Changes of Gambling and Betting Sector

Subject: Industry
Pages: 11
Words: 3470
Reading time:
12 min
Study level: College

Introduction

Macau is an area that covers approximately 29.2 sq. km; this is close to sixth of Washington D.C. this area consists of Coloane, Taipa and Macau Peninsula. The city has 550,000 residents, and collects more revenue from gaming than that of Atlantic City and Las Vegas is combined (Braunlich, 1999). The growth is because of the proximity of Macau to China, People living in China had a ferry ride of one hour from Hong Kong, and there were also affluent Chinese from the mainland who live in major coastal cities (Long, 1996). Over 100 million people are living in an area that can be reached by a car in 3 hours, and over 1 billion people live within an area that is reached for 3 hour by a flight (Chan, 2000). This paper will analyze the reason that made Macau overtake Las Vegas, the reasons for its success and the reasons why Las Vegas is less competitive. The paper will also analyze the emerging markets in the gaming industry.

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Literature Review

In the early 2000s legislation was passed, allowing a rise in the number of sub-concessions and concessions; this boosted the development of City of Macau (Chan, 2000). At the moment, Macau has six concessions; among the six there are three sub-concessions with a license to operate games of fortune (Binkley, 2008). These concessions include, SJM, which is led by Stanley Ho, MGM Grand Macau, Melco PBL Entertainment, Las Vegas Sands, Wynn Resorts and Galaxy Casino. Macau has more revenue compared to that of Atlantic City and Las Vegas combined, however, its market is only half that of the United States (Braunlich, 1999). From 2004 to 2008, the gross revenue from gaming rose at 27% compared to a 3% growth during the same period in the United States. Macau, being the only legalized destination for gaming in China, it serves over one billion people; this is a large number when compared to that of the United States, which is slightly over 300 million (Chan, 2000). If the gross revenue from gaming in Macau city continues to grow at a rate of 16.7%, then its gross revenue from gaming is expected to exceed that of America as a whole within the next five years.

In 2008, Macau city experienced an economic growth that was greater since the first opening of Las Vegas-style casinos. From 2006 to 2008, gaming revenues for Macau rose to 10.4 billion in 2007 from $7.1 billion in 2006, and to 13.6 billion in 2008. The years after registered a growth of 23%, 46% and 31% respectively (Binkley, 2008), however, Macau started experiencing a decline in its revenues at the beginning of the 2008’s third quarter (Chan, 2000). The decline was caused by the global economic recession, which greatly affected the Chinese economy. Another cause was the visa restrictions to visit Macau by the Chinese government (Chan, 2000). The decline did not last long; the visa restrictions were loosened during the 2009’s second half; this led to an improvement in the Macau’s gaming revenues (Yeung et al, 2008).

Reasons why Macau overtook the Las Vegas Strip as the world’s biggest gambling market

Macau has flourished enough in gambling that it has taken over Las Vegas to be the biggest gambling market in the world; this is because of its casino developments. In 2006, Macau pushed the Chinese gambling revenues to 22%, which is approximately $6.95 billion; this figure was slightly higher than that of the Las Vegas strip, the Las Vegas strip had $6.5 billion (Stokowski, 1996). According to the gaming Inspection Bureau, Macau has more than 24 casinos, 2,762 gaming tables together with 6,546 slot machines.

The recession which took place in 2007 took place after Macau had overtaken Las Vegas; Macau has continued to be on top of Las Vegas because it was able to go through the recession and picked up again. This is the point when Las Vegas lost completely to Macau (Chan, 2000). Most of its casinos were closed and others became bankruptcy; Macau and Singapore took over some of Las Vegas casinos during recession and the success of this casinos improved more the image of Macau making it known all over the world for its gaming success as Las Vegas continued to sink more and more (Li, 1998).

Macau also had support from the government right after the gambling industry was taken from the secret societies. The government saw its potential and any time Macau’s gambling industry had any problems to do with its image, the Macau’s government did something to boost its image (Chan, 2000). On the other hand, the government of Las Vegas did not have much interest in the gaming industry; it did not do much to improve its image when there was need to. Even after the 2007 recession, which affected Las Vegas in a big way, no one, even the government took interest of reviving it; they just watched everything going to drain. After recession, it is obvious that is reluctant to spend, and if the government could have supported them during this period, maybe, Las Vegas could have remained on the top (Hui & Noronha, 1991). The government also did not take action on the people who fought for better services in other gambling markets such as Macau. Restrictions such as visa restriction to Macau or Singapore could have helped to revive the gaming industry in Las Vegas.

Reasons for its success

Macau City, after the Opium Wars, was swollen with refugees who were coming from the main land. Macau City welcomed them without any restrictions; these refugees felt much at home that they started trading to sustain themselves (Hui & Noronha, 1991). These refugees are the pioneers of gambling industry in Macau, and maybe if Macau had not given refugee, there could be no gambling industry today.

