Why Macau Won’t Unseat Las Vegas Any Time Soon (FitchRatings)

Alex Bumazhny, a director in the US Corporate Finance group at Fitch Ratings, has written a piece outlining some of the issues faced by Macau casino gaming that largely hold the territory back from becoming Las Vegas. The usual cited handicaps, such as the lack of a world class airport and shortage of hotel rooms and meeting space to handle large scale conventions, are actually being remedied as a bridge is being built that will connect Macau to Hong Kong’s airport and there are resort expansions being built in the Cotai area of Macau that will add nearly 12,000 rooms (a 50% increase) plus other non-gaming amenities.

However, Bumazhny noted:

…when setting benchmarks and goals Macau’s officials need to be cognizant of Macau’s supersized gaming revenues, in part inflated by the VIP commissions, and the high 39% gaming tax rate that will make catching up to the Las Vegas Strip’s non-gaming mix difficult if not impossible… Nevada’s gaming tax rate is 7%, which means that a Las Vegas Strip operator, all else being equal, can reinvest additional 32% of the player’s theoretical win into the player in form of comps relative to Macau without sacrificing margin. A customer that may look barely profitable in Macau is a lot more attractive to a Las Vegas casino. Las Vegas Strip’s 63% non-gaming mix includes 10% of free giveaways, or about $1.5 billion worth of rooms, food and beverage.


But the biggest impediment to diversification for Macau may be what casino operators and investors consider its main strength – its proximity to China, where gambling is otherwise forbidden. High speed rail and hydrofoil ferries help bring in over 65,000 Hong Kong and Chinese visitors each day, many staying just for a day. To meet the insatiable demand for gambling Macau packs over 5,800 gaming tables on less than 12 square miles of tropical hills and landfill. And even amid the current slowdown, each table game generates more than $12,000 per day, more than double the most productive Las Vegas Strip casinos. This strong gambling demand tends to shrink the non-gaming aspects as percentage of the whole pie and price out more casual gamblers and non-gamblers.

Bumazhny pointed out that the Las Vegas Strip, with its nightclubs, shows, conventions and celebrity chef restaurants, is the poster child of diversification as last year, 63% of its revenues came from non-gaming activities while Fitch estimates that Macau’s non-gaming activities accounted for less than 10% of the resort gross revenues. In addition, 41 out of 50 US states now has some form of casino gaming – something that has forced Las Vegas to diversify.

To read the whole article, Macau’s Drive for Diversification Faces Uphill Climb, go to the website of The Why Forum. In addition, check out our Macau Casino stock list page.

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