrone said.
In August, Mohegan Sun will roll out a series of e-mmercials on its Chinese language Web site featuring Chinese celebrities chatting up customers.
As competition stiffens for Asian gamblers — the Empire City Casino in Yonkers offers a closer alternative for New York’s slots players — Connecticut’s casinos work to ensure this increasingly important portion of their business feels like a priority, Patrone said.
“We are one of the most visited sites on the East Coast for Asians, maybe in the whole country,” Patrone said. “This really is a discerning, discriminating market that will go away if you’re not careful.”