Macau's bet on non-gaming revenues slow to pay off

PUBLISHED : Friday, 29 June, 2012, 12:00am
UPDATED : Friday, 29 June, 2012, 12:00am


It's dead on a spring afternoon at the Macao Museum of Art, where a handful of visitors peruse a collection of porcelain objects normally kept behind closed doors in Beijing's Forbidden City.

Next door at the Sands Macau, it's a different scene: noisy gamblers jostle to place their bets, with more people crowded around a single baccarat table than are taking in the museum's rare display.

And so go Macau's efforts to diversify its gambling-dependent economy. In 2006, Beijing set a goal, as part of its 11th five-year plan, of expanding the former Portuguese colony's economy beyond gambling. Among its aims were to bolster the tourism industry, promote conferences and exhibitions and develop culture-focused businesses such as fashion design and movie production.

While those goals have fallen short, the gambling industry has gone from strength to strength.

'If Beijing maintains Macau as the only legal destination for gaming, the current situation will continue,' said Chen Qing, a professor of tourism and culture at Macau Millennium College.

The Las Vegas Strip, with which Macau is often compared, derives more revenue from non-gambling businesses, such as big-budget entertainment (think headliner Celine Dion) and deluxe dining than from betting, according to the Nevada tourism bureau. By comparison, more than 70 per cent of the Macau government's revenue comes from gambling.

And unlike Las Vegas, Macau is particularly vulnerable to the vagaries of Beijing, which uses visa restrictions to control how frequently its citizens can visit Macau.

Just this week, rumours of an impending clampdown hammered casino share prices on the Hong Kong stock exchange. Of the 28 million tourists who came to Macau last year, up 12 per cent from 2010, more than half were from the mainland.

Since Macau was opened up in 2002 to other casino operators, breaking the monopoly held by gambling mogul Stanley Ho Hung-sun, the number of tables has jumped from just 339 to 5,242 early this year.

Gambling revenue soared to 268 billion patacas last year, almost six times the Las Vegas Strip's US$6.07 billion, according to gambling authorities in Macau and Nevada.

The pace of growth, though, is set to slow as the mainland's weakening economy pinches gambling spending. Global ratings agency Standard & Poor's said in a recent report it expects gross revenue from gambling to increase by just 10-15 per cent this year, down from 42 per cent last year and 58 per cent the year before that.

To be sure, not everyone is unduly worried. In a report on Wednesday, global ratings agency Moody's Investors Service said that while Macau is highly dependent on a single industry, 'it has shown resilience to financial shocks'. Macau's economy expanded nearly 21 per cent last year, adjusted for inflation, taking the average annual growth rate over the past decade to 14 per cent. Moody's noted that Macau is the only government it rates that has no debt.

A lack of talent has hampered the development of culture-focused businesses.

'Recently a National People's Congress representative said in Beijing that in five years' time there would be cultural products from Macau, like Japan's animation or computer games,' Chen said. 'But in my opinion, in 15 years we may still not have any products.'

Tourism that isn't associated with gambling is hardly flourishing, despite Macau's status since 2005 as a Unesco world heritage destination. More than half the total visitors last year were day-trippers, mostly there to gamble. By comparison, visitors to Las Vegas stayed 3.7 nights on average last year, the Las Vegas Convention and Visitors Authority said.

Macau's economy and finance secretary's office, the department responsible for diversification, said the local government in recent years has been promoting Macau as a leisure and travel destination, particularly for conventions and exhibitions.

It said in an e-mailed response to questions it wants to turn Macau into a regional convention and exhibition hub 'in the near future'.

Macau has been able to attract some big events, such as the annual International Indian Film Academy awards - Bollywood's Oscars - in 2009. But Lawrence Chia, chairman of Pico, an organiser of conferences and exhibitions focusing on Asia, said Macau has several shortcomings.

While the city boasts first-rate exhibition and convention venues and hotels, it has infrastructure bottlenecks. The airport is small, with a limited number of flights.

'If the clients fly to Hong Kong, they don't like to then take a ferry to Macau,' Chia said. The public ground transportation system is also lacking, he said. 'From one island to another island, you need a taxi.'

One exhibition can involve thousands of people, Chia said.

'When they leave the venues, you need public [transport], because there won't be enough taxis.'

The government office said: 'Many infrastructure projects are under way, such as construction of a light rapid transit system, the HK-Zhuhai-Macau bridge' to address the problem. The light rail system, similar to Bangkok's Skytrain, is due to be completed within three years. The bridge is expected to be finished in 2016.

Chia said these projects will help attract more conferences to Macau, but at present it can host only small exhibitions and meetings.

'Incentive [reward trips for employees or clients] is the sector I think will grow fast in that market, because usually it involves a relatively small number of people,' Chia said. Mary Kay China, a unit of the US cosmetics firm, held its annual top performers' confab of more than 500 people at the Venetian Macao in February.

Longer term, Chia thinks Macau has a shot at broadening its base.

'Las Vegas used to be a desert city, and people said the traffic was inconvenient', but now it is one of the largest convention and exhibition centres in the US, he said.

Macau casino operators - some of which also operate in Las Vegas - said they want to widen their income stream by beefing up their convention business and luxury shopping.

'The great challenge we have been given is the notion of diversifying Macau into a more leisure and entertainment destination. We've taken that very seriously,' said Grant Bowie, chief executive of MGM China. MGM has launched a walk-through butterfly pavilion with about 1,000 live specimens that will run through October and is free of charge. The hotel is also looking at improving its dining options.

Other than renowned French chef Joel Robuchon's two restaurants in the Grand Lisboa, Macau boasts few celebrity chef outlets compared with Las Vegas or even upstart casino destination Singapore.

Other casino owners, including Galaxy Entertainment and Sands China, have recently said they intend to boost non-gambling income.

But one high-profile effort has already faltered. The Sands created a permanent venue at its Venetian Macau for famed Canadian acrobatic troupe Cirque du Soleil to perform its show Zaia. The contract could have run for 10 years, Renee-Claude Menard, the troupe's spokesman said, but the show was closed in February after just 31/2 years owing to poor sales.

Menard said in an e-mail that the 'mutually agreed' termination underscored the difficulty in transforming Macau from 'a gambling economy to a destination economy'.

If it hopes to attract conference business from the mainland, Macau's image as a gambling hub may dampen its opportunities. Technically, mainland government officials are forbidden from gambling and therefore aren't supposed to travel to Macau, though authorities usually turn a blind eye.

Still, a Beijing-based government official thinks that may be asking for trouble.

'We don't want to go to Macau for meetings, because nobody will believe we go to the 'oriental Monte Carlo' just for work,' he said.


Number of tourists who visited Macau last year. More than half came from the mainland, and their primary destination was the casinos