Bizcuits | A cap in hand is worth two in the bush

Leanda Lee

The cap on the number of casino tables in Macau – “the Table Cap” –  is still a conundrum to many and being raised by more commentators as the seven new casino properties due to come on line by end 2017 start to polish their ribbon-cutting scissors with Galaxy Broadway first to open next week. The Macau Government has now long insisted that the Table Cap will remain in place calculated at 3% compound growth each year. From a theoretical 5,500-table base at the beginning of 2013 (an actual of 5,711 at end 2014 and 5,504 end Q1) we are looking at around 175 new tables available for 2015, 180 for 2016 and 186 tables for 2017.
Galaxy II has space for 500 gaming tables but word has it that they will be allocated 150. Given the Macau government’s stand, this number is a proportionately large allocation of the 175 tables potentially available considering Macau Studio City, with investor expectations of 400 tables, is still in the pipeline to open by year end. Apparently, however, there are allocations from 2014 unused suggesting that Studio City will also get 150. Then, in 2016 there are Sands China’s Parisian, Wynn Palace, MGM Cotai, followed by SJM’s Lisboa Palace in 2017. If the Table Cap proves to be overly restrictive, we are likely to see some lead-time drift on property openings.
On the face of it the situation seems dire but there are more ways to fill a space with gaming infrastructure than new table allocations. Although these are new casinos they are not new concessions: the existing 5,704-odd tables are likely to be reallocated across properties by concessionaires as we saw with the opening of Cotai Central in April 2012 as Sands China shifted tables across the road. The number of tables aside, there are other methods to increase revenue on the floor: increases in productivity through enhanced utilisation can be achieved through more players, less staff, higher limits per table, even continuing the growth in slots play upon which there is no cap (for the moment).
Then there are the tables themselves. As with any imposed restriction or threats upon an industry, it responds up and down the value chain. Between 2010 and 2014, we’ve seen a growth in revenue on traditional Baccarat of 305%, and 157% for VIP Baccarat which constituted 30% and 60% of revenue in 2014. In comparison, revenue from Live Multi Game terminals has increased by nearly 15 times (1475%). Granted, the base is low but these terminals are now close to Black Jack in terms of proportion of revenue, and double that of either Stud Poker or Roulette, all of which have been growing at rates less than overall gaming revenue. Upstream producers of electronic table games (ETGs) such as Aruze, Bally, and Aristocrat, and Live Multi Game terminals such as LT Games are meeting the need for floor productivity lost to the Table Cap by increasing the number of players per table through technological innovation; up to 10 players with the Live Multi Game Terminals and up to 100 on Stadium-style ETGs as can be seen in the Hard Rock Hotel Gaming Area.
The real problems for the Macau gaming industry at the moment are not Table Cap issues. Indeed, the Table Cap, together with the tight labour market, might be putting appropriate restrictions on the industry, forcing innovations which will increase the size and nature of the supply chain and peripheral businesses, diversify offerings and the customer base away from the traditional high-stakes baccarat-table mainland punter.
With all the doom and gloom, the Macau gaming industry is still profitable. The continued investment is sufficient proof of that. Although we are not seeing straight-line growth, we are still seeing growth in individual segments and the industry is being brought kicking and screaming into a healthier stage of quasi-maturity. We have a table cap, a potential visitor cap, restrictions on labour – all very clear indications that the government is not encouraging over-investment in the sector, forcing structural diversification (whether intentional or not) and thus allaying future allegations of promises unfulfilled.