Five years ago, gaming on the Peninsula was still accounted for more than 50 per cent of total revenues. We’re far from that today. And it’s coming down every year. When will it stop? Nobody knows how to respond.
MB Special Report | Peninsula, the poor relation
Put ten gaming analysts in a room and they will say the same thing: the revenue from gaming on the Peninsula will continue to decline.
Consensus, however, ends there.
Few would dare to say when and by what percentage share this market will stabilise.
Take this as an example: in 2015, Daiwa Securities published a very detailed report on the issue of gaming on the Peninsula, predicting at that time that COTAI would be worth just over 73 per cent in 2017…
“Based upon our research, we estimate that COTAI now generates somewhere between 62-65 per cent of Macau’s overall gross gaming revenue in the 2018 calendar year,” Ben Lee of iGamix consultants told Macau Business. Grant Govertsen, from Union Gaming adds: “I calculate that Peninsula accounted for approximately 37 per cent of GGR in 2018 vs. COTAI at 63 per cent. The number in 4Q18 was approximately 35 per cent for peninsula and 65 per cent for COTAI because of MGM CCOTAI improving.”
In fact, there are no official figures since the Gaming Inspection and Co-ordination Bureau (DICJ) does not provide them. In order to know how much the Peninsula is worth it is necessary to go to the financial reports of the concessionaires. It is enough to see that at the end of last year COTAI saw its total share of the local gaming market climb above 60 per cent for the first time – reaching 61.2 per cent – according to a report by Melco Resorts. But if we take into account that there are so-called satellite casinos, especially on the Peninsula, these accounts can become more complicated.
“As new properties open up in COTAI,” adds Mr. Lee, “the Peninsula’s share of the overall market will naturally fall. That – coupled with ageing first generation properties that have yet to see any refurbishment – will only continue the decline.”
“Yes, gaming revenue share will continue to increase on COTAI as an overall percentage – due to the appeal of the ‘COTAI Strip brand’ but also by creating new visitor markets attracted to the IR gaming and non-gaming facilities,” says Professor Glenn McCartney of the University of Macau.
Let us return to the essential question: when will this fall stop?
Grant Govertsen, who expects gaming revenues in COTAI to likely account for as much as 70 per cent of overall gross gaming revenue for the next several years, has a pessimistic outlook.
“The reality is that the Peninsula’s market share is likely to continue to decline on an almost permanent basis,” he says. “The simple fact is that all new development has and will continue to occur on COTAI. As such, that’s where the customers will go given that that’s where the majority of hotel rooms will be located, not to mention the lion’s share of the non-gaming amenities that are increasingly attracting customers to COTAI over the Peninsula.”
And Ben Lee is no more optimistic, observing, “The Peninsula market has an upper ceiling as there is not much more space left available for expansion. With traffic already congested in that area, I think having the growth diverted to COTAI makes a lot of sense.”
In this context, it is surprising that there are no signs of public concern. In recent years there have been a few sales and purchases of hotels/casinos (especially from such satellite casinos in the SJM orbit) but it is possible to say that operators have not yet awakened to reality.
“As new properties open up in COTAI, the Peninsula’s share of the overall market will naturally fall. That – coupled with ageing first generation properties that have yet to see any refurbishment – will only continue the decline” – Ben Lee.
“I cannot speak to the reasons why casinos operators are not concerned,” answers Andrew M. Klebanow, Senior Partner of Global Market Advisors, LLC in Las Vegas, and one of the few voices that has been speaking systematically upon the subject. “Perhaps they are confident that a rising tide (of gaming revenue and visitation) will allow them to continue to operate profitably. The problem is that Macau has experienced downturns in the past and unforeseen events may cause another contraction in the market. When that happens, the properties on the Peninsula will be the first to suffer.”
And as Govertsen adds: “The reality is that while the Macau Peninsula has seen its share of GGR decline relative to COTAI, it is experiencing growth in revenues.”
Peninsula market share (%)
| 2010 | 2014 | 2018 | |
| Peninsula | 72.9 | 54.3 | 37 |
| COTAI | 27.1 | 45.7 | 63 |
Source for 2010 and 2014 data: Daiwa Capital Markets; Macau Gaming Sector, September 2015 and March 2016; source for 2018 data: Grant Govertsen (Union Gaming)
Impact of smoking ban
Effective 1st January, 2019 players are no longer allowed to smoke in VIP rooms, or in premium mass areas that pass off as VIP zones. All of Macau’s casino properties will effectively become ‘smoke-free’ (customers will have to go to dedicated smoking lounges to smoke as opposed to being able to smoke at the tables). The mass floors in Macau went smoke-free in October 2014.
In December, Sanford C. Bernstein released a report analysing the impact of having dedicated smoking rooms as opposed to allowing customers to smoke in the open, stating there ‘will be changes in betting behaviour – when customers return from their smoking breaks, they may not necessarily bet the same size they did before smoking.’
Various properties will also likely be impacted differently from the smoking ban. Properties built from 2015 onwards are already smoke-free: Galaxy Phase II, Studio City, The Parisian, Wynn Palace, MGM COTAI, and Morpheus at City of Dreams.
The properties that currently have VIP smoking include Wynn Macau, Sands Macao, The Venetian, Sands COTAI Central, the Four Seasons (Plaza Macao), City of Dreams, Altira, Galaxy Macau, MGM Macau, Grand Lisboa and other SJM properties.
“One thing we want to highlight here is that while most operators have already filed applications with the Health Bureau regarding licensing of their smoking lounges, one operator – SJM – has not filed application for smoking lounges at its owned properties (Grand Lisboa, in particular). This would mean that players will not be able to smoke in these properties,” wrote Bernstein’s research team.
