ANALYSIS | Lack of infrastructure hinders local diversification

Kate O’Keeffe

The circumstances of Macau’s dominant gaming industry were far different over a year ago when the Wall Street Journal’s global gaming reporter, Kate O’Keeffe, spoke to France Macau Business Association (FMBA) guests about the city’s takeover from Las Vegas as the world’s largest gaming capital. The veteran reporter gave a speech at the same occasion yesterday, but this time she questions whether Macau can seek solutions from Las Vegas’ recovery and successfully transform itself into a more diversified entertainment hub.
Ms O’Keeffe cited analyses that suggest “Macau in 2015 is Las Vegas in 2009.” Some observers eye Las Vegas as the solution to Macau’s industry recovery. However, the journalist believes that diversification by developing entertainment is “not really the solution of how to fix all of Macau’s problems.”
“There are actually some serious problems with the idea that Macau – number one – can, and – number two – should become more like Las Vegas. The first problem is Macau’s infrastructure (…); another major issue is a little more philosophical: should Macau even want to be like Las Vegas?” she questioned.
Becoming a more diversified entertainment hub was how Las Vegas recovered from its slump in 2007. By focusing on non-gambling elements, the resort town was able to renew its revenue records; by the 2014 fiscal year, only 37 percent of its revenue was generated from gambling operations. “But the real problem is that earning is still way off the pre-crisis level. (…) So it’s not all rosy there; it’s a ton of investment now that hasn’t been super-profitable,” added the speaker.
With a wave of new investments in Macau having been caught up in the industry downturn and other unanticipated circumstances, Ms O’Keeffe indicated that the gaming operators are now “between a rock and a hard place,” where slowing or scaling down the constructions won’t be an option.
The industry has recently focused on the meltdown in the mass market, following the plunge in the VIP segment. Although many are excited about the high margins for mass gamblers, the speaker doubted that the gains from margins will be able to make up for losses in VIP revenue.
“It’s needing twelve mass-
market players to replace just one VIP player. So it’s not been quite so easy to replace the VIP sector like that,” she said, adding that the mass-market segment itself has been having unanticipated troubles, such as a decline in visitor arrivals and their lower spending at the gambling tables.
“The decline has happened because basically everything that could go wrong has gone wrong,” suggested Ms O’Keeffe. “Amid the chaos, the 20-million-dollar-
plus investment in new casino projects that had initially been seen as a big growth driver in Macau is now being seen as possibly a liability to some people.”
The speaker further suggested that the region is not going to see the growth it’s seen over the past decade again, as “non-gambling activities are not going to be as explosive a revenue generator as the VIP gambling industry has been.”
“I think Macau really has a long way to go to become a more diversified city. There’s a lot of work that needs to be done at the casino operator level. Then there’s a whole other more important set of things that need to be done for the local people of Macau,” she stressed, indicating that the issues that citizens are coping with every day – such as lack of transportation, public housing and medical facilities – are the prominent factors that also hurt the city’s business environment.
“A lot of these problems we are seeing today have been building for so long. You didn’t see the negative impact from them fully, because you were overwhelmed so much by the great performance at casinos,” she said, before concluding with a thought on Beijing’s policy toward the MSAR: “I think it is that they are forcing Macau now to address all those issues, as it can no longer just rely on the casino operations.”