Macau still stands unchallenged as the world’s gaming leviathan. Even after a 26-month-long recession in the city’s dominant industry that only ended in the second half of last year, no other single jurisdiction was capable of casting a shadow on Macau gaming. In 2016, the city of around 650,000 persons accounted, by some estimates, for about 19 percent of the world’s land-based casino industry and more than 45 percent of that in the Asia-Pacific region.
But that may be set to change. Across East and Southeast Asia, a number of jurisdictions stand on the sidelines of gaming liberalization, and by 2025, Asia’s gambling landscape could look very different.
Analysts are divided over how seriously Macau operators and the local government should take these threats. Up for grabs is Macau’s billion-dollar VIP market and a share of the mass-market visitors to the city.
The consensus is that the frontrunners worth watching are Japan, Vietnam and the Philippines, though Australia, South Korea, Cambodia, Singapore and even Thailand may present added competition.
As Ben Lee, managing partner at IGamiX Management & Consulting, pointed out to the Times, although no single jurisdiction can yet compete with Macau, each can “chip away” at the MSAR market through their own specialization.
“Right now, there is nothing that rivals Macau in terms of capacity and the quality of our ‘hardware’ [infrastructure],” said Lee. “But other jurisdictions can create comparative advantage. By specializing, other places nearby can chip away at the Macau market… Vietnam in the south, Korea or Japan in the north.”
For Lee, Vietnam and Japan – both on the precipice of game-changing revisions to their gambling laws – are poised to become the biggest short- and long-term threats to Macau gaming respectively.
“Japan is the most dangerous [threat to Macau] if the gaming proposal goes through […] partly due to its high quality of service. It is the only country that could attract both premium mass and VIP [customers] away from Macau,” Lee told the Times.
Meanwhile, Vietnam has a different proposition, he said. “It won’t attract the upper echelons of VIP society […as it] is a more down-to-earth experience, representing value for money. Vietnam might not draw [gamblers] from Guangdong, but it will from the other southern [Chinese] provinces, like Kunming.”
Praveen Choudhary, managing director of Asia Gaming Research at Morgan Stanley, weighed in on the debate last month. Speaking in Macau, the analyst expressed the opinion that the MSAR’s proximity and close relations with mainland China would shield its mass market visitors from competition abroad.
The view was ultimately shared by Union Gaming Group analyst Grant Govertsen who, speaking to the Times last night, said that no jurisdiction can hope to siphon off Macau’s mass market in the near term. Although the VIP segment is another matter, being more vulnerable to overseas competition, it will be the MSAR government to feel the brunt more so than the casino operators.
“The biggest risk to Macau gaming lies within the VIP segment […] because mass market visitors in Macau are unlikely to fly elsewhere for the sole purpose of gambling,” said Govertsen. “Currently, only about 10 percent of [operators’] profit comes from the VIP segment, but roughly half of the government’s revenue comes from VIP. In a way, the [MSAR] government has a lot more exposure” than the Macau concessionaires.
It remains to be seen whether places like Vietnam and Japan will target VIP, mass or multiple segments, and whether they will permit locals to enter casinos. Lee believes that no casino operators will want to limit the breadth of their appeal and so the decision will fall to national governments.
Even so, some analysts hold the opinion that casino operators tempted to enter Vietnam will not have the authorization nor the willingness to transform the country into a leading gaming jurisdiction.
On the other hand, Japan which boasts a potential untapped market worth USD40 billion, will be a big prize for international investors, marred only by the slow pace of Tokyo’s gaming reform and the anticipated small number of licenses to be awarded.
Las Vegas Sands could be poised to venture into both markets. The company’s Chairman and CEO, Sheldon Adelson, has expressed on multiple occasions an interest in opening casinos in Vietnam and Japan, adding to its multi-billion-dollar portfolio in Macau, Singapore and the U.S.
Aside from Japan whose entrance has already justified considerable alarm and curiosity in the Asian gaming community, analysts Govertsen and Lee are divided on whether Vietnam or the Philippines presents a bigger threat to Macau in the near-term.
Govertsen argues that incumbent operators in the Philippines have the ability to draw large numbers of Chinese visitors to the archipelago nation. Other reports suggest that double-digit growth in the Filipino gaming market may justify an investment in marketing programs and an expansion of existing infrastructure, complementing Govertsen’s evaluation.
The Macau-based analyst also says that the rapprochement between China and the Philippines, led by the personal overtures of Philippine President Rodrigo Duterte, may contribute to an increase in the number of Chinese visitors.
However, Lee is in disagreement. He says that “there is no attraction in China for Filipino culture,” pointing to three big concerns of Chinese visitors that will dictate their traveling preferences: the food, the language and the security.
Other gaming destinations, some of which once looked very promising, have the potential to once again swing into the spotlight or equally fade into obscurity.
South Korea was recently poised to become a major player in Asian gaming until some operators opted for more favorable conditions elsewhere. Singapore, whose two casino concessionaires opened to a stunning debut, now faces dwindling revenues as Xi Jinping’s anti-corruption campaign severs its stream of VIP visitors. Cambodia too, which hosts a significant gaming market relative to the size of the country’s economy, may now be jeopardized by Vietnam’s ascendance.
Meanwhile, further west and little-discussed, lies another potential long- term threat to Macau. In Thailand, gambling is strictly prohibited by law, however analysts are speculating that the country’s new monarch could change that in a bid to boost tourism; an industry that currently constitutes more than one-sixth of Thailand’s economy.
“Thailand could be the biggest competitor, in theory,” said Lee. “It is [one of] the hottest tourist destinations in Asia, with many Chinese tourists. This will not happen in the near future but cannot be completely ruled out.”
While the extent of the rivalry introduced by other Asian jurisdictions remains to be seen, it is probable that the gaming landscape in the east is set to look markedly different in the near future.
