More than 10,000 people attended G2E Asia last week at the Venetian Macao, bringing together suppliers and buyers in unprecedented volumes. Asia’s leading gaming trade show and conference was celebrating its 10th anniversary.
“It has been a great run over 10 years,” said Geoff Freeman, president and CEO of the American Gaming Association, one of the producers of the conference. “We are excited about what we have done in Macau and excited about what the future holds.
“This market has changed in extraordinary fashion over the course of those 10 years, obviously remaining the biggest market in the world. I think the next 10 years will be equally as significant.”
“Our numbers were up, the exhibitors were very happy,” said Josephine Lee, executive vice president of G2E Asia co-producer Reed Exhibitions Greater China, who said many decision-makers from the region’s casinos interacted with suppliers to see products designed specifically for the Asian markets. “Many G2E Asia 2016 exhibitors have already confirmed that they are coming back next year.”
But it wasn’t only products that were on display in Macau, it was information and ideas, generated by an impressive group of keynote speakers and conference sessions. Most importantly, attendees heard from Paulo Martins Chan, recently appointed as new head of Macau’s chief regulatory agency, the Gaming Inspection and Coordination Bureau, giving his first speech before the industry, something his predecessor rarely did. To begin with, he tried to assure the six gaming concession holders in Macau that there was no need to fear the license renewal process that will begin in 2020 and extend into 2022.
“(The process) will be prepared as a way to further Macau’s development as a world center of tourism and leisure,” he says, indicating that companies developing extensive non-gaming amenities would be looked upon more favorably by the officials in charge of the license renewals.
While not quite admitting its shortcomings, Chan pledged to help improve the regulatory process in Macau.
“We will continue further strengthening the laws in order to improve the overall quality rather than quantity of the gaming industry.”
In a discussion with reporters, Chan focused on the troubled VIP market. He said the regulatory body was committed to providing a database of players with significant debts owed to the VIP operators, who assume most of the risk when bringing Chinese high rollers to Macau. The Chinese government does not enforce gambling debts, so a deadbeat is often out of legal reach of the VIP operators who extend the loans to players. Chan says his goal would be to keep players who owe money to the operators out of casinos until those debts are satisfied. But he admitted that it would take some time to achieve.
“We first need to achieve a consensus,” he told GGR Asia, “then we need to meet with the Personal Data Protection Office. After that, comes the law drafting stage. Therefore, I think it will take some time.”
He said that Macau was unlikely to pressure Beijing to change their policy on bad gambling debts.
“Macau is ruled by the principle ‘one country, two systems’,” he said. “We cannot interfere in China’s affairs.”
Macau must tread lightly in the VIP sector, says industry analyst Jamie Soo, of Daiwa Capital Markets.
“This increasing scrutiny and policy tightening, while positive for the segment’s long-term prospects, will likely be detrimental to the shorter-term prospect for the junket operators, VIP revenue, and their related activities,” said Soo. “Junkets facing further operating pressures may result in further VIP room closures.”
Macau OK
Despite the doom-and-gloom in a market that has seen two straight years of revenue declines, Aaron Fischer, head of consumer and gaming research at CLSA Asia Pacific Markets, says not to worry.
“Macau is still in pretty good shape, with gaming companies generating above average returns and little risk of bankruptcy; the government’s still sitting on a fiscal surplus; and local residents have basically full employment and GDP per capita is among the highest in the world,” said Fischer.
Fischer says better connections between all the casinos would be good for everyone.
“The pedestrian walkways here are terrible,” he said. “It’s very difficult, for example, to walk down to Studio City from any of the properties in Cotai. Over on the Peninsula, from the ferry terminal, it’s very hard to walk from there to Sands Macao, which is really a bit of a joke. The Peninsula walkway should be finished and improved by now.”
The AGA’s Freeman says that the Macau market is very healthy.
“The numbers are still quite strong, it’s still a $27 billion – $28 billion market,” he said. “I know that our members that are here, they’re making investments for the long term.
“This market has taken one step back but it has stabilized and there is great optimism about where it will go in the future.”
As for the non-gaming push that has been in evidence in Macau for the past five year at least, the progress has been rewarding, says Freeman.
“There’s a bright future for it, non-gaming has great potential but it has to move in concert with the customers. It’s developing here in Macau,” he said. “People should feel good about the development.”
As for gaming legalization across Asia, Freeman says the AGA will be an active advocate.
