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Trending Positive

While the casino industry has endured some difficult years, the opportunities today outweigh the challenges. Our GGB correspondents explore 10 trends that are shaping the future of gaming.

Trending Positive

The last few years in the gaming industry have been brutal. First the destination resorts took a hit. Then the regional casinos around the world were dinged. The only exception was Asian casinos, where a less depressed economy and an expanding middle class kept the market strong.

So what will 2012 look like? Most experts say we’ve weathered the storm and are looking forward to a better year. You can’t get much better than Macau and Singapore in 2011, but even in those jurisdictions, the future’s so bright you have to wear shades.

In the U.S., there are signs that a rebound is already under way, although there is no indication revenues will ever return to their former levels. But growing non-gaming revenues and the reality of server-based gaming could really make difference as 2012 progresses.

The future is always murky, in good times or in bad, but the Top 10 Trends identified by Global Gaming Business magazine each year always make for interesting speculation if not prognostication. So sit back, think and come back next year to let us know whether we were right or way off the mark.

1. It’s the Economy, Stupid!
The outlook for the gaming industry in 2012 depends almost exclusively upon the macro market.

The prolonged slump in the gaming industry in the U.S. and Europe is concerning. But even more concerning is the slump in the overall economy, which hasn’t improved now in three years. And without an improvement in the general economy, there will be no corresponding recovery in the gaming economy.

John Restrepo, principal with RCG Economics in Las Vegas, says there is no blueprint to follow from previous economic downturns.

“This recession is dramatically different in terms of scope and breadth,” says Restrepo, whose firm tracks economic trends in communities across America. He says it is different for three reasons: it started in the United States, it involved the near collapse of the financial services industry and it was largely driven by an extended period of cheap and easy credit.

Restrepo says there is no way out of the recession without significant job growth, and that hasn’t been occurring at nearly the level necessary. And some states are worse than others. Nevada, for example, suffers under an unemployment rate of 14 percent.

While companies have money—more than $2 trillion is sitting on the sidelines, according to Restrepo—they are not spending that money to hire people because the demand for their products and services does not justify hiring.

Consumers are saving money, rather than spending it, allowing them to reduce their debts and live within their means. It’s ironic, says Restrepo. “What’s good for the household may not be good for the overall economy.”

Discretionary spending—the pool of money consumers once used to gamble—is down, as well, but there is a bright side for the casino industry.

Consumer spending on gaming in 2010 was up almost 1 percent, after two years of declining spending. According to the American Gaming Association’s “State of the States” report this year, consumers spent $34.6 billion at commercial casinos and racinos in 2010. And when you add the $26.5 billion in spending at tribal gaming facilities, as reported by the National Indian Gaming Commission, gaming as a whole cracked the $60 billion mark last year. And with the increase in non-gaming spend—at least at casino resort destinations—there are many more “buckets” with which casinos can collect revenue as the economy recovers.

While visits to casino destinations haven’t declined that much, Restrepo says there has been a dramatic decrease in what the visitor spends when he gets there.

“And it’s not only on gaming,” he says. “In Las Vegas, they’re spending less on all the other things they can do, like dining, entertainment and shopping.”

Restrepo questions what the gaming industry can do to increase revenues. “Have we peaked?” he asks. “This isn’t unique to gaming. Many industries grow and reach a peak. It’s a life cycle. We don’t know if this is a temporary situation because of the economy or if we have indeed peaked.”

Those questions won’t be answered until the national economy recovers, says Restrepo. “And the formula is pretty straightforward,” he explains. “Robust job growth plus real wage growth plus debt reduction equals a sustained growth in consumer confidence, and spurs more consumer spending, which starts the recovery. Very simple to say but hard to get there.”

—Roger Gros

 

2. Eyes on Asia
Legalization and development accelerate on the Pacific Rim

The incredible growth of gaming revenues in Macau and the success of the dual casinos in Singapore have made other Asian nations sit up and take notice. In places where gaming is already legal, new casino developments are ramping up.

