Macau bets future on rush to slot machines

PUBLISHED : Saturday, 18 June, 2005, 12:00am
UPDATED : Saturday, 18 June, 2005, 12:00am

High rollers, known as 'whales' in the industry, have kept Macau afloat for years, but now investors are placing their bets on a flood of little fish from the mainland.

To widen their appeal to a growing number of middle-class mainland tourists, casinos in the enclave are devoting an increasing number of tables to smaller stakes, cash play.

But perhaps the biggest test of the new mass-market approach will be the widespread introduction of electronic gaming, or slot machines.

Ubiquitous in casinos worldwide and occasionally scorned as one-armed bandits, low-cost slots were traditionally seen as antithetical to Macau's high-rolling ethos.

'Our older colleagues told us to forget it, that it wasn't going to work, that Macau was a place for hard-core gaming addicts,' Lawrence Ho Yau-lung, the head of Mocha Slot, a joint venture with Australian gaming outfit Publishing & Broadcasting, told a gaming-industry convention held in the territory this week.

Indeed, Macau casinos have long revolved around VIP gambling rooms, where whales are brought in on package tours and routinely lay down tens of thousands of dollars on a single bet.

Last year, revenue from VIP baccarat accounted for more than 70 per cent of all gaming proceeds in Macau and was equal to 35 per cent of gross domestic product.

'Slot machines were deemed to be slightly more profitable than urinals,' joked Mr Ho.

Huge investment is betting against that conventional wisdom, with US$8 billion to US$10 billion worth of gaming-related projects announced in Macau to date.

US casino operators - including Las Vegas Sands, Wynn Resorts and MGM Mirage - are expected to draw 70 per cent to 80 per cent of their revenue from the mass market, according to Marc Falcone, director of gaming research at Deutsche Bank.

It is hard to find a more mass-market form of gambling than slots, which typically cost 20 cents per game compared to the $10,000 minimum bets on many VIP tables. Macau's slot machines have more than tripled over the past two years to about 3,000.

Aggressive expansion at Mocha, which operates four cafe-style slot lounges around the city, as well as the opening of the Sands casino, raised gross revenues from gaming machines by 170 per cent last year to $622 million.

Last month, revenue from slot machines was $92.5 million.

Still, that represents a mere 2 per cent of total gaming revenue. And while slot machines outnumber tables by two to one in Macau, the figure for North American casinos is almost 20 to one.

David Green, a Macau-based gaming consultant with PricewaterhouseCoopers, said that by 2008 there might be as many as 13,000 slot machines in Macau.

Warren Jowett, head of Asia and Australia operations at gaming-machine manufacturer Aristocrat, said: 'Worldwide, slot play outstrips table play across the board.'

It was 'only a matter of time' before Macau caught up, Mr Jowett said.

Meanwhile, to increase the number of slot machine gamers, punters need to be drawn away from traditional table games.

'At this point what is needed is a lot of education and conversion of the players,' Mr Ho said.

This may be difficult, however, given the territory's reputation for the so-called black-box syndrome - money goes into the slot but never seems to come out.

In Las Vegas, the average hold, or the percentage of all money going into slot machines that is kept by the house, is less than 10 per cent, according to University of Macau Gaming Management Programme head Jason Gao.

In Macau, the average hold on slot machines was 59 per cent in 1999 and 50 per cent in 2003, according to government data.

Punters lost one of every two dollars dropped into a machine.

Although more recent data is not yet available, Mr Ho said Mocha's payout conformed to international standards - or a hold of 4 per cent to 8 per cent.

And while it is impossible to draw conclusions about overall slot machine payouts from an experiment with small bets and a limited number of games - tests revealed that while $80 went in on 200 pulls only $32.60 came out.