Sources: Casino gaming markets as of 2015, according to PWC report, “Global Gaming Outlook 2015”, where available. Other estimates used for Cambodia. Tourist arrivals (2014) according to data from the World Bank. Population statistics from the CIA’s World Factbook
Annual visitors: 4.8m
Gaming market: $1.22bn
The Philippines has a relatively developed gaming industry which has still managed to maintain double-digit growth rates in recent years. The country’s capital, Manila, is home to around 20 casinos, including City of Dreams Manila, the sister of Macau’s resort of the same name. Gaming analysts last year predicted that the market could grow at a compound annual growth rate of nearly 10 percent during the period of 2016 to 2020. However, President Rodrigo Duterte has signaled that he intends to stop online gambling in the country and revoke licenses granted to casino operators. Currently, the state-owned gaming company, PAGCOR, is the third-largest contributor to government revenue, reporting a net income of almost USD90 million last year.
Annual visitors: 4.5m
Gaming market: approx. $2bn
Cambodia’s casino industry thrives on cross-border visitors from Vietnam and Thailand, a consequence of the under-developed gaming industries in these countries. Hanoi’s gaming liberalization overtures therefore present a unique threat to Cambodian casinos and might see them develop a deeper dependency on Chinese tourists, as is the case in Macau. Nagacorp, which operates the NagaWorld integrated resort in Cambodia, currently holds a monopoly license for the Phnom Penh area until 2035. The company announced last year that it is planning the third phase of its resort expansion, which will focus on non-gaming attractions. Meanwhile, legislators are currently discussing a new bill for the gaming industry in a bid to draw more casino operators to the country.
Annual visitors: 24.8m
Gaming market: N/A
Gambling in Thailand is strictly prohibited by law, including activities that could be mistakenly misconstrued as gambling, which can incur financial penalties. Nevertheless, the activity remains very popular in the mostly conservative and Buddhist country, and illegal gambling is widespread in both urban and rural areas. One of Asia’s biggest tourist hotspots, especially for intercontinental visitors, Thailand is regarded as one of the brightest potential gaming markets in the region. Union Gaming analyst Grant Govertsen has suggested that Thailand’s new monarch could back legislation opening the country up to gaming investment. This idea was supported by a Thai academic who predicted that the legalization of casinos could boost tourism numbers by up to 50 percent.
Annual visitors: 7.9m
Gaming market: $141m
Vietnam appears to be on the verge of a major revision to its tightly controlled gambling laws. Recent legislation has legalized sports betting for locals and later this year, Vietnamese residents will be able to bet in domestic casinos. The revisions follow concerns that Hanoi is missing out on as much as USD800 million per year in lost tax revenues due to Vietnamese gamblers crossing the border into Cambodia. At the MGS Entertainment Summit held in Macau last year, analyst Ben Lee said that Vietnam’s proximity to China might give the country an edge over other competitors in the region. Another analyst estimated that Vietnam’s market could soon be worth between USD3 and 6 billion.
Annual visitors: 13.4m
Gaming market: $784m
With casino legislation on Tokyo’s doorstep, international investors are eyeing an opportunity which is considered one of the most lucrative the world over. Although some forms of gambling do exist in Japan, notably arcade game Pachinko, on which the Japanese wagered more than USD200 billion in 2015, the country’s gaming market is still considered immature. A 2015 PWC report estimated the current market value at around USD784 million but analysts say that a gaming liberalization bill in Japan could see this swell to as much as USD40 billion. Some observers have predicted that Japan is unlikely to have its first integrated resort up and running in time for the Tokyo 2020 Olympic Games, but possibly as early as 2021. Las Vegas Sands and Melco Crown Entertainment have already signaled a willingness to invest billions of U.S. dollars into the opportunity.
Annual visitors: 6.8m
Market value: $3.7bn
According to some reports, over 80 percent of Australian adults engage in some form of gambling, making it the highest proportion in the world. Casino operators publicly state that they target high-rollers, though the majority of their income continues to be derived from the local market. James Packer’s partial withdrawal from Macau last year in order to focus on a USD2 billion Sydney-based casino, may have been a sign of the billionaire’s eagerness to find a more stable footing. Australia’s relative stability and rule of law might also be an incentive for Chinese high-rollers looking further afield. While an ample local market with a propensity to gamble will suffice, the long-term ambition of Australian casinos will be to draw Chinese gamblers from the growing middle class.
Annual visitors: 11.9m
Gaming market: $7.17bn
Singapore’s casinos have been just as hard-hit as Macau’s following Xi Jinping’s anti-corruption crackdown, with VIP revenues falling as much as two-thirds between 2014 and 2016. The drop in incoming VIP traffic has led to the development of accommodation options for budget travelers and the rise of non-gaming entertainment at Singapore’s once-superstar integrated resorts. Despite their woes, the two casino operators were estimated to account for between 1.5 and 2 percent of Singapore’s economy last year. Given the initial public resistance to the city-state’s casinos – over fears that it would invite crime and gaming addiction – it is unlikely that new casino investments are on the horizon for the duopoly gaming sector.
Annual visitors: 14.2m
Market value: $2.62bn
The South Korean gaming market may well be at a turning point. Though it has performed well in the past few years, with leading operator Kangwon Land Inc. beating out resorts in Macau, Singapore and the Philippines, the strict rules which limit local gamblers act as a disincentive to investors. All but one casino in S. Korea are by law for foreigners only. Seoul’s earlier interest in developing an integrated resort paradise on Jeju island – with visa-free access for Chinese visitors – did not go unnoticed by international investors. However, restrictions over the participation of locals have led several resort operators, including Genting Singapore and Bloomberry Resorts, to abandon the site. Some of these operators are now betting on a more lucrative Japanese market.