The extensive PAGCOR Entertainment City in Manila is nearly fully subscribed. Four sites have been claimed. Genting, Universal Entertainment (Aruze), and two Philippine companies (one of which includes former Las Vegas Sands executives Bill Weidner and Brad Stone) have pledged to invest at least $1 billion over the next five years in each development. The reclaimed land on the shores of Manila Bay is adjacent to the Mall of Asia, the largest shopping center in the region.

In Vietnam, the Ho Tram Strip development that will produce MGM Grand Ho Tram is well under way, while a second development in which the owner, Asian Coast Development, will partner with American casino company Pinnacle Entertainment will soon get off the ground. And Ho Tram is one of four or five sites that are attracting interest from companies all over the world. Now, if the promised airport is built and transportation improved, it may actually work.

Taiwan has received some studies that recommend integrated resorts on its outlying islands of Kinmen and Matsu. Referendums, however, have yet to be held in either place and nothing guarantees that the measure may not go down to the same defeat it suffered in Penghu, which may get another bite at the apple soon.

Sources say South Korea is closer to approving IRs than any other Asian countries. Las Vegas Sands, Wynn Resorts, MGM, Caesars, Penn National, Station Casinos and others are all sniffing around in the ROK.

But of course, the golden goose of Asia is Japan. In addition to political turmoil and a stalled economy, natural disasters have caused the government to look for economic development projects, a description that fits integrated resorts perfectly. Placing one of the gaming districts in the earthquake- and tsunami-stricken Sendai would serve to revive the economy in that region. But foreign companies anxious for a piece of the pie will have to wait a while, according to Asian expert Michael Hands in last month’s Global Gaming Business.

Hands says it will take at least two years of an excruciatingly long and deliberative—and uniquely Japanese—process before gaming is legalized. But a rich and deep market, not only in Japan but all across Asia, should make a reasonably taxed and progressive gaming industry in Japan a huge success.

And on the far horizon are possible changes in Singapore and Macau. Singapore guaranteed its initial casinos a 10-year monopoly on gaming, which will expire in 2017. And the Macau 20-year concessions start to expire in 2020, when the government begins to explore the thorny question of renewal.

Roger Gros

 

3. Server-Based Gaming Matures
Networked floors offering new ways to play

For the better part of a decade, server-based or networked gaming in the United States was all theoretical.

No more.

In the initial implementations of networked slots in U.S. casinos, flexibility to the operator was the main impetus for the technology: Banks of machines—up to an entire floor—would essentially be terminals with access to complete manufacturer libraries. Game styles could be changed according to the preferences of players in the casino at a given time.

While this function—the download/configuration aspect of networked gaming—has remained an important benefit of the networked slot floor, the efforts of a few slot and system manufacturers are showing the way to maturity for networked systems.

And mature networked systems are adding incremental revenue by offering players different experiences. The server linking games is no longer a marketing and operational convenience; it is a revenue-generator. As 2012 progresses, the most successful server-based gaming systems in the U.S. will be those that show the best return on investment.

The once-theoretical technology continues to take shape as a new source of revenue. The first success stories are already taking shape in the field:

Bally Technologies continues to accumulate system contracts to implement the iVIEW Display Manager system with its “Elite Bonusing Suite,” a system of configurable bonus events that can be individualized for players, for networked banks in instant tournaments, and for the entire casino in enterprise-wide events like “Virtual Racing,” which generates excitement on the casino floor by qualifying players for a free horse race beamed to slot-machine video screens throughout a casino.

For International Game Technology, the “sbX” server-based system is up and running in various scales at properties across the U.S. IGT’s system can download any of up to 300 games to any networked machine within a couple of minutes, but what the industry will see this year is an increasing flow of applications for IGT’s networked floor—again, scalable from a single machine to an entire enterprise.

At the G2E show, IGT displayed an application called “Team Challenge,” a random bonus that separates players into teams and allows them to use the touch-screen for a video game that builds points for the team. Another is “Auction Action,” which allows the operator to “auction” discounts and freebies to fill show seats, offer a spa session, or auction off rooms at low prices during a slow period. Other tailored bonus games are being added on a continuous basis—IGT will soon introduce a “Friend Finder” application to allow players to locate friends on the slot floor—and IGT’s “Universal Game Adapter” can create picture-in-picture capability on any legacy video slot to provide a platform for these applications.