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These refugees created secret societies with Chinese tradition, which traded and smuggled goods and equipments in and out of China; the goods included gold, opium, weapons and ammunition (Auburn University et al, 2008). These societies had an endemic force in Macau’s criminal and underground economy; however, the societies played a significant role in the growth of the gambling industry in Macau (Chan, 2000). These societies also combined long political traditions by developing illegal and criminal activities that served the economic purposes; thus developing Macau economically (Ponte, 2004). These societies have never disappeared completely; their political, economic and social importance depended on the historic circumstances, and despite their illegal and legal trading activities they served an important role in the local economy. To these societies, Macau was relatively safe for their businesses (Li, 1998). They later set up a gambling house to finance their political goals, and through monopoly concession, they became active in the gambling businesses (Newman, 2002). Secret societies helped in the development of gambling business in Macau through debt-collecting, gambling management and security; they were given this role because they had a criminal force, which no one dared to oppose (Chan, 2000).

The partial liberalization of gambling industry in Macau in 2002 also played a role in the development of Macau gambling market as the world best. It is through the liberalization that construction of buildings began to increase, and the urban image changed from a culture city to Asian Las Vegas, this promoted Casino projects and property. This urban image has also helped Macau City to attract visitors and investors; more people joined gambling industry, making the industry to expand both in building of structure and services offered (Auburn University et al, 2008). This policy also saw the plan of building a casino of 50-storeys; this was followed by other casinos; MGM Grand Macau, Grand Lisboa, the Wynn, and Ponte 16. All these projects boosted the urban image of Macau, attracting more people who came to enjoy the services and more investor who saw Macau as a potential place for setting up their business (Newman, 2002). The liberalization also helped the Macau to have a more competitive tourism industry; the city Competed with international industries and through this gambling industry in Macau was refined (Chan, 2000). In 2002, IPM established MBSC; this was done to help foreign investors to reduce their start-up costs. The support center helped the investors to familiarize themselves with the city’s administrative procedures and business environment. The move attracted more investor to Macau and the gambling industry continued to grow, increasing the revenues from gaming.

Macau’s development was boosted by the supply of cheap construction labor from the migrant workers, and most of these workers stayed in Macau temporarily. This made the construction of buildings in Macau cheap and fast (Vong & McCartney, 2004). Following the increase in construction, more people registered as Macau residents, thus increasing the number to 544,200 in 2009.

In the same year of 2009, the government of China enacted some policy changes; the renewal of visa restriction regulation has greatly helped Macau to improve in its revenues; more people came in from the main land to enjoy the gambling games. At the same time, the age restrictions seasoned increasing the number of young people using the gaming services. This policy changes also increased Macau’s revenues from gaming.

In 2009, a bill was passed by NPC concerning a jurisdiction over the University of Macau. The university connects Macau via a tunnel. This was a gift from the government of China (Chan, 2000). This is intended to improve the image of Macau and create job opportunities; therefore, Macau will need to upgrade its facilities constantly to cope with competition from other cities like Singapore, Taiwan and Malaysia (Long, 1996).

Through all this, Macau became a tourist destination for the whole world; Macau offers a more prestigious hotel, retail and casino brands. Many people yarn to tour Macau and enjoy the facilities and services provided. Macau hosts different kind of visitors; this includes businessmen and women who hold international business meetings and conferences, those who came for holidays and vacations and the local people who enjoy gaming activities. This town still has a potential to develop and become even more successful than it is now (Chan, 2000). There are proposed transport systems, which are intended to open Macau’s market more to other cities as well as the local people; rail transport system is one of the projects, with the first line connecting the casinos with the international airport and the northern border gate. More projects have also been proposed to ease the fast increasing traffic in the city, although they are yet to be implemented.

What makes Las Vegas less competitive?

The great recession which took place from 2007 affected most industries, and the gaming industry was not left behind. However, some industries have already recovered from the effect, while others still feel the effect. Las Vegas gaming is one of them; most of the casino companies in Las Vegas were crippled, with the commercial and real estate values collapsing (Slusher, 1991). Las Vegas has had a difficult time recovering from all this. At the time of recession, Las Vegas was much committed to big projects such as CityCenter, Cosmopolitan; this created big debt loads, which could not be covered by cash flows at that time. This became tough for the Las Vegas casino companies. In 2009, MGM, Boyd and Las Vegas Sands were near to being bankrupt, and Riviera, Trump, and Station Casino were declared bankruptcy. This trend was so worse for Las Vegas because one of the biggest buildings: M Resort was sold at 25% of its initial cost. Singapore and Macau could only save Las Vegas Sands, and Wynn (Hui & Noronha, 1991). Since then, Las Vegas has tried hard to go back to its normal operation, but in vain (Braunlich, 1999). They started by opening other mega casinos in 2007, but there was no hope because of the little impact it had demanded.

