Happy Thanksgiving from GGB; Newsletter Returns December 4


Suddenly the booming Macau gaming economy is hitting snags left and right. Investors are bailing and the future of the only city in China to permit gaming is in doubt. What’s happening?

What’s ailing Macau?

The market that exploded in growth now has slowed, and VIP growth has come to a screeching halt, and is in reverse.

Initially, the slow down was pooh-poohed.

VIP play was subject to temporary concerns, like crack downs on Chinese corruption, worries about money laundering, shake ups in the world of junketeers, the condition of China’s economy and its credit markets.

But we heard all of that before. Usually, there was a bump or two along the way, then it was full speed ahead again.

Besides, the premium mass-market was booming as the Chinese middle class and its conspicuous consumption burgeoned. And mass is a lot higher-margin business, too. So what’s to worry?

Now, mass-market growth is slowing, and there are new concerns, like a smoking ban to be imposed on the mass-market casino floor, a more restive labor force making noises about wanting a bigger slice of the pie, and the suspicion that money-laundering and currency transfers into Macau might be more than just a headline that fades away like yesterday’s news.

So, will that pattern repeat itself and growth resume and accelerate?

That’s the conventional wisdom.

And the holders of that view have plenty of arguments in addition to history.

The Chinese middle class does continue to grow rapidly, and there are enough Chinese that such growth can continue into the foreseeable future.

Huge infrastructure projects will deliver visitors, whether that be on the new high-speed light-rail lines connecting Chinese cities, the highway-bridge that will connect Macau to Hong Kong and the Mainland, or from adjacent Hengqin Island, which is being developed into one of China’s major entertainment and resort centers.

China would not be making such big investments if it intended to let Macau dry up and blow away, they argue.

But that doesn’t mean that the days of 20, 30, 40 percent annual gaming revenue growth will return.


• The middle class boom. A simple calculator can be used to make the case that Macau casinos are penetrating just a few percent of China’s market, thus they are in the early stages of their growth cycle.

But a lot of that Chinese middle class is thousands of miles away, so a straight line calculation probably way overestimates Macau’s potential.

• China’s national government might be building transportation infrastructure leading to Macau, but it’s building such infrastructure throughout the country. Thus, rail lines to nearby coastal cities isn’t proof that the guys in Beijing are giving priority to Macau.

• Success breeds competition. The impact of that new competition can be discounted in its early phases, such as happened with the opening of Singapore’s two mega resorts. But, eventually, enough competition does have its impact.

There has to be an impact If mega resorts arise in Sri Lanka, Vietnam, Philippines, Taiwan, Korea, Japan, Australia, Russia’s Pacific Far East.

Finally, what will be the impact of all six casino concessionaires opening multi-billion dollar mega resorts in the Cotai section of Macau over a two or three-year period?

No casino market has ever had to absorb that much capacity so soon, and like in all booms, it is easy for each individual project to pencil out. But all together might require a different calculus.