WMS Gaming, meanwhile, continues to incorporate the networked gaming concept into its production games, giving players the ability to continue game elements on dedicated websites to earn credits that can be used in WMS games upon return to the casino.

Other slot manufacturers like Aristocrat and Konami are also delving into the creation of new networked applications for slot games. As these elements continue to be incorporated into new slot machines and the lines between slot games and systems become increasingly flexible, one of the most important trends next year will be the maturation of server-based gaming—right before our eyes.

Frank Legato


4. Fading Federal Focus

The legalization of online gaming in the U.S. shifts from Congress to the states

In some respects the trend for internet gambling in the United States for 2012 could end up being “same as it ever was,” i.e. continued momentum toward regulation in one capacity or another, with inevitable setbacks seemingly every step of the way.

The “dueling” state and federal legislative efforts to regulate have been compelling to say the least, and they could continue in 2012. For proponents of a federal solution, with every year come new retardants. This year fixing the economy has taken precedence—which is somewhat ironic considering regulated i-gaming is pitched as a source of sorely needed tax revenue—but the biggest speed bump has been the dysfunctional state of the legislature. This is frankly not a productive era in Washington. In 2012, the forthcoming elections could push internet gambling—once again—to the back burner.

The biggest federal roadblock this coming year will be the House, where the fiscal components of the legislation (as constitutionally required) must be addressed and where the Republican majority remains unmotivated to forge ahead on the issue. It has been suggested that Sands CEO Sheldon Adelson, a major contributor to the Republican National Committee, could hold the key to GOP support, and it has been suggested that he has not been inclined to make a push for i-gaming.

State efforts will emerge—and re-emerge—in 2012. The front-runner remains New Jersey, where both chambers in 2011 approved state Senator Raymond Lesniak’s bill to authorize licensed Atlantic City casinos to take play online. Governor Chris Christie vetoed the legislation, but Lesniak has since resurrected the proposal with changes intended to assuage concerns cited by the governor. One has to wonder whether Lesniak could have already punched his i-gaming bill through had his attention not been divided by his commitment to legalize sports betting.

California, on the other hand, despite receiving the most mainstream media attention, is miles away from legalization due to special interests canceling each other out, and Nevada, while primed to move forward, is waiting for federal approval.

The $64,000 question, of course, is whether legalization will take place through federal or state law. Proponents of a federal solution, Harry Reid among them, contest that intrastate internet gambling is not even allowed under federal law. Lesniak and other supporters of state legislation counter by pointing to the UIGEA’s exemption for intrastate transactions.

State governments have traditionally dictated gambling policy in the United States, so why wouldn’t we expect this to continue in cyberspace? It seems likely that states’ rights will be (at least partially) preserved—either through efforts initiated at the state level, or an umbrella federal solution that grants the states a fair degree of control.

At all levels, policymakers will continue to play the hot hand (pun intended); i.e. the focus will be on poker—the most socially accepted form of gambling in the United States (aside from playing the stock market).  In this sense, New Jersey is especially interesting because the Lesniak solution would approve all types of casino games.

Meanwhile, state lotteries are inching toward launching internet sales. It is distinctly possible that while legislators take the bombshell approach, a lottery (or two, or three) quietly launches a draw and/or scratch game or two online in a progression that gradually evolves to rolling out full suites of interactive games, at which point the casinos fully recognize they’re missing the boat. 

Then again, the one not-so-discreet player in the lottery space, The Washington, D.C. Lottery, is poised to launch its online games in early 2012—an alternate scenario on the lottery side that cuts to the chase. One thing is certain for D.C.: Those pressing the internet launch will meet continued resistance, and they’ll need a few drinks when it’s all said and done. Further delays (the original plan was to launch in September 2011)—even derailment—are possible.

A couple of additional certainties: Whatever happens, if Nevada isn’t the first jurisdiction to break through, it will soon follow. And do not disregard tribal gaming interests; they don’t speak as loudly and publicly as the Nevada casino lobby, but they have a voice that will be heard in the Capitol.

