Bet on Asia? How Macau Stomps Puny Las Vegas

♠ Posted by Emmanuel in , at 1/29/2014 02:00:00 PM
I did not fully appreciate how well and truly Las Vegas has been eclipsed by Macau. 2006 was the year Macau overtook Las Vegas in gambling revenues. Perhaps reflecting the dour, sour mood of a has-been nation experiencing the overwhelming misery wrought by the BushBama years, Las Vegas has gone nowhere since. However, Macau is going from strength to strength. From crackdowns on free-spending PRC officials siphoning government funds to gamble in Macau to an induced slowdown in growth on the mainland, it doesn't matter. Indeed, the worry is not about Macau losing paying customers, but not having enough facilities to welcome them:
Analysts expect Macau, the only place in China where casino gambling is legal, to widen its lead this year on the Las Vegas Strip, whose revenue was likely only about one-seventh of Macau's in 2013. Deutsche Bank analyst Karen Tang forecasts the territory's gambling revenue will grow by 20% in 2014. Aaron Fischer, an analyst at brokerage CLSA, predicts it will hit $77 billion by 2017. That compares with 360.7 billion patacas ($45.2 billion) in 2013. December's revenue totaled 33.46 billion patacas, also up 19% year to year, according to data from Macau's Gaming Inspection and Coordination Bureau.

In 2012, Macau's gambling revenue rose 14%. Investors in Macau casino stocks have profited handsomely thanks to the tremendous growth. Over the past year, top performers included Nasdaq-listed Melco Crown Entertainment Ltd. as well as Hong Kong-listed MGM China Holdings Ltd. and Galaxy Entertainment Group Ltd. , whose share prices all more than doubled. Each of those companies, along with Las Vegas Sands Corp. and Wynn Resorts Ltd. of the U.S. and SJM Holdings Ltd. of Hong Kong, is investing billions more in expansion projects in Macau, betting that the phenomenal growth over the past decade or so won't fizzle.

Many analysts remain bullish on the sector, which has been among the region's best performers for years, but investment concerns include issues such as Macau's limited hotel-room growth in the near term, delays on major infrastructure projects, and labor shortages amid a building boom, says Morgan Stanley analyst Praveen Choudhary.
In terms of gambling revenue, there is simply no contest as Las Vegas is a pipsqueak in comparison. To make a tennis comparison prior to the 2014 Australian Open (the sport is popular with gamblers), it's a Rafael Nadal versus Stanislas Wawrinka story. Las Vegas revenues were a puny 1/7th of Macau's. I thought it was a typo, but no. The big spenders are in the Orient; small fry go to Vegas. It's a microcosm of their nation's respective trajectories:
Las Vegas has been struggling to recover since the financial crisis, which left the vaunted Las Vegas Strip littered with abandoned, multibillion-dollar casino projects. For example, the Fontainebleau resort, which was supposed to have 4,000 rooms, halted construction and sold off all its furniture after falling into bankruptcy protection in 2009 as the economy sank. For 2013, analysts expect the Strip's revenue edged up 3% to $6.4 billion from $6.2 billion. Las Vegas represents about 10% of the U.S. gambling market, according to a 2011 report by PriceWaterhouseCoopers.
What's more, octogenarian billionaire Lui Che-Woo momentarily eclipsed Hong Kong's Li Ka-Shing as Asia's wealthiest person on the back of Macau's booming economy--it places either as first or second fastest-growing (after Mongolia) worldwide:
Lui Che-Woo, founder of casino operator Galaxy Entertainment Group Ltd., remained Asia’s second-richest person yesterday, trailing only Hong Kong real estate investor Li Ka-Shing, according to the Bloomberg Billionaires Index. The gambling mogul’s net worth had risen $2.9 billion this year to $23.7 billion as of 5:30 p.m. yesterday in New York. Li has a $29.5 billion fortune and has been the richest in the region since April 9, 2012, when he passed Indian billionaire Mukesh Ambani.

Lui’s wealth is anchored by his family’s 51 percent stake in Galaxy, Asia’s third-largest casino operator by revenue. The company’s shares rose 129 percent last year as gaming revenue in Macau, the only city in China where casinos are legal, climbed 18.6 percent to $45.2 billion. Gamblers converged on the island’s biggest plot of land in Cotai, Asia’s version of the Las Vegas Strip and home of Lui’s biggest casino, Galaxy Macau.
Of course, all the Strip's bigwigs have set up shop in greener pastures--Sheldon Anderson, Steve Wynn, you name it. What sort of idiot would bet on America circa 2014? Not Steve Wynn. To paraphrase the old tagline, what economic misery happens Stateside stays in Vegas. The irony is not lost that Las Vegas' revenues are flatlining just as it has become the United States' fastest-growing city population-wise. That so many Yanquis are flocking to this faded gambling destination speaks volumes about how it's even more miserable elsewhere in America.  Fortunately, there are much more happenin' places elsewhere in the globe.