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China – Macau to smash the US$100bn mark by 2021

By - 13 June 2014

Macau’s gaming revenue will reach US$100bn market by 2021, according to respected industry analyst Andrew Zarnett, Managing Director at Deutsche Bank Securities.

Despite a spate of negative headlines recently concerning a slowdown in the economy and crackdowns on cash withdrawal methods, Mr. Zarnett said the seven-year revenue prediction would ‘easily’ be reached, meaning the market’s worth could more than double from the record $45.2bn it generated in 2013.

The spectacular growth would come despite the onset of more regional competition, only 2.8 per cent of the Chinese populace had actually visited Macau compared to 16 per cent of the US population who had visited Las Vegas. The boom will come from an explosion of spending from the middle classes, according to Kelvin Tan, Chief of International Marketing at Melco Crown Entertainment. He believes the mainland’s middle classes will double their gambling spend by 2022.

The trend in Macau has been towards the mass market gamer with the once dominant VIP sector now accounting for a reduced 63 per cent of the market’s revenues. Whilst the average VIP spend per visit is HK$5m ($645,000), Bloomberg Director of Asian research Tim Craighead said at the conference that the mass gaming player was three times more profitable than the VIP customer, despite generating lower revenues.

The ‘build it and they shall come’ philosophy has served Macau as well as any market, however making sure infrastructure is in place to cope with such huge levels of tourists is a whole different challenge. There are currently seven new casino resort properties being built in Cotai, all of which are scheduled to open between 2015 and 2017, and all of which will be developed on a huge scale.
Improving transport networks will be key to coping with this growth in capacity. A staggering 29.3m people visited Macau in 2013. The Hong Kong-Zhuhai-Macau Bridge is on course to open in two years times allowing direct access between Macau and Hong Kong International Airport. There are also plans to bring China’s high-speed rail network to neighbouring Hengqin Island where it will hook up with a light-rail system taking travellers directly into Macau.

Kevin Clayton, Chief Marketing Officer at Galaxy Entertainment Group, said that with the new transport networks in place, Galaxy would be able to better target players further away from the neighbouring Guangdong province, which has been such a hotbed for Macau’s player base. Whilst Shanghai, Beijing and the East Coast have all proved good catchments for Galaxy it will now be able to target players in regions further afield but with direct access via new flight paths or the quicker rail links.

Another moot discussion at the expo was the government’s intention to restrict the use of China UnionPay’s debit cards at casinos. Such facilities are proving popular in watch, jewellery stores and pawnshops located close to the gaming floor. The clampdown will make getting money ‘less convenient’ for mass-market players. This follows a crackdown by the government on hand-held, card swipers used on the gaming floor which are circumnavigating restrictions on how much money can cross the border into Macau. Analysts believe that the crackdown on UnionPay cards will lead to a tightening of VIP liquidity.

Most view any current market negativity as being ‘disconnected’ claiming that any slowdown in growth is due to rotational-cycles in the market and difficult comparisons to last year’s incredible revenue growth.

This year has also suffered from a lack of new resort capacity but records are still being broken in terms of monthly revenue.

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