The casino-led boom since the liberalisation of the gaming market in 2002 has tripled the size of the economy, helped cut unemployment to the lowest levels ever and propelled take-home wages to new heights. But it has also been too much of a good thing, causing a shortage of labour and bottlenecks in development.
The city is now one-third of the way through three years without a new casino opening. Analysts say the break will be good for business.
The last casino to open was the second phase of Sands China Ltd’s Sands Cotai Central casino resort, in September last year. No others are due to open until 2015 at the earliest, when the second phase of Galaxy Entertainment Group Ltd’s Galaxy Macau and Melco Crown Entertainment Ltd’s Studio City are scheduled to begin operation.
Sources in the gaming industry say such a long stretch without a new casino is a much-needed break that will allow the supply of labour to grow and infrastructure construction to catch up.
David Green is principal of Newpage Consulting, which gives the government advice about gaming. Mr Green says the hiatus may be beneficial, giving time to solve some of the gaming industry’s problems, including manpower shortages.
“There is more time for the labour market to grow and policies on imported labour to be refined,” Mr Green says.
The Statistics and Census Service forecast last year that Macau will need another 45,600 workers between 2012 and 2016. The hotel and casino industries would need almost 40,000 of the total.
Macau officially has 35 casinos, although four are not operating. In 2003, there were 11 casinos. The city had 5,746 gaming tables at the end of June. It had just 424 tables 10 years ago – fewer than The Venetian Macao has today. The number of slot machines has grown from 814 to 15,310 in the same period.
Mr Green says the hiatus in new casino openings may mean “a couple more years of high returns” for operators before competition increases, giving them breathing space to finance their new establishments without difficulty. The break will also give the city’s transport infrastructure a chance to catch up with tourist numbers.
Several big infrastructure projects are scheduled to be completed by 2015. The Pac On ferry terminal on Taipa is due to open next year. A year-long renovation of the Outer Harbour Ferry Terminal’s passenger facilities began recently.
The government has said the Light Rapid Transit railway network would be ready by 2015, contradicting one of the main contractors, which said work would only be complete in 2018. Work has begun on the stretch to serve Taipa, but construction on the peninsula has been held up because the government has yet to finalise the route.
Mr Green says some observers had doubted there was enough demand for more casino resorts. But demand “shows no signs of slowing”, he says. Gaming revenue in the first half of this year was 15 percent higher than the same period last year.
Mr Green says the government’s slow tempo in offering land grants and construction permits for new casinos means development is more orderly.
Wynn Macau Ltd asked the government for land in Cotai in 2006. Their grant was approved in May last year. SJM Holdings Ltd also asked for land there in 2006, and only received it in May this year.
“I suspect that this may have been related to concerns regarding workforce constraints and the pace of infrastructure development,” Mr Green says. The speed of approving land grants and construction permits may also be due to a desire to stagger projects so that new casino resorts in Cotai do not all open at once.
Union Gaming Research Macau’s lead analyst, Grant Govertsen, says some of the acceleration in the gaming business this year is due to the opening of Sands Cotai Central. The resort is building up steam. “Its almost 6,000 hotel rooms will continue to be a driver of demand well into 2014.”
Mr Govertsen says the gaming industry can continue to grow even without opening new casinos in the next two years. “There will still be significant changes occurring within the existing casinos,” he says. These changes will add to revenue.
“Casinos are constantly upgrading their gaming facilities, reconfiguring things such as VIP rooms, refreshing hotel rooms,” Mr Govertsen notes. This should mean “continued strong demand growth” before the new casinos open.
Government policy, the need for gaming companies to improve their balance sheets before investing in new developments, and worries about mainland demand softening have all caused the delays to new casino openings, he says.
The drop in mainland tourists in 2009 rang alarm bells. “The benefit of hindsight shows that mainland Chinese demand is very strong and probably could have supported an additional resort in the 2013-2014 timeframe,” Mr Govertsen says.
Ounce of prevention
The managing director of Las Vegas consultancy Galaviz & Co LLC, Jonathan Galaviz, says the hiatus is probably a result of 2008’s global financial crisis, which meant “lost years of development pipeline”.
The crisis slowed casino development. Sands China suspended construction of Sands Cotai Central and Galaxy Entertainment postponed the opening of Galaxy Macau. Other casino operators put off plans for new projects.
Mr Galaviz says the government’s sluggishness in granting land and construction permits after Macau overcame the crisis may be due in part to Beijing’s wish to foster economic diversity.
The hiatus “has helped the Macau market organise and calibrate itself” to cope better with growth. In the meantime, the gaming industry will continue to have “healthy” growth, he says.
The Gaming Inspection and Coordination Bureau calls this a “new era” of casino development. The bureau’s website says the government wants “healthy” growth, and is putting effort into improving the quality of the developments already in the pipeline, while ameliorating the social problems caused by the casino boom.
The limit on the number of gaming tables accords with this policy. The government is allowing the number of tables to grow at a maximum average annual rate of 3 percent between this year and 2023.
Credit Suisse gaming analyst Joel Simkins said this year that Cotai’s new casino resorts could help drive casino gross gaming revenue to US$76 billion (MOP608 billion) a year by 2017, twice last year’s amount.
In preparing this report, Macau Business contacted Secretary for Economy and Finance Francis Tam Pak Yuen. He declined requests to comment.
We also contacted all six casino operators. Only Melco Crown Entertainment Ltd replied. The company said in a written statement that work on the fifth hotel tower in its City of Dreams casino resort should begin this year. The company’s Studio City casino resort is “on track to open in mid-2015”.