A panelist discussion held yesterday as one of the last sessions of this year’s MGS Entertainment Show and Summit discussed the future of Macau’s gaming economy, and found that diversification of the industry was being pursued gradually and not without commercial interest.
The panel, moderated by GGR Asia Principal Michael Grimes, consisted of Union Gaming’s Grant Govertsen, Sanford C. Bernstein analyst Vitaly Umansky and Professor Augustine Vinh, who advises Vietnam’s government on the casino industry.
In an all-to-brief 40-minute session, the three panelists discussed a range of issues involving the future of Macau’s gaming economy, including the blurring division between VIP and premium mass gamblers, the role of junket promoters in Beijing’s Belt and Road Initiative, and how the success of Macau as a casino jurisdiction will continue to be underpinned by its local customer base in Guangdong Province.
Here is just some of what they said yesterday:
With the aim of reducing Macau’s dependence on its gaming industry, economic diversification has been a key government initiative since as early as 2011. But it was only when gaming operators were confronted with the ‘new normal’ during the prolonged recession period that this buzzword really started to take root.
Yesterday’s panelists were in agreement that diversification was being gradually implemented by the city’s six operators but said that government policy had not been the driving force.
“What we have seen in Macau in the past couple of years is an expansion of non-gaming – not so much because the government wanted to see diversification – but because the operators themselves realized that in order for this market to have long-term growth capability, it needs non-gaming [amenities],” said Umansky.
He said that Macau makes its money when its customers are kept in front of the gaming tables. Any diversification – whether in food and beverage, entertainment or retail – is merely a means to this end.
“If that means having the customer stay overnight in a hotel room so they can get up the next morning and sit at the baccarat table, that’s what the operators are going to do.”
However, since “customers may only be coming [to Macau] for a short time and you don’t want to pull them away from the casino for too long,” too much diversification may in fact be harmful to operators.
VIP OR PREMIUM MASS
The introduction of the premium mass player threw a veil of confusion over where to draw the line between the traditional VIP and mass-market segments. Gaming operators, market analysts and the government each draw this line differently, giving rise to minor disputes over which player segment is contributing most to the economic recovery.
For Govertsen, it is a matter of prudent accounting. He highlighted yesterday that casinos typically have a 25 percent margin in the premium mass segment, but only 10 percent for VIP players due to junket fees and higher tax rates.
“Casinos would take 25 percent margin over 10 percent any day, so that is why they are moving increasingly toward premium mass,” he argued.
Umansky said that the major difference is whether the casino or the junket promoter controls the relationship with the gaming customer.
“In a VIP-junket relationship, the casino has no control and visibility into the player, which is [arranged] by the junket hosts on the casino’s property. [Casinos prefer to] have direct communication with the players and have the ability to market directly to them and persuade them to visit more frequently and spend more money,” he said.
This means that the same customers can often be classified as both premium mass and VIP and, with a financial incentive for operators to record them as premium players, there is likely to be at least the appearance of premium mass growth in the near future.
BELT & ROAD
An earlier session at the MGS Summit advanced the idea that Macau’s junket industry had a part to play in Beijing’s Belt and Road Initiative, with high-profile members of this industry – including Suncity’s Alvin Chau – advocating for their involvement.
Professor Augustine Vinh admitted that there could be a role for junkets in countries like Vietnam, even though Beijing probably did not have gaming in mind when it envisioned the Belt and Road Initiative.
“The Vietnamese government and Vietnamese travel agencies have no experience in gaming,” he said. “They have to rely on the junkets to provide players by bringing them via chartered flights from Macau.”
Gaming analysts Govertsen and Umansky noted that junket participation in the Initiative is unsurprising but, again, it is more a matter of “business sense” than patriotic duty.
Govertsen described it as “bandwagoning” the Central Government’s policy and said the move was profit-driven rather than a nod to Beijing.
Umansky said these investments might allow gaming promoters to act in ways that are no longer permitted in developed gaming jurisdictions like Macau.
“Junkets are in the business of making money, and one way to do that is to […] go after [jurisdictions with] tax arbitrage and regulatory arbitrage,” he said. “They can do things in certain jurisdictions that they can no longer do in Macau, with proxy betting being the prime example.”
It is also good for the stability of their business, said Umansky. “It is becoming more evident to the larger junkets that having diversified [investments] is important to long- run sustainability. So by having VIP operations in Australia, in the Philippines, or in Korea, they are at least able to diversify a part of their revenue stream. It’s just business sense for them to do this.”
But the panelists also stressed Macau’s most enduring comparative advantage in the Asian gaming sector: a robust local market just across the border.
“Macau has both a local market and a destination market. Many of the visitors in Macau are locals: they are from Guangdong Province and Hong Kong,” said Umansky. “That local feeder market allows Macau to be what it is.”
“Most destination markets [that] want to cater to Chinese customers are not viable when resorts cost USD2 billion to build. They’re viable when they cost USD200 million to build […] but that is a very different kind of project to what most governments are looking for.”
He added that Singapore and Japan both have the local market support to thrive, but most other locations in Asia will not and are therefore unlikely to become large-scale gaming centers.
Umansky’s argument does not seem to have discouraged Vietnam, where the customer focus is almost entirely orientated toward the China market.
The government in Hanoi is only beginning to experiment with the idea of permitting locals to gamble in domestic casinos – an initiative that could reclaim as much as USD800 million per year in tax revenues that currently go to casinos in neighboring Cambodia.
Vinh, a long-time proponent of local access to casinos, said yesterday that “for the new integrated resorts in Vietnam, they [casino operators] are talking about 100 percent Chinese players. They ask: why do we need Vietnamese players when we have [access to] the Chinese market just across the border?”
MGS summit concludes final day
THE 2017 MGS Entertainment Show and Summit, organized by the Macau Gaming Equipment Manufacturer Association, concluded its third and final day yesterday with several talks and industry exhibitions. Issues discussed included Japan’s integrated resorts bill, how technology is changing the Asia-Pacific region and the future of esports betting. The theme was smart-city technology, and exhibitors yesterday highlighted equipment relating to “smart traffic”, LED displays for custom animations, and robotic humanoid baccarat dealers.