New capacity addition
The economy of Macao has seen extraordinary growth in the past decade driven by the gambling revenue boost in the region. The casinos contributed to about 80% of Macao’s revenues. However, recently key international casino players such as Las Vegas Sands (LVS), Melco Crown Entertainment (MPEL), MGM Resorts (MGM), and Wynn Resorts (WYNN) have been hit by the corruption crackdown by the Chinese government. These players are still expanding gaming areas and adding capacity to their existing profile. In May 2015, Galaxy Entertainment doubled its capacity with its two new projects: Galaxy Phase 2 and Studio City.
The overall industry capacity is expected to grow by about 60% by 2016. The key players have invested more than $24 billion in revenues in the Cotai Strip region, which is expected to offer customers a much wider, diversified non-gaming family experience. MPEL is set to launch a film-themed resort in 2015 and expected to open three more in 2016.
However, the important question that needs to be answered is whether these new capacity additions will lead growth in revenues for the entire industry or lead to market share gains and losses among existing players. If the latter happens, competition will intensify, bringing in pricing pressures.
Diversification to attract customers
Since the corruption crackdown, casino companies in Macao have been expanding in all directions by means of hotels, retail, and entertainment, in a bid to emulate the Vegas model. The key players in the region have started to add more non-gaming elements in order to attract more tourists from its targeted middle income and family group class of visitors. The mass gaming market might not be as profitable as the VIP gaming slots, but the booming middle class in China is expected to boost the industry’s revenues. However, given the cultural differences between China and Las Vegas, it will be extremely difficult for Macao to match Vegas’s non-gaming revenue growth.
Apart from the expansion happening in Macao, relaxation of visa norms, railway connectivity, and a less stringent smoking ban in casinos are expected to help boost visitor numbers in the future.