inside asian gaming September 2015 4 EDITORIAL Kareem Jalal We crave your feedback. Please email your comments to
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[email protected] or call: (853) 6680 9419 www.asgam.com ISSN 2070-7681 Chief Executive Officer Andrew W. Scott Founder and Editor Kareem Jalal Director João Costeira Varela Editor At Large Muhammad Cohen Contributors Paul Doocey, John Grochowski, James Hodl, Matt Pollins, I. Nelson Rose Graphic Designer Rui Gomes Administrative Assistant Latte Iao Photography Ike, Gary Wong, James Leong, Wong Kei Cheong Keeping the Faith W hen it comes to China, policy risk is ever-present. And it could hit when you least expect it. No reason was given for the last-minute cancellation of Bon Jovi’s first ever concerts in China this month, but media reports suggest that it stemmed from the discovery by state censors that the US rock band had used an image of the Dalai Lama as a backdrop at a gig five years ago. Maroon 5 also recently had its shows in China cancelled, with the most likely cause posited as a band member’s decision to tweet the Dalai Lama to wish him happy birthday in July. Macau, suffering fifteen straight months of steep gaming revenue declines, has been hit particularly hard by adverse government policies, including Beijing’s ongoing corruption crackdown and tightening of illicit fund flows out of the country, as well as local authorities’ total smoking ban on main-floor gaming areas since October. The mistake, however, is to think, as some analysts suggest, that the negatives are already factored in. A new campaign or policy reversal from Beijing could take a further bite out of the market at any time. And locally, the threat of a full smoking ban in casinos looms large, including a ban on smoking in VIP areas—currently, smoking is still permitted on 50% of VIP floor areas—and removing all smoking lounges within casinos, including those currently in operation on mass floors. Beyond policy risk, market dynamics don’t appear to favor Macau’s casino operators right now either. China’s weakening and highly leveraged economy could conceivably tank, taking the city’s plummeting gaming revenue on a death spiral. Another important factor is the evolving tastes of China’s middle class, and particularly the sophisticated younger cohort within it, who are increasingly drawn to more exotic and experience-rich holiday destinations, and, it seems, like their counterparts in America, are not as interested in gambling as the generation that preceded them. And yet amidst this unprecedented environment of pessimism, Macau’s casino operators continue to plough billions into developing new resort capacity on Cotai. It’s their best chance of remaining competitive in light of several new projects targeting Chinese players—who are still the most coveted customers of the world’s gaming companies—coming online in other emerging gaming jurisdictions around the region. Macau’s operators are focused primarily on boosting their non-gaming offerings to attract the mass market, which has not only overtaken the hitherto dominant VIP sector in terms of its contribution to their bottom lines, but also recently surpassed VIP in absolute terms. Last month, VIP baccarat accounted for 52% of Macau’s reported gaming revenue, having declined steadily from a peak of 74% in the third quarter of 2011. However, owing to the move by casinos to reclassify a good chunk of their premium-mass business as VIP following the main-floor smoking ban in October, a truer adjusted estimate of VIP’s current share of total revenue is around 46%. So the mass market now outweighs the VIP segment, something that just three years ago seemed unlikely to happen this side of 2030. After a decade-long VIP-focused detour, Macau is in the process of reinventing itself, and is now finally on course to becoming what the local government was hoping for when it decided to break the city’s 40-year casino monopoly and invite concession bids from new international operators in 2002: a truly diversified tourism destination that’s China’s—and possibly Asia’s—answer to Las Vegas. Ultimately, Vegas’ evolution into a major leisure and entertainment hub relied on its permissive laws. At the outset, its advantage came from legalized gaming, of course, but even after casinos were permitted elsewhere in the country, Las Vegas retained its edge and reputation as a liberal destination for pleasure seekers. For example, the tremendous success of the city’s nightclubs, where booze flows freely all night—then continues to do so at its popular dayclubs and pool parties—derives in large part from the California law requiring bars and clubs in the neighboring state to observe a 1.30 a.m. last call for alcohol. That’s why the Hollywood A-list is so often spotted partying in Las Vegas, Nevada, a four-hour drive from Los Angeles. The Macau special administrative region similarly stands as a bastion of permissiveness within China, despite the fallout it’s suffered recently because of unfavorable policy emanating from Beijing. Bon Jovi’s Macau concerts on 25th and 26th September at The Venetian Macao are set to proceed. Sands China’s decision to go ahead with the shows despite the bans in Beijing and Shanghai is an important one, demonstrating that Macau really has the potential to be China’s answer to Las Vegas. It’s the kind of thing that China’s savvy, westernized new generation—who over the coming decade will become the country’s dominant consumers—will take notice of.