When you’ve been covering gaming as long as I have, you begin to notice parallels and history repeating itself. Legalization and regulatory efforts in some of the riverboat states were similar, particularly in Louisiana and Illinois—and now possibly Massachusetts. Mississippi followed the lead of Nevada and New Jersey, while the tribal compacts with Florida seem about to be repeated in Alabama.
That’s why I was always confused about the supposed parallels of Las Vegas and Macau. Are there similarities? Certainly, starting with the claims of each to be the “capital” of gaming in their specific regions. Not to mention the massive gaming revenues produced by each jurisdiction.
But as I prepare to head out for my annual visit to Macau for G2E Asia, the recent downturn there (which we chronicle extensively in our cover story) reminds me again of another fading gaming boomtown, Atlantic City.
There was once seemingly no end in sight for the increasing gaming revenue of the East Coast’s only gaming destination. For 30 years, revenues increased each year, only beginning to slide once regional competition arose. Although Atlantic City was blessed with a great location on the edge of the Atlantic Ocean, little was done to prepare for the day when gaming might not be the tourism driver it always was. But then again, few believed that day would come.
Well, when it did come, it came with a vengeance. The addition of non-gaming attractions has done little to stem the outgoing tide of gaming revenues, even if perception is nine-tenths of the problem.
Regional competition was not the culprit in Macau’s recent downturn, but something else that is also clearly understood in Atlantic City was to blame: rigid government oversight. For the first 10 years of their existence, an overbearing regulatory structure conspired to prevent Atlantic City casinos from reaching their full potential. Innovation was stifled by strict rules and regulations, while politicians ignored the coming competition.
In Macau, it took nothing less than a directive from the president of China to start the ball rolling downhill. And with a complicit chief executive in Macau, there doesn’t seem to be an end.
To be sure, the consensus of Macau casino executives I’ve met with over the years always seemed too rosy to me. Yes, market penetration into their most favorable Chinese regions was in the single digits. But to think that there would be no pushback from a Communist government was not realistic. And now that it has come to pass, it’s been harsher than most anticipated.
The most damaging issue has been corruption, intimating that the Macau casinos are just as corrupt by association. While that may have a grain of truth with the VIP junket operators, the Macau casinos have stayed, for the most part, squeaky clean. But the perception is now, if you go to Macau, you must be doing something wrong. Bad message at a terrible time.
And there is no letup. The government is pressing a total smoking ban in a culture where smoking is still prominent. I understand protecting the health of the workers and the customers, but there’s a middle ground that has been reached in most U.S. jurisdictions, including Atlantic City. There seems to be no effort to find that compromise in Macau.
And then there’s the regional competition issue. Even though it’s at least four hours away by plane, the Philippines has opened some truly first-class casinos in Manila’s Entertainment City. Macau companies and executives are involved there. Vietnam’s Grand Ho Tram is just an example of the top-flight casino resorts that could become prevalent there. The Primorye region of Russia is about to debut. South Korea is loosening its casino laws.
So while the damage is being done in Macau primarily by government intervention, the Atlantic City-like regional competition could be the next hurdle for the SAR. And here’s where the government is correct. Non-gaming attractions are going to be the engine that drives the Macau economy.
And with another parallel to Atlantic City, gaming revenues account for more than 70 percent of all revenue at Macau casino resorts. Macau needs to be more like the Las Vegas Strip, where less than 40 percent of revenues are gaming-derived. This could be achieved, however, by protecting gaming revenues, and keeping your eye on the ultimate goal: making Macau a full-fledged destination resort, with gaming as a major amenity.