Image source: Getty.
For the third straight month, Macau’s gaming revenue has risen sequentially. This was welcome news for gaming investors since over the last two years, gaming revenue in Macau has fallen drastically — it was down more than 40% between Q2 2014 and Q2 2016. Still, while the recent small upward ticks are encouraging, the total rise is still very slight, and Q4 gaming revenue will be well below Q4 2014.
However, never fear, Macau’s prospects remain high as it’s more than just gaming that’s powering its recovery. Mass-market and non-gaming, such as hotel revenue and overall entertainment, is what’s driving growth in Macau now.
How Macau is making the Las Vegas transition
The Chinese government decided in the summer of 2014 to begin placing restrictions on travel to Macau, and limiting the amount that VIP gamblers could spend there. The industry took to a major downward turn as a result, and most of the territory’s casino operators saw their revenues and stock prices hammered in the months that followed. Part of the reason that the Chinese government took this action was to send a signal that it wanted Macau to become something more than just a gambling hub for the wealthy — in short, an all-purpose, mass-market tourist destination.
Macau has responded. In fact, it has been quickly transitioning to a mass-market environment, where more revenue growth will come from lower-dollar gambling and total entertainment value, than from the high-net-worth VIP gambling it used to rely on. This is similar shift to the one Las Vegas underwent in recent years. In the most recent annual data provided by the Las Vegas Convention and Visitor Authority (LVCVA), only about one-third of visitors’ total spend went to gambling; instead, more and more of their money is spent on dining out, seeing shows, staying in themed hotels, and shopping.
Macau’s Cotai Strip now looks a lot like the Vegas Strip, with themed hotels, characters on the street, and interesting festivals. The city is working on plans for a theme park, as well as adding facilities for regional and international sporting events and hosting conventions. It’s also making the city more accessible to mass-market tourists by upgrading the public transportation.
The Macau government said in May that it estimates non-gaming tourism revenue will more than double from $6.4 billion in 2015 to $14 billion in 2025. The good news for the territory is that tourism does seem to be on the rise. Total visitation fell slightly in 2015 over 2014, but after visitation regulations were eased in June of this year, those numbers have been improving. Analysts at Morningstar predict the number of visitors to Macau will rise nearly 50% in the next 10 years to 45.6 million annually.
Betting on this new model
After years of planning and developing, Wynn Resorts (NASDAQ: WYNN) opened the stunning Wynn Palace Cotai on Aug. 22. The $4 billion property is Wynn’s second resort in Macau, and by far its most spectacular, featuring a $100 million fountain in front of the property and air-conditioned gondolas to fly guests over the water to the building’s entrance. The resort has over 1,700 rooms among its multiple hotel towers and private villas, along with restaurants, shopping, and more.
Melco Crown (NASDAQ: MPEL) opened its own massive new casino resort in Macau called Studio City earlier this year. This completed its City of Dreams resort on the Cotai Strip, which has Macau’s only large-scale Vegas-like acrobatic show, called The House of Dancing Water. MGM Resorts International (NYSE: MGM) expects to opens a new casino it’s describing as the “jewelry box” of Cotai sometime in mid 2017. That resort will have 1,500 hotel rooms and suites, meeting spaces, a high-end spa, and a theater that converts into a nightclub — one of the more popular amenities Las Vegas casinos have successfully used to attract younger guests.
Parisian Macao. Image source: Las Vegas Sands
However, the best way to bet on this growing opportunity looks to be Las Vegas Sands (NYSE: LVS), which opened its industry-leading Parisian Macao resort on the Cotai strip in mid-September. This $3 billion investment inspired by Paris is a lavish resort, including an Eiffel Tower replica at 50% scale, 3,000 guest rooms and suites, multiple restaurants, convention and meeting space, nearly 500,000 square feet of retail space, a 1,200-seat theater, and even a water park.
With its other four properties, Las Vegas Sands controls nearly half of the total rooms that gambling companies operate in Macau, and has gained more EBITDA there in recent quarters than its competitors. In the company’s recent Q3 earnings release, CEO Sheldon Adelson said, “Our Macao portfolio experienced strong visitation and enjoyed the benefits of our market-leading hotel, retail and entertainment offerings while generating $628.5 million in adjusted property EBITDA, an increase of 15.3% over the same quarter last year.”
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