Managing Ills in Macau’s VIP and Mass Gaming Market
by Desmond Lam

Managing Ills in Macau’s VIP and Mass Gaming Market by Desmond Lam

*This article was originally published in Casino Enterprise Management, June issue, 2010. Updated 2011.

There seems to be only one trend in Macau’s gaming market – that is UP! Macau‘s gross casino gaming revenue reached a whopping US$23.5 billion in 2010 and is set to achieve yet another year of extraordinary growth in 2011. That is provided no other drastic policies are in place to deliberately slow growth down. Macau’s VIP baccarat revenue has remained very strong at 72% of gross casino gaming revenue. There are now at least 22 game types in Macau’s casinos, with more than 4,700 gaming tables and 14,000 slots; a ratio of 1:3. Let me remind everyone that the latter, closely associated to mass gaming, still pale in comparison to the roughly 1:20 (table/slot) ratio in Las Vegas.

While all these are promising signs for Macau’s gaming industry, I feel that imminent danger lies ahead. Are we going the wrong way? The failure to control the explosive (and erratic) growth of Macau’s VIP gaming segment spells danger for everyone. It may consequently lead to more rounds of visa and other regulatory controls in the near future.

While casino operators rejoice and take pride in their ever-increasing gaming revenue (particular VIP gaming share), my worry is that we are simply prolonging the pain. The ‘unstoppable’ growth of Macau’s VIP gaming segment, despite the financial crisis, is a major obstacle hampering the development of a more diverse and sustainable economy. The (bad) image and numerous issues associated with VIP gaming and operations will inevitably continue to haunt, if not taint, Macau’s international reputation.

When Macau liberalized its gaming industry in 2002, most people expected the mass gaming market to expand rapidly and that Macau will become somewhat like Las Vegas. When can we expect mass gaming to overtake VIP gaming? The openness of mass gaming differs significantly from the behind-the-door style of VIP gaming in Macau. Secrets got locked behind closed doors and lenient regulatory supervision can potentially lead to serious problems. Not only is problem gambling harder to monitor, gambling-related crimes are also harder to keep tap on. The heavy reliance on junket to promote and draw players into gaming rooms is another major issue. It eats heavily into operators’ margins and is often perceived to be associated to illegal triad activities.

Some industry observers now feel that there is a need to clean up (or even de-market) Macau’s VIP gaming segment via greater regulatory control by following the example of Singapore. More specifically, a more cautious selection of its VIP players and the channel members (i.e. junket) who bring in these whales is needed. Others believe the Macau government may need to deliberately ‘de-market’ its VIP segment in order to force the casino concessionaires to redirect their efforts and resources towards achieving its vision and that of the Chinese central government – making Macau an international leisure and entertainment city that all Macanese and Chinese can be proud of, with a diversified range of resources like history, culture, shopping, entertainment (including mass gaming), food and beverage, MICE, and other sightseeing. In corporate Macau and socialistic China, businesses cannot simply care only about themselves and the profits that they can make. They have social responsibilities and must meet the needs and wants of their Chinese stakeholders. Casino operators in Macau are expected to give up more in order to ensure their own sustainability.

There is currently no official figure on the number of VIP versus mass market players coming to Macau. But we are probably looking at a couple of thousands of ‘real’ VIP players generating 72% of gross gaming revenue (mainly baccarat) and many times more mass market players contributing the rest. While around 25 million visitors entered Macau in 2010, past surveys revealed that approximately 50% of all visitors claimed they ever gambled in Macau’s casino. That means around 12.5 million gambling visits providing a bulk of the 28% revenue. A report suggests that more than 70% of Macau’s VIP players are from Mainland China.

While a large ‘non-transparent’ VIP gaming segment has tarnished the image of Macau, the escalated development of a bigger mass gaming market can create many social problems. For example, the rate of increase in problem gambling prevalence rate among local population since gaming liberalization is a concern for some local politicians.
The 2003 survey revealed that around 4.3% of Macau’s 15-64 yrs old population was probable problem and pathological gamblers. In fact, some research found that croupiers experience greater problem gambling rate than the general population. Internationally, several studies found that a problem gambler can potentially affect from 3 to 14 people. Taking all these into account, one can estimate that problem gambling can potentially affect at least 20% (and easily more) of Macau’s population today. Adding to that, a more recent Macau survey actually found an increase in probable problem and pathological gambling prevalence rate from 4.3% in 2003 to 6.1% in 2007. This is a 40% increase after four years of rapid development without checks!

Still, local Macanese constitute only a small proportion of the gross casino gaming revenue. The 2002/3 Macau survey on local Macanese residents found more than 20% of the respondents gambled in local casinos. The average money gambled per month per respondent was around US$87 or slightly more than US$1,000 per year. That would put the estimated gaming expenditure of local residents at around US$67 million in 2002/3 or only a small (although still significant) percentage of Macau's annual gross casino gaming revenue in comparison.

What is more worrisome is the level of problem gambling among Mainland Chinese visitors to Macau. There is currently no study to measure the impact of an expanded gaming market on gamblers from overseas. This is an element that is important to Macau’s gaming industry as it affects Macau's relationship with its neighbors, in particular, Mainland China, Hong Kong, and Taiwan. It also influences decisions on visa control and hence adds to the overall economic costs of Macau’s gaming liberalization.

Anyone who suggests a more drastic change in government policies to advocate mass (leisure) gaming, while reducing the share of VIP market (some believe there is no other way), need to consider the social impact of such a change. The former appears to be more in line with the government’s vision of making Macau a leisure and entertainment city. A city that is suited for all types of visitors instead of just hard-core gamblers. Inevitably, to support such an initiative, a strong industry-wide responsible gaming program must be put in place by the Macau government and all the casino operators.

There is one thing for sure: Moving forward, Macau needs a stricter regulatory control system to be in place for both gaming segments. The recent table number cap is just one of the many controls that can be put in place. By itself, it seems unlikely to have any significant impact on gross gaming revenue (especially in VIP game play) in short term. However, any future measures will certainly gear towards creating a smaller VIP game play and a bigger mass gaming market and will lead to a greater regulatory control (in different ways) over both segments. It may also lead to the creation of a stