Macau’s drive for diversification faces uphill climb

As Macau tries to emulate the Las Vegas model and set itself on a path of diversification, the city’s biggest strength – its proximity to China – will also be its biggest weakness in shaping the gaming industry, according to a report by Fitch Ratings’ director. 

The Las Vegas Strip, with its nightclubs, shows, conventions and celebrity chef restaurants, is the poster child of diversification, Alex Bumazhny says. In 2014, 63 percent of its revenues came from non-gaming activities. By contrast, Fitch estimates that Macau’s non-gaming activities accounted for less than 10 percent of the resort gross revenues.

Macau is now considering the Vegas model since a shrinking gaming revenue base and about $20 billion in new resort development has led to talk by some that it could in time become a better rounded destination and perhaps catch up to  Las Vegas in terms of non-gaming offerings.

Though Macau is often cited as being handicapped by a lack of a world class airport facilities and shortage of hotel rooms and meeting space to handle large scale conventions,  “the biggest impediment to diversification for Macau may be what casino operators and investors consider its main strength – its proximity to China.”

“High speed rail and hydrofoil ferries help bring in over 65,000 Hong Kong and Chinese visitors each day, many staying just for a day. To meet the insatiable demand for gambling Macau packs over 5,800 gaming tables on less than 12 square miles of tropical hills and landfill.”

“And even amid the current slowdown, each table game generates more than $12,000 per day, more than double the most productive Las Vegas Strip casinos. This strong gambling demand tends to shrink the non-gaming aspects as percentage of the whole pie and price out more casual gamblers and non-gamblers.”

The report adds that, “when setting benchmarks and goals Macau’s officials need to be cognizant of Macau’s supersized gaming revenues, in part inflated by the VIP commissions, and the high 39% gaming tax rate that will make catching up to the Las Vegas Strip’s non-gaming mix difficult if not impossible.”