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Las Vegas’ future competitiveness died little by little; the owners of the gaming business believe the growth of their business is soon ending. They see this end through the shift in the visitors spending especially those from Las Vegas; the Americans are now frugal in spending their money. The visitors also reduced in number as the time went by; this trend substantially decreased Las Vegas’ revenues from gaming (Tieben, 2009). This economy now remains one of the worst in the United States, after the 2007 recession. The population growth in Las Vegas reversed because the construction of buildings collapsed and the gaming and tourism weakened (Long, 1996). The population especially the one that depended on gaming industry for its livelihood had to move to other cities to look for jobs and those who loved visiting the casino for entertainment had to look for other entertainment that was affordable because after recession, they were still reluctant to spend (Braunlich, 1999). The Las Vegas gaming sector will continue to be weak unless the government chooses to support it (Lopes, 2003). The housing market recovery is slow, which mean it will take years for it to recover fully.

Las Vegas also stands a chance of losing revenues from the outside because people now prefer to go for the new Asian mega-casinos. Las Vegas cannot compete with these mega casinos because of its economic situation, also it lacks services that measure up to the standard of this mega casinos (Binkley, 2008). This makes it to be less competitive in the gaming market. The Singapore market which targets $6 billion gaming revenues and Macau, which targets $24 billion gaming revenue has alternative and attractive services to the Asian High Rollers (Morrison et al, 1996). There are other markets in Taiwan, Philippines and Taiwan, and others who have an idea of mega casinos in the coming decade (Perdue et al, 1995). This means that there will be more and more good and alternative services for VIP gamblers in Asia, and when you compare all this with the services offered by the gaming companies in Las Vegas, it is evident that Las Vegas is far away. All these make Las Vegas less competitive in the gaming industry (Kwan & Lee, 2008).

Emerging markets

Macau has started experiencing more competition as a result of new market opening in Singapore: these markets are by Genting Casinos, Resorts world, Marin Bay Casino, by LVS, gaming tax in Singapore is lower and this enables it to offer higher commissions, which attract VIP customers. However, this market is not expected to cause a small effect on Macau’s market (Gaubatz, 2005). This is because Singapore and China are three-hour flight apart. It is also difficult for tourists from Mainland to take a visa to Singapore and leave Macau, which is near (Hui & Noronha, 1991). There is also Taiwan market, which is coming up strongly, in 2009, officials from Taiwan announced a $910 million investment of a resort-casino, and other casinos have requested for their consideration as alternatives to Macau or Singapore (World Tourism Organization, 2000). Taiwan also has a programme, which allows the Chinese visitors to collect their visas after landing in Taiwan. This market is growing although it is not at a faster rate.

The gaming industry is also thriving in Spain, with online gaming. The net profit in Spain has risen with 20% in 2009; this is when it is compared to that of 2008 (Gaubatz, 2005). The internet access has made this business to grow; people, especially the young, spend their leisure time in cyber cafes playing games. One can also play these games at the comfort of his or her home, for those who have cell phones that access the network can play these games on their phones. Online gaming is becoming popular, not only in Spain but also in most parts of the world. This shows that this market has a potential of increasing its revenues from gaming industry.

Malaysian gaming is a market that is growing at a very high rate. It has a big casino: the Resorts World Genting; this casino was once ranked the most profitable in the world; however, it went down leaving Resorts World Sentosa to take its position (Long, 1996). RWG is the only casino operator in the city of Malaysia, and its focus is on the mass market and the day trippers from within (Walker, 1997). RWG has insulated from competition that comes from the surrounding region, therefore, the only competition it has is from overseas casinos; this casinos include RWS and Marina Bay Sands (Li, 1998). This defense is not shared by the Asian Casinos; the Singapore market faces both regional and backyard competition. This Malaysian casinos enjoy family markets, leisure and for them customer overlapping is not something they can escape. The regulatory risks in Malaysia are less pronounced in Malaysia when the risks are compared to those in Macau and Singapore (Upchurch & Teivane, 2000). This means that if Malaysia takes advantage of this fact, it can increase its revenues at a higher rate compared to Macau and Singapore. For Malaysia to grow and be as per the market’s competition, they need to restrict visas to Macau and cap the commission rates, which are paid to junkets and audit the operators of junket as well high rollers’ profile (Li, 1998).

Conclusion

The gaming industry is very competitive and full of uncertainties, therefore, no market is certain of its future; the markets should take an example of Las Vegas, which enjoyed the top position, but after sometime, not only was it overtaken by Macau but also became less competitive in the market (Gaubatz, 2005). This is to show Macau and other gaming markets that they should always work hard and act fast incase of anything to maintain their competitiveness in the market. The governments should also realize that the policies concerning gaming companies within their jurisdiction affect the companies, therefore, they should make sure that the decisions they make benefit the country and also protects its industries from external companies (Braunlich, 1999). This means that the efforts to maintain companies’ competitiveness internationally lies both in the hand of the companies and that of the government.

Reference list

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