Operator News

China – Lui says diversification in and away from gaming will keep Macau relevant

By Phil - 24 May 2017

Macau needs to diversify in terms of gaming products and events to stay relevant in face of added competition in the region.

It must also welcome any moves to ensure responsible gaming and transparency, even if it means more modest gaming growth going forward.

The words of advice came from Francis Lui, Deputy Chairman of Galaxy Entertainment, who gave a key note speech to open the G2E Asia 2017, held recently at the Venetian Macao.

Mr. Lui said: “The central government has made it clear to us that they don’t want to see gaming revenue shooting up. They want diversification. In 2016, the number of overnight trippers surpassed the number of day trippers for the first time. Such growth was clearly unsustainable. In hindsight, the business model was far too dependent on VIP consumers. The millennials are catching up. They are young customers that embrace technology and think differently. Those are the things we try to understand more to ensure that Macau will be competitive in the longer term.”

He believes that specialised events will be critical to driving visitation to Macau. “Melbourne turned itself into the events capital of Australia,” he explained. “It drove its economic growth by attracting events such as the Australian Open Tennis, the Formula 1 Grandprix, Twenty20 Cricket and the Melbourne Racing Carnival.”

Mr. Lui added that borderless entry between Macau and Hengqin, home to the Chimelong Ocean Kingdom theme park, would add a new dimension to Macau and make it immediately more family-orientated. “It would be like having Las Vegas and Orlando next door to each other and would make Macau a more compelling family market.”

He said of China UnionPay’s new policy of facial recognition scans for ATM cash withdrawals: “This is a continuous effort by the government to make sure casinos are regulated and transparent. If you don’t really embrace the change, you shouldn’t be in Macau because it is very clear what the central government wants and the local government wants is to have more regulation, is to have more transparency in the industry. They want to see a more healthy entertainment industry. We are all for it. We feel comfortable with it.”

He added: “If we as operators act responsibly, we will greatly benefit from the government’s anti-corruption drive and increased transparency. We need to demonstrate to the Central Government that we support responsible gaming and are committed to developing non-gaming facilities.”
Analysts still aren’t sure whether the anti-corruption campaign by central government has softened in the long-term.

Analytical group Sanford C. Bernstein said: “There is no guarantee that the anti-corruption campaign continues to soften; it could intensify again. We have repeatedly highlighted the policy risks that can create headwinds for Macau’s gaming sector. Over the past year, the anti-corruption campaign appears to be moderating. However, in March and April 2017, we noticed a small spike in anti-corruption related activity. It is too early to call this a new trend, but it could indicate slowing of the moderation, and may in fact be a pick-up in activity. A step-change may be evident in 2018 after the November 2017 Communist Party and Chinese government reshuffle.”

Nomura added: “While the legal framework does imply challenges, our base case assumption remains that there won’t be any significant changes in the regulatory environment. Macau casinos’ Returns on Invested Capital have deteriorated to levels in line with global peers at approximately 20 percent; among all of the major gaming jurisdictions, Macau has the highest gaming tax rate, most of the land concessions granted for casino development won’t expire until 2030 or beyond.”