GBA Brief

The only game in town? Macau’s struggle to widen its appeal

In the second of a series on Macau, local investor Joe Lo asks if the city can generate more of its growth from tourism and entertainment, and a little less from gaming. The pressure is on the casinos to take the lead, but do China’s gamblers have to change first?  

Helped by high-stakes capers like Casino and Ocean’s Eleven, Las Vegas is an iconic destination for the world’s gamblers. But the experience there is more likely to mirror The Hangover, with more than two-thirds of every tourist dollar spent on non-gaming activities like dinner, drinks and a show.

The better choice for hardcore punters is the baccarat and fan tan tables of Macau, which have crowned it as the world’s richest casino city by a wide margin. Yet Macau would change places with Las Vegas in a heartbeat if it could welcome a wider mix of visitors that spend their money on a broader range of things.

Bring in the circus

Macau’s dreams of emerging as Asia’s Vegas-style entertainment capital started to take shape after the city’s return to Chinese sovereignty in 1999, when the government decided to offer 20-year casino licences to companies that would help to broaden its appeal.

From 1964 until 2002, the sole casino operator in Macau was Hong Kong billionaire Stanley Ho’s Sociedade de Turismo e Diversões de Macau (STDM). But new names came to town 15 years ago, including Wynn Resorts, MGM and Las Vegas Sands. City of Dreams, a joint venture between Australia’s Crown Resorts and Ho’s son Lawrence, and Hong Kong’s Galaxy Entertainment also joined the fray.

The newcomers have invested heavily in Vegas-style integrated resorts that combine casino tables with hotels, shopping malls and convention centres. The curtains also went up on glitzy shows: the Venetian Macao resort hosted Cirque du Soleil’s first residency in Asia, and the City of Dreams countered with a $250 million Franco Dragone production called House of Dancing Water. 

Yet in spite of all this, Macau’s economy hasn’t diversified in the way that the government hoped. Cirque du Soleil called time on its show less than four years into a 10-year contract. The resorts have transformed the city skyline, hosting millions of new arrivals. But most of the guests have stuck like limpets to the gaming tables. Last year gaming spend outpaced the rest by a factor of 5 to 1. 

Are they not entertained…

The government has said that it is not satisfied with the pace of diversification away from gaming. With all six casino licences set to expire in mid-2022, the operators are under pressure to prove they can do better if they want them renewed.

But do China’s visitors to Macau even want the holiday experience that policymakers are hankering for? Before the Venetian Macao opened its doors in 2007, I was a guest at its pre-opening party where we were treated to a concert by the Hong Kong Cantopop group, Grasshopper. There was talk that the band would start a long-term residency at the resort à la Mr Las Vegas, Wayne Newton. But the show never materialised. And even if it had, I wonder if it would have been a success.

Away from matters of musical taste, there is the broader question of how many of the visitors from China want to spend their money on fancier rooms, meals and entertainment, rather than hoarding it for bouts of baccarat, or splurging on shopping for luxury goods. 

When one of the American casinos first opened 15 years ago, it soon scrapped the buffet restaurants that had been so successful in Vegas because there wasn’t the same interest in Macau. Another casino closed its plushest nightclub – also modelled on the Vegas original – because it realised it would get a better return if it converted the space to luxury shops. And even though occupancy rates are strong at Macau’s hotels, there are still plenty of visitors that prefer the lower-cost option of catching a few winks in comfy chairs in the city’s massage parlours, rather than splashing out on hotel suites.

Build it, and they might come

Let’s not feel too sorry for the casinos, which make a killing from the house edge over its customers. But success in Macau isn’t quite the sure thing it once was, especially for the American operators, who fear that the process for licence renewals could be weaponized as part of the US-China trade war. 

Insiders say that the terms give the government power to take over properties in event of non-renewal. Might Beijing pressure the local authorities to use the disappointing diversification as an excuse to drive out the three American operators (Wynn, MGM and Las Vegas Sands)?  

All of the operators fear that gaming taxes are going to go up at a time when competition is growing from similar resorts in places like Singapore and Manila. But an alternative future might bring lower taxes for casinos that plough more of their profits into non-gaming investment. Champions of the entertainment model are also excited about the opening of the 34-mile bridge between Hong Kong and Macau, which should bring in more arrivals to the city’s wider range of attractions.

But in the end, what matters most is how the visitors want to spend their time and money. Perhaps more of them can be dragged away from the tables, but my bet is that this will require something pretty compelling. Most of China’s gamblers coming to Macau are hoping to get rich, not to be entertained.