Finally, bank on this:  If the movement toward regulated online poker stalls in 2012, the trend for 2013 will be offshore operators filling the void in the market left by Tilt and Stars following the “Black Friday” demolition. Those who believe they can be permanently blocked out by UIGEA enforcement mechanisms are fooling themselves.

Mark Balestra
5. Social Status
Facebook, Twitter, YouTube and marketing in the casino industry

If you are over 40, the possibilities created by social networking aren’t readily apparent. After all, it took the 40-plus generation about 10 years just to get used to mobile phones. But those times have changed. Everyone uses the internet, almost everyone texts and the vast majority of us know how to use “apps.”

So what does this mean for a casino industry that still primarily caters to baby boomers and above? Well, if they are your target market, then maybe nothing. But if you understand the need to expand the reach of your casino marketing programs to all generations, then you are not serving your stakeholders if you don’t have an active and vibrant social media strategy.

The two social media tools that casinos can’t do without are a Twitter feed and a Facebook page. Do you need employees dedicated to the upkeep of those sites? Depends upon the size of your market and the importance you place in the business that can potentially arrive via those sites.

But the phenomenon that surrounds both those social media tools means that any casino wanting to take advantage of the marketing opportunities on those sites needs to pay attention.

The advantage of social media is something that has been elusive to casinos throughout their history. Once the player left, he lost touch with the casino. Sure, you could send direct mail pieces, with special offers, but so often those were impersonal and non-targeted.

The casino industry today is much more than just gambling. Yes, in most jurisdictions, the main attraction is the casino, and social media can help you attract more gamblers. Do you have a “double points” day for your player’s club? Tweet it every week to ensure that your customers remember. Does a customer “re-tweet” your Twitter post? Reward them with something special.

Look ahead a few weeks. Do you have any days where your hotel is not at capacity, or at least where you want it to be? Post a two-nights-for-the-price-of-one special on your Facebook page for everyone who “likes” your casino.

But to have maximum impact, it’s important to think outside the box. At the recently completed “Sherpie” awards at G2E, the winners combined social media with great ideas. The Tropicana Atlantic City created a PR stunt that brought awareness and media attention the property. California’s Pechanga Resort had Facebook fans design their own slot machines. Caesars Entertainment created a campaign around its policy to not charge resort fees that went “viral” on the internet. And the Cosmopolitan in Las Vegas emphasized its “hip” reputation by combining many social media sites in addition to Facebook and Flickr, creating that “buzz” that is the goal of all social network marketing.

The beauty of social networking is that any casino can do it with any budget. It takes a buy-in from all stakeholders—management, employees and customers—and the results can truly be amazing for everyone involved.

Patrick Roberts

6. Singing from the Same Songbook
Gaming harmonization in Europe

The reality of online gaming continues to force individual European governments and the European Union to open and regulate national markets in all gaming sectors, to at least some degree.

It was a simpler time when the European Commission published its first-ever report on gaming in 1991. In “Gambling in the Single Market,” the main cross-border threats cited were large German lottery operators snail-mailing offers to residents of other countries and the French going across the border to Belgium to bet on horse racing at cheaper prices.

There was no such thing as internet commerce at the time, but the report did include this prophetic warning: “With the development of international banking systems, international telecommunication and international audio-visual programming, it is impossible to control cross-border horse racing and event betting without the cooperation of these three industries.”

Following the publication of the report, the E.C. organized hearings to gain input from the various gaming sectors and governments on how to integrate gambling into the concept of a single European market. Ultimately, it was decided that gambling was too sensitive an issue for a Europe-wide solution and would be left in the hands of the individual member states.

The arrival of online gambling changed everything. Suddenly, anyone anywhere could potentially gamble on anything anytime, and the public voted with its purchasing power.

Cases were brought before the European Court of Justice, with enough of them being decided in favor of open market policies that the industry continued to flourish. Now, the fallout from those cases 20 years after that initial E.C. report has sufficiently damaged the national arguments for closed markets regarding almost all the various sectors of gaming—including land-based casinos.