“The industry is always looking to where opportunities may be,” he said. “This is an industry that can walk and chew gum at the same time: it can operate in the U.S., while looking at expansion opportunities elsewhere. And when you look at those expansion opportunities, there is no greater potential than in Asia.”
Market Potential
In a panel examining the Chinese market for gaming, Andy Choy, the chief gaming officer for Melco International Development Ltd., says the gaming propensity of residents of that country has not diminished.
“The Chinese-oriented consumer has been demanding gaming product—overwhelmingly,” he said, cautioning about the non-gaming direction taken by Macau casinos.
“In an environment where you are motivated purely by satisfying your customers, that would dictate that you would spend your investment dollars primarily on the gaming product,” he said.
“But in Macau and in many jurisdictions in the area, the government has deemed that they would like to see more non-gaming attractions and amenities as a pre-requisite for the granting of the licences. And so as an operator you comply with that.”
In a session on how retail can bring more visitors, the messages were mixed. Allan Zeman, developer of the Hong Kong entertainment district Lan Kwai Fong and Wynn Macau board member, told the audience that Macau had to reinvent its retail offerings, “to fit into what younger people want and what the future is.”
Zeman says the luxury shops in Macau are in for a shock.
“In today’s world, because of online shopping, young people don’t go to shopping malls,” he said. “The exclusivity in luxury shopping got lost.”
Retail, says Zeman, has to become more “experiential,” but the Macau government must get more involved in making the city an international destination.
“Macau needs to upgrade itself by bringing in more cultural things,” he says. “The government itself needs to upgrade the city to make the package to attract more people. Macau needs to become world class. Then, you will have a very strong story to sell, not just to mainland China, but to the world.”
Kevin Clayton, the chief marketing officer for Galaxy Entertainment, argued that the city’s marketing efforts are falling short.
“Whether that’s online or offline, the way that we are promoting Macau in conjunction with the Macau Government Tourism Office (MGTO) at the moment, is, you could argue, failing us,” he said. “If you want to draw more people and more traffic to Macau, then Macau needs to do two things: one, it needs to have more attractions and have some very powerful forms of communication back into China. When we are in a very competitive regional market, it’s about what we do together, as well as what we do individually.”
Catherine Lim, Asia senior consumer analyst for Bloomberg Intelligence, said cooperation can go a long way.
“I do see a lot of opportunities for operators to work hand in hand with the brands, the retailers or even on the entertainment front. If we can actually package everything together, it can work and it could be a global phenomenon.”
Non-Gaming Tracking
Maybe the largest crowd of the G2E Asia conference attended a session on tracking the non-gaming customer. With the increased emphasis on non-gaming attractions in Macau and across Asia, it becomes critical to understand what the customer wants and how he wants it delivered.
At a session moderated by Applied Management Strategies’ Roy Student, Sam Sheng, the vice president for financial and strategic planning with Integrated Resort International and Jim Dennedy, the CEO of Agilysys, explained how Macau could create more non-gaming revenue to help to replace the “whales” who have largely disappeared in the wake of the Chinese corruption crackdown.
Sheng says there is a revolution going on in Asia when it comes to the preferences of visitors to Asian gaming jurisdictions.
“Customers are changing as their demand goes above and beyond casino gaming,” he explains.
On the other hand, says Sheng, the casino owners are also struggling to determine the value of non-gaming spend.
“Operators are in the process of figuring out what entertainment, F&B and other non-gaming options resonate well with customers when opening new properties, adding ever more attractions and amenities.”
Dennedy says by a careful analysis of the data, operators can boost non-gaming spend, which has also declined along with the gaming revenues. With an average stay of 1.1 days in Macau, Dennedy says an operator must know his customers to maximize the profit from them.
“By analyzing data that they already have for the most part, operators can assess non-gaming spend and develop non-gaming inventory/offers consistent with guest consumption patterns,” says Dennedy. “It will allow you to recruit the guests you want, who will spend on gaming and spend on non-gaming in a way that is profitable for the operator and aligns to the guests natural consumption preferences.”
Sheng and Dennedy believes that Macau and other Asian gaming jurisdictions will never reach the gaming-non-gaming revenue split you see in Las Vegas, where at least 60 percent of the revenue on the Strip can be attributed to non-gaming.
“Non-gaming will definitely grow,” says Dennedy, “although I do not believe all places resemble Vegas in pattern or proportion.”
