Diversification a slow game hampered by lack of land

Las Vegas

In its transformation into a city that is more than just gambling, Macau is progressing far slower than its U.S. rival, Las Vegas.

This is according to the Wall Street Journal (WSJ), which found that American casino operators have made only a marginal improvement in revenue derived from non-gaming segments over the last decade.

It took Las Vegas just ten years from the opening of its first integrated resorts for non-gaming revenue to become the casino operators’ major source of income.

In Macau, the past decade has seen a climb of only a few percentage points and even the government, which has led the charge for diversification, has set a goal of just 9 percent of revenue coming from non-gambling sources by 2020.

The three U.S.-owned gaming operators say they still derive somewhere between 88 and 97 percent of their revenue from casino tables, despite the introduction of various non-gaming amenities and the invitation of many high-profile acts, like the House of Dancing Water and concerts by Madonna, Bruno Mars and Celine Dion.

The problem? According to some casino executives interviewed by the WSJ, Macau is too focused on western-style entertainment and is neglecting the taste of the Chinese consumer.

Kevin Clayton, chief marketing officer at Hong Kong-listed Galaxy Entertainment Group, believes that casino bosses are misreading their core audience.

Galaxy is certainly not recognized for its entertainment offerings in the way that Sands China and Melco Resorts might be – just 6.7 percent of Galaxy’s revenue comes from non-gaming activities – but the mass market-focused operator has proven successful in defending the largest share of the Macau pie and demonstrating its appeal to the mainland consumer.

The WSJ points to several other factors that might be limiting the growth of non-gambling attractions in Macau.

Compared to the more liberal Las Vegas experience, Macau has strict controls on who can or cannot be a player in the casino market. The market is divided between three concessionaires and three sub-concessionaires, and they get to decide who can play. The expiration of the six casino licenses between 2020 and 2022 may change the rules of the game, but some analysts err on the side of fewer operators, rather than more.

There is plenty of the pie to go around with just six operators in Macau, and the incentive to develop expensive alternatives to gaming is less compelling than in Vegas, where entertainment often becomes the deciding factor. Gambling now only accounts for about a third of revenue on the Las Vegas Strip.

Another major factor is the limited supply of land in Macau. Operators may consider a land plot to be more profitable if used for gambling tables and condensed but lucrative hotel rooms, instead of expansive arenas or theme parks.

Contrarily, Las Vegas, a city built on the periphery of the Mojave Desert, has plenty of room to expand.

The leading U.S. operator in terms of diversification is Sands China, which derived 16 percent of its revenue from non-gaming sources in 2017, up from 12.6 percent in 2008. In Macau terms, that is years ahead of Wynn Macau, which grew from 5.6 percent in 2008 to 6.7 percent last year, and MGM China, which took in just 2 percent of its revenue from non-gaming sources in 2017.

Part of Sands China’s success is the development of destination hotels like The Parisian, Venetian and the upcoming Londoner, which appeal to mainland tourists’ growing desire to see the world beyond China. DB