In fact, the only land-based casino monopolies remaining on a nationwide level are in Austria, Netherlands and Sweden. And two of those are preparing to fade into history—starting with Austria.

In January, the Austrian government will close its tender for the first six of 12 casino licenses that currently belong to monopoly operator Casinos Austria. The remaining six licenses will follow suit, resulting in a fully liberalized but still highly regulated market by 2015.

The Netherlands is also on track to open its land-based casino market in 2015, with current state-owned monopoly operator Holland Casino looking to privatize and compete in the bidding process (see “Holland Casinos: Changing with the Times”).

In the online gaming sector, things have already reached a tipping point. The U.K., France and Italy have fully regulated markets, and the U.K. and France are looking at ways to tweak their systems in a number of areas, including taxation. Spain is working to finalize its legislation, and the German states are in the midst of an ideological battle that realistically can only end in liberalization.

Smaller countries like Belgium and Denmark are experimenting with various provisions, and Netherlands is thought to be preparing for a 2013 opening of the online gaming market.

The individual E.U. member states, like the states in the U.S., will undoubtedly continue to set their own tax rates and operator conditions. But in general, it appears the E.U. has turned the corner on the general harmonization of gaming.

Except, of course, for state lotteries.

Rich Geller

7. No Games
Non-gaming amenities become a more important part of the total resort experience

It’s been happening for years on the Las Vegas Strip. Departments outside the casino have taken on an importance not felt in other gaming jurisdictions. Today, as much as 70 percent of the revenues of the huge Strip properties come from non-gaming amenities. And that thirst for revenues outside the casino is starting to leech out into other regions of the country and the world.

In Macau, a large part of the reason that new gaming licenses were issued back in 2002 was to develop and diversify the Macau economy outside the casinos. Sheldon Adelson’s vision for the Cotai Strip was exactly what government leaders wanted: more hotel rooms, expansive meeting space, a huge retail mall and more. That vision has been expanded by all the other casinos that have opened in the Cotai region since then. Singapore is singing from the same songbook, but with even greater success. Adelson’s iconic Marina Bay Sands has all the amenities and Genting’s Resorts World brings Asia’s first Universal theme park as a tourist attraction. In the U.S., jurisdictions that were once pure gaming plays are now reinventing themselves as regional destinations: Atlantic City, Biloxi and many tribal casinos have installed the attractions that will bring more visitors for activities other than gaming.

At this point, any casino not considering how to build non-gaming revenues is missing the boat. In the U.S., it is now true that up to 90 percent of the population is within a two-hour drive of a casino. And that means that all casinos have competition and must differentiate themselves from their competitors. Since games are games in every casino, the wise executive see advantages in bringing in things that are unique to their market.

 Just some of the elements:

• Meeting and convention space: Even casinos without hotels are finding that a small area to hold meetings for local groups brings people to the property. And those with hotels understand that larger meetings can fill rooms in those slow mid-week periods.

• Food and beverage: Who would ever have thought that Emeril Lagasse would have a restaurant in Bethlehem, Pennsylvania? But he does; in fact, he has two in Sands Bethlehem. Not every casino can attract a superstar celebrity chef, but unique food and beverage outlets can bring in a new audience, whether it’s a legendary local restaurant or a “name” like Carnegie Deli or Morton’s Steak House. Some casinos have found that chain restaurants like TGIFriday’s or Denny’s have an appeal to their customers.

• Retail: What’s in your market? Is there a major outlet mall? If not, why not consider one adjacent to your resort? Or a small boulevard of high-end shops, a la Wynn Las Vegas? Known brands or run it yourself? Another good opportunity to bring in new customers.

• Entertainment: This has always been a part of the casino experience, but the choices of acts and different kinds of entertainment are expanding. From participants in reality TV shows to authors to nationally known politicians and personalities, thinking outside the box can bring attention and acclaim to your property.

Non-gaming is the buzzword. Go out and define it for your casino property.

