Macau puts on its party shoes for the opening of the city’s 34th casino this month. It is a meaningful event.

Galaxy Macau will be Cotai’s third, fully integrated mega-resort. It will boost the area’s profile, creating a destination where visitors can easily spend a couple of days strolling around, away from the peninsula.

For Galaxy Entertainment Group, the new resort brings a game-changer proposition. Its current flagship property, StarWorld, is pretty much VIP-centric, a trend that increased further last year.

There will be room for high rollers at Galaxy Macau but the property will also appeal to mass and direct premium gaming. Those two segments are not only more profitable per dollar waged for a gaming operator, but are likely to be the segments that offer more sustainable growth on a long-term basis. VIP gaming is forecast to continue to soar in the short run.

Having a strong foothold in both markets and an expanding non-gaming offering to bring in additional revenue, Galaxy Entertainment will be better hedged against risk.

For its competition, the opening of the Galaxy Macau may create a headache for the Peninsula-focused gaming operators; Sociedade de Jogos de Macau, Wynn Macau and MGM Macau. That trio will not face direct competition but will be less able to grab a share of the increasing visitor traffic to Cotai. Nonetheless, visible losses in gaming revenue are unlikely and, if visible, should only take place in the short run.

An era’s end

From a macro-perspective, the opening of Galaxy Macau means the beginning of the end of Cotai’s first phase of development. The cycle will be closed when Sands China’s completes work on parcels five and six.

It is difficult to fully evaluate the effect of having created a new gaming hub in Cotai. So far, the resorts there have helped to create more and better jobs, raised the city’s profile internationally and brought some non-gaming facilities that the territory was lacking.

The 800-pound gorilla in the room is, “what happens next?”.

Clearly, there is still room for further development in Cotai and all six gaming operators here are aware of the opportunities. Some, such as MGM and Wynn, could argue that their expansion is being held back, as they have only one development each.

The question is whether the city can cope with many more gaming facilities in the short term.

In 2008, then chief executive Edmund Ho Hau Wah announced a freeze on new land for casinos but pledged to honour existing agreements with operators.

If we take into account the projects submitted to the government before Mr Ho’s announcement, we would have at least six new casinos in Cotai: one from MGM, two from Sociedade de Jogos de Macau, one from Wynn, Sands China’s parcel three and Macao Studio City.

In addition, Shun Tak is planning a hotel there, with Angela Leong On Kei announcing a theme park, and both Galaxy Macau and City of Dreams parcels include undeveloped plots.

And don’t forget parcels seven and eight, which were last year taken back by the government from Sands China. There has been no project announced for this land.

Ready for a roadmap

One doesn’t need to be a rocket scientist to see that development on this scale, coming on stream at the same time, is unsustainable in the short term.

It cannot be done for two main reasons. Firstly Macau does not have enough labour and, even if importation restrictions were to loosen up, the city could realistically only cope with a proportion of what is required without clogging the territory and its infrastructure with new labourers. Secondly, there are currently no effective ways to manage the huge increases in visitor volume that the opening of so many new properties in a short period of time would require.

With the problems so glaringly obvious, it is of the utmost importance that the government lay down a development roadmap for Cotai version 2.0 and beyond.

The authorities have already pledged to slow construction speed but interested parties, which include Macau’s residents, are entitled to know the master plan for the area.

What is unthinkable is to have companies waiting since 2007 – or earlier – for an indication from the government on their Cotai projects.

Investors must be able to estimate if or when are they going to be allowed to break-ground.

The continuing government silence on Cotai’s future only adds unneeded risk for the gaming industry and is not business-friendly.

Emanuel Graça
Editor-in-Chief
emanuel.graca@macaubusiness.com