International edition
June 22, 2021

Only place where operators enjoy annual revenue growth of 40 %

Macau faces diversification challenge

(Macau).- Since Portugal handed its former colony back to China in 1999, the Macau territory has seen a surge in visitors from roughly 650,000 a month to 2.6 million a month today. Annual gaming revenues, which were us$ 2.2 billion in 1999, are expected to reach us$ 34 billion this year – five times more than Las Vegas.


our years after Las Vegas Sands opened the Venetian in Macau, the us$ 2.4 billion complex – which includes an indoor “Grand Canal” where gondoliers belt out arias in Italian, English and Chinese – is still popular with tourists who want a taste of the “Las Vegas of the east”.

This growth has, however, spurred concerns about overreliance on gaming. The Macao government, which collects more than 80 % of its revenue from gaming taxes, wants to turn the enclave into a conference and entertainment destination, and requires casino operators that want to expand to build non-gaming facilities. While the government is laying heavy emphasis on conference facilities, operators are also mulling plans for more family friendly facilities such as amusement parks and cinema multiplexes.

About 55 per cent of visitors to Macao come on day trips and spend just a few hours gambling before heading home. Even those who stay spend an average of 1.4 nights, compared with 3.6 nights in Las Vegas, according to studies by gaming associations. “There is a big emphasis on diversification. The days of building a ... casino with a couple of hotel rooms attached to it is essentially over,” says Edward Tracy, chief executive of Sands China.

Despite the challenge, the attraction for casino operators is obvious. Macao is also the only place where operators enjoy annual revenue growth of 40 %. The staggering accumulation of private wealth in mainland China, where casinos are banned, is expected to keep it growing.

Gaming also translates into ready profits. Wynn Macau’s interim net profit to June 30 was us$ 308 million, up 27 % from a year ago. Sands China’s first-half net profit rose 115.4 % to us$ 539 million.

But casino operators are entering uncharted territory when they build facilities such as the Venetian’s 1.2m sq ft of conference and exhibition space. Since building a large resort in Macao can cost several billion dollars, the investment has a negative impact on investor returns for at least a couple of years.

In balancing the desire to expand with the government’s order to diversify, the listed operators face a challenge trying to achieve a return on invested capital – a common benchmark for measuring how efficiently a company uses its capital – of about 20 per cent in Macao.

The Venetian’s ROIC was 5.8 in its first year of operation while Sands Macau – a casino with very little in non-gaming facilities that opened in 2004 – had an ROIC of 31.8 in its first year. Wynn Macau, which is not expected to open its own diversified resort until 2015, recorded an ROIC of 89.1 last year.

Analysts say that aside from the short-term investment return concerns, there is no guarantee that Macao will see long-term, sustainable demand for non-gaming facilities just because they are there.

Macao faces strong competition for non-gambling business from Hong Kong, another Chinese special administrative region with better transport and conference facilities and a better reputation overseas. It must also compete with Guangdong, the southern manufacturing-heavy province where many large trade fairs are held, says Gabriel Chan, analyst at Credit Suisse, adding that some executives may be shy of visiting Macao.

“Casinos are sensitive venues, There will be company CEOs who don’t want to be seen going into one, even if he or she is just attending a conference under the same roof,” he says.

Mr Chan says it will also take Macao time to build up enough of a range of non-gambling attractions, such as Cirque du Soleil which has permanent show at the Venetian, before significant numbers of visitors will start coming solely for its entertainment facilities.

So while Macao may want to find a cure for its gaming addiction, most visitors for a while yet will continue to come for one reason alone – an opportunity to test their fortune.

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