Roger Gros

8. Mobile Me
Wagering on smart phones, tablets and other devices exploding

While the U.S. Congress grapples with the issue of online gaming, dozens of countries have moved far beyond gambling on computers and are now permitting gambling via remote devices—smart phones, tablets and the like. The proliferation of these devices makes it clear that computers are on the way out, certainly as wagering instruments.

In Asia and many parts of Europe, mobile phones are ubiquitous. At work, at home, in parks and squares, on public transportation… People are constantly on their devices, whether texting, working, talking, participating in social networking—or betting.

Sports betting is huge in Europe, where the wager has always been legal in most countries. Whether it’s football, tennis, racing or any other form of competition, the ability to bet on the fly is taken for granted.

In countries where betting is mostly illegal, such as India and China, mobile gaming companies are trying to gain a foothold. Laws are behind the times, and companies are trying to take advantage of loopholes in the laws where wagering can be conducted with relative safety.

In the U.S., where online and mobile gaming is generally illegal, Nevada is at the forefront of mobile wagering. Since sports betting is legal in Nevada, the state Gaming Commission has approved remote wagering from smart phones and tablets. The GPS programs built into smart phones verify the location of the bettor and prevent wagering from out-of-state locations. In-house mobile devices, on the other hand, have transformed every corner of the casino complex into gaming space, whether it is for sports betting, slots, poker or table game play. 

One of the more interesting developments in mobile gaming in the past several years has been the “play for free” or “amusement” gaming applications linked to such social networking sites as Facebook or Google. The Zynga poker application has created enormous buzz in the social media world, creating opportunities for other, more sophisticated kinds of wager. 

Although these social gambling sites offer many popular casino games, including poker, blackjack, slots, craps and more, they don’t pay winners. Those who come out ahead get the “satisfaction” of being listed on a winner’s board. After an initial free buy-in, however, customers are often required to pay a nominal fee for more “chips.”

These sites have some application in the casino business for land-based gaming properties that want to stick their toes in the online gaming waters so they can be prepared for legalization of online gaming at the state or federal levels.

So for casinos that want to stay ahead of the game, a mobile platform should be in the plans.

Patrick Roberts

 

9. Bouncing Back
Las Vegas begins a rebound—but how long and how strong?

After the downturn of 2008 and ’09 and a sluggish 2010, Las Vegas resort operators have been waiting for a rebound. Well, in 2011, they got it—not back to the levels of 2007, but substantial improvement in all sectors of the business. Even better, the Strip’s leading operators believe 2012 is looking even better. MGM Resorts International, Caesars Entertainment, Las Vegas Sands and Wynn Resorts, the biggest operators on the Strip, all reported improving revenues in Las Vegas and positive prospects for next year.

Strip gaming revenues were up by more than 5 percent, and—more significantly to the majority of casinos that don’t benefit much from the baccarat business—it wasn’t just a baccarat-boosted boom. Slot win was up as well, indicating improvement in the mass-market gaming appetite. The big boys benefited from a continuing surge in baccarat win, with Wynn, MGM Resorts and Las Vegas Sands capitalizing on relationships they’ve established with Asian players at their casinos in Macau (and Singapore, for Las Vegas Sands). When they bring those gamblers to Las Vegas, the operators only have to pay 6.75 percent of their winnings to the state, strong incentive to lure them to the Strip when Macau gaming revenues are taxed at a rate near 40 percent.

But the big story in the revenue jumps on the Strip has been off the casino floor.  A few factors fueled the Strip’s non-gaming performance. The number of people visiting Las Vegas jumped by almost 5 percent so far this year, and convention attendance has been even better, up 6.4 percent.  Convention visitors are crucial to Strip midweek room rates, helping minimize the downward pressure the city’s hotel capacity glut created after the openings of Palazzo, Encore, CityCenter and Cosmopolitan. (The closure of the Sahara helped a little, too.) Las Vegas average daily room rates were up 10.2 percent to $103.65. Weekend room occupancy was 92.1 percent, up 3.1 percent; midweek occupancy was 82.2 percent, up 4.9 percent.

