How can +12% growth disappoint?

Jul 17, 2018 3:10 AM

Over the last few weeks there have been stories popping up about how many analysts were disappointed Macau’s gaming revenues only grew 12 percent and how trade wars with the United States might have an impact on the region’s gaming revenues. Comments also included the potential for Hainan Island (China’s Hawaii) to have low limit gaming and expanded sports wagering and how that might impact Macau.

Perhaps it is the cynicism of age, but I found it amusing that there was such a knee jerk reaction to June gaming revenue only growing 12 percent from the prior year and did not grow at the same pace as the preceding May.

I can think of no other gaming market that a 12 percent growth would be considered a disappointment. I can think of no serious gambler used to betting thousands per hand who would rather go gamble on low limit games than continue playing at the levels they are accustom.

I have also not known of a trade war that targets and directly impacts a service industry that happens to have its core companies actively trading on a stock exchange in the host country to be of serious length or consequences.

Anyone who has regularly followed the history of Macau gaming would already know June almost always lags May in gaming revenue, so a seasonal dip from May would be no surprise, and July is usually on par with June for gaming revenue results.

Those who follow the geopolitical history of Communist China will also note that with extremely rare exception China adheres to its declared policies, so Macau will likely remain an autonomous, though highly influenced, region till its expected reintegration in 2049 – thirty years hence.

Any serious analyst of the Macau area should have been paying more attention to the fact that China is currently adding 66 new civil airports and expects to add an additional 139 new airports by 2025, effectively putting 205 airports and over half a billion people within convenient air travel distance of Macau.

Las Vegas does pretty well with convenient air travel for 300 million U.S. residents, so it would not be hard to imagine how well Macau might do with easier access of close to 750 million people over the next seven years.

It is only my opinion, but it seems to me the only real risks to Macau are the same as they were before – the crackdown on money movement by the Chinese government on its citizens, the tightening of travel restrictions into Macau from China, the global economic changes that seem to cause some level of recession every couple of decades, and if the Chinese government will eventually allow gambling beyond the current de minimis wagering and lotteries already active in the Chinese mainland.

While the Chinese government has tapped the breaks a bit by tightening currency movement and travel recently, the real test for the region will not be the summer months but will be in October when much of China goes on vacation and all the Macau gaming properties will be doing a full-on press for business.

Similar to the speculations that were made about Macau, there have been renewed stories declaring the expansion of sports wagering into other states around the country will be good for Las Vegas and not have negative impact on Nevada gaming. While I fully agree the expansion of sports wagering will be good for national gaming companies based in Las Vegas, it is simply foolish to think the expansion of sports wagering will not have a dilutive impact on tourist-based gaming in Las Vegas.

While Las Vegas has the benefit of phenomenal infra-structure, incredible resorts and entertainment of most all varieties, and will always be a unique destination, for sports betting enthusiast who prefer legal wagering and used to travel here to get their bets down, and now have a legal option either nearby or online, another motivation to travel to Las Vegas has been diminished.

As a micro example, a millennial generation friend of mine from New Jersey who loves to bet baseball and play roulette, and usually travels to Las Vegas once a week during baseball season, has already stopped. He normally would bet $500 to $1,000 a game and go through $20K to $30K on the roulette table each trip.

He shared that he has pretty much stopped betting on roulette and is now betting more on sports. Also, he and his friends have already made reservations in Atlantic City for the 2019 NCAA Basketball tournament and will skip Las Vegas for the first time since they graduated college.

While one anecdote does not define a trend or generality, it does succinctly describe how things might change and why new creative efforts are still and will always be needed to motivate travel to the Las Vegas gaming market.