Is Macau Facing Specialization Issues?

Gambling revenues have been down for six straight months and much of that fall has been in the one game upon which Macau relies: Baccarat.

Don’t, I was told when young, put all your eggs in one basket. This always, I felt, presupposes that one was in possession of multiple baskets in the first place, and that this didn’t often reflect commonplace reality, especially not at the checkout of Tesco where the eggs all came in one box anyway. It wasn’t till much later in life that I was to grasp the true need for diversification in order not to become vulnerable to the fickle finger of fate.

In business, of course, specialization can be very successful, and for all those muttering on about geographic disposition of mobile chicken ovaries, there are plenty more that suggest you stick to your knitting, which is precisely the opposite. This somewhat confused pattern of advice merely highlighting that opinions are as varied as tastes, and so one takes the appropriate course at the appropriate time gambling news of your decision is not an epitaph to your efforts.

The nature of gambling resorts has seen some of this duality in their rise and evolution with vast complexes of casinos springing up in market driven by mass demand and constricted by relatively few areas of legality. Which in the US this has led to a slow erosion of US gambling laws as state after state chases the gambling dollar tax revenues, there are some nations where those changes would be far hard to come by.

China’s harsh anti-gambling laws seem a strict divergence from the Chinese love of gambling and if you prohibit a billion people from doing something they’re predisposed to do, then there will inevitably spring up a wealth of destinations, both near and far, catering for this market. Around the pacific rim from Australia to Russia countries are strategically places casinos to try and gain some of this massive Chinese market, however two places have a head start; Hong Kong & Macau.

Former Colonies Face Challenges

Hong Kong, of course, has its issues with China but they mainly concern themselves with legal limits of demarcation and the degree to which the Chinese authorities should be allowed to influence the politics within one of it’s own local states, a point upon which the two sides still disagree. However whilst the former British colony faces up to being back in China, across the water the former Portugese colony of Macau faces a far wider range of challenges.

Macau’s Baccarat Addiction
• Caters for a market that’s drying up
• 91% of earnings from VIP baccarat
• Readjustment proving difficult

This year has seen a smoking ban, several strikes by workers, a crackdown by the Chinese government on what it calls “corruption” and the rest of us just call “crime”, a limitation on visa durations and a sudden deepening interest being taken by the security and financial agencies as to where everyone got their money from. It has been a perfectly terrible year for Macau and the troubles are only just starting.
Fifteen years on from reunification and Macau’s rapid rise is starting to plateau.

Gambling revenues have fallen for six straight months and they were already down on last years figures with the drop being valued at about 20%. This is a staggering turn around for the dreamlike destination who saw record results driving its development for years. The culmination of these small problems together being woven into one big mess by China’s heavyhanded involvement that has scared away those who might have tolerated the smaller issues.

What is worse is that Macau wasn’t really designed as a destination for people from outside China with the design and function very much in tune with the Chinese gambling market, which given its location is perhaps as it should be, and I doubt casinos in Armenia are making much effort to appeal to the American gambler either. However with the fall in Chinese patron numbers there is a very stark problem being slowly highlighted by events.

Bacarrat Is Big Business

Internet betting in the US might, thus far, have been a damp squib as it flailed on the rocks of public indifference, lobbying opposition and a broken economy, but Macau had literally blossomed as a Chinese gambler’s paradise. The record revenues and earnings being the envy of those that hadn’t managed to secure a sit on the island or a deal with the Chinese to get there. It rose up to serve the Chinese gamblers and the casinos reflect that.

91% of their earnings come from Baccarat, particular the high stakes VIP Baccarat. One game 91% of your business. One game that is hugely popular in China but less so everywhere else. Indeed in Vegas barely 24% of it’s earnings come from the game with the vast majority being from the ubiquitous slot machines that inhabit ever nook and cranny in Vegas like an army awaiting orders to invade and slay the meat sack human slaves.

This fixation with Baccarat means that casinos have adapted to cater specifically for this market, and are now, upon slowly seeing it eroded before their eyes, having to readjust their strategic thinking, but it’s not as easy as it sounds when the very lifeblood of your business, the gamblers, are being kept away by the silently omnipresent China and its tutting of admonishment. Vegas might have diversified to the point where only 15% of people turning up are not there solely to gamble, they’d not being allowed to arrive at all in Macau.

The junket operators and casinos are facing the inherent problems of specialization, when the single market for whom you have striven to cater dries up what do you do with the business you have left? Certainly no Chinese crackdown lasts forever and casinos in Macau are still making money but if this decline continues into 2015 expect to see some harsh economic realities coming home to roost in Macau’s casino egg basket.