Food and beverage operations continue to be the darling of CFOs, particularly nightclub operations, as incredible beverage cost markup allows easy flow-through from the top line to the bottom. That trend is expected to continue.

Off the Strip, results have been less rosy. While gaming revenues make up less than half of the revenues of leading Strip properties, they are far more significant to the dozens of locals casinos that ring the Las Vegas Valley.  Those locals properties have been hurt by continuing high unemployment in the Las Vegas Valley and a virtual shutdown of the area’s construction and development businesses. A rebounding Strip hasn’t been enough to offset the loss of play from construction workers and other unemployed Las Vegans, and locals casino results have been fairly flat after declines from 2008 to 2010.

The valley’s biggest locals operator, Station Casinos, emerged from bankruptcy protection in 2011, a positive for its owners but a worrisome prospect for its locals competitors. Station’s executives have launched a very aggressive—and expensive—marketing campaign, aimed at recapturing customers lost during the past few years as the company dealt with its financial troubles. The increased competition will likely be expensive for Station and its primary competitors, including Boyd Gaming Corp., Cannery Casino Resorts, Michael Gaughan’s South Point and Penn National Gaming, which entered the market with its acquisition of M Resort.

Jeff Simpson


10. Majoring in Macau

Many wonder—How far is up?

The growth of the gross gaming revenues in Macau has been nothing but spectacular. In October, the 33 casinos of the SAR posted (again) record revenues of MOP26.9 billion (US$3.36 billion), a healthy 42 percent increase over October 2010. But that 42 percent increase was a few ticks below the year-over-year increase through September of 45.4 percent. And the September increase was down from the previous high of 46.8 percent. The October figures beat the previous high posted in August 2011 of MOP24.77 billion.

Just for context, the $3.36 billion earned in October is just slightly lower than the gross gaming revenues posted in Atlantic City ($3.56 billion), America’s second largest gaming jurisdiction, for the entire year of 2010.         
So how long will this kind of growth continue? It’s open-ended, say some Macau observers. When you consider that the Macau gaming industry has penetrated less than 1 percent of the Chinese middle-class market, there is reason for optimism.

Even the naysayers are hedging their bets. Some experts cited a tightening credit market in China that could impact the liquidity that has fueled the growth in Macau.

But those fears are overblown, according to Gary Pinge, an analyst with Macquarie Equities Research.

“Our discussion with loan experts in China suggests that, with a low to negative real deposit rate, coupled with lackluster performance of the property and stock markets, investors are motivated to shift more of their capital into the informal lending markets, which include junket lending,” wrote Pinge in a note to investors. “With greater amount of money supply, junket operators are able to provide credit to a larger pool of VIP players. The increased liquidity in the junket system adds to the already-strong liquidity from casino operators and the junket operators’ reserves, resulting in robust VIP gaming revenue growth.”

JP Morgan also dismissed concerns about a slump in VIP gaming.

“Recent checks with junket and casino operators confirm that (1) junket liquidity remains strong, (2) customer repayment cycles remain healthy at 14 days, and (3) VIP customers are becoming more diversified than before,” the company advised investors.

And the attention being paid to the VIP operators, who provide 70 percent of the revenues for Macau, is also overblown. One Macau executive says that as long as they play by the rules set by Macau regulators (however loosely defined they are), it’s unlikely they’ll attract much more scrutiny than they are already experiencing.

One thing that could bring an increase in attention is the fabled side betting. A U.S. government report several years ago estimated that those bets amounted to as much as 10 times more than the revenue that was wagered on the tables.

At G2E Asia in June, one VIP operator said 10 times was low; it was more like 20 times more, eliciting a collective gasp from the audience. Of course, the level of those side bets can’t be tracked—or taxed—so if they remain under wraps, it’s unlikely there will be any regulatory review.

For 2012, most analysts expect Macau’s growth to slow, but they said the same thing about 2011. There has been no impact from the opening of the two Singapore casinos, although both jurisdictions target the same markets.

And since there will be no increase in capacity for several years beyond 2012, after the opening of Sands China’s Cotai Central early next year, the future is bright for the existing Macau gaming operators.

—Patrick Roberts

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