Ricardo Siu on TDM Talk Show Look into the crystal ball: Macau’s gaming industry in 2012

Macau's gaming industry welcomed the Year of the Dragon in style.
Gross casino revenue soared 35 percent in January year-on-year.
Analysts say the growth rate may slowdown later this year, but the outlook remains bullish.
The first phase of Sands China's new Cotai sites 5 and 6 resort is also scheduled to open in March, adding more gaming and non-gaming facilities to the market – what do all this mean to Macau’s gaming dominated economy?
Ricardo Siu was on the TDM Talk Show this week to talk about his outlook for the gaming industry in the upcoming year. The professor of economics at the University of Macau and a gaming industry expert also discussed the challenges ahead of the SAR’s future development.
For Professor Ricardo Siu, first hint he got from his crystal ball was that gaming growth is here to stay simply because of China had been shield off of the troubles in Europe and the US.
 “In the past few years, we know that China’s economy was not that hard hit by the global financial problems, especially [compared to] those in North America and Europe. So there’s a significant volume of savings and income in fact in China that’s still very positive. That’s why I would say Macau’s gaming industry gaming value can still be sustained,” says Siu.
But the second hint he got, was that this rapid growth can also be ‘dangerous’.
 “Now the base is getting (bigger and bigger). It may be more difficult for the industry to sustain for a 30% 40% growth rate,” said Siu. But the professor is optimistic. “In terms of the [maximum amount] of growth, it can still be very significant. As we can see that now Macau’s gross gaming value has been hitting USD 33.5 billion last year.”
After seeing gaming revenue hitting another record high (although not as high as last year’s October), the third hint Siu got was a lower growth rate in 2012.
 “But I always mention that, in this year, even though there are uncertainties in the global market, Macau’s casino industry may still be able to sustain around at least a double digit growth. Conservatively speaking, 10 to 15% is quite reasonable. But we are not going to compare this 10 to 15% to last year’s 30%, because the base has been much larger now,” said the professor.

Will Macau’s economy be diversified at last?

With Sands China scheduled to open their new resort in plots 5 and 6 this year, many think these larger scale integrated holiday resorts can help diversify Macau’s gaming dominated economy – but not Professor Siu.
 “This has been what we always say the Vegas Model. This has been the key of success of Las Vegas from the beginning of 1980s,” said Siu.
But the success of Las Vegas can’t be applied to Macau necessarily.
 “From the historical side, the Chinese culture – they like gambling. So up to this point of time, although Macau accept the Las Vegas model and expand many components in terms of the entertainment and non-gaming parts, the major income generator is still gaming.”
And according to Siu, it will take a long time before non-gaming components start to undermine the importance of gambling in Chinese people’s minds.

3 pct cap on gaming tables – a tricky one

In September last year, Secretary for Economy and Finance Francis Tam announced that the government will keep the growth of gaming tables under 3% per year following 2013.
As well, there can only be at most 5500 tables up until next year.
 “For this cap – this is a very important measure to have an effective supervision of the expansion of the Macau gaming industry,” said professor Siu.
Since gaming was liberalized ten years ago, Macau has four times more gaming tables than when it first started. 
Some argued the government finally decided to put a cap on it as things were starting to get out of control by 2008.
But Siu wanted to put a stop to everyone’s wild guesses.
 “I think this [decision] is largely from the gov’t understanding about how this industry [will run in the future]. For example, what kind of projects will still be ongoing in the upcoming ten years, what are the new facilities to be approved in the coming decade – so the gov’t already have some objective and reasonable explanation about future growth.
But he didn’t omit the trickiness of this so called ‘3 % cap’.
 “Doing a simple calculation [...] this 3% or 5500 by 2013, it is talking about mean 165 tables per year. So in 10 years – 1650 tables. This also has a tricky thing here [...] this cap would be a cap on average every year in the coming 10 years after 2013 – the industry will grow this way,” said Siu.
Which means, some years there can be more tables, and other years less – all depending on when new properties are opening that year.
All in all, Siu said the government needs to think about how to make Macau a better place compared to ten years ago.
 “These kinds of things, it’s for Macau as a whole – how to grow healthily in the future, I would say, to have some better planning than 10 years before. This is also a good chance to [figure out] how to support Macau to become a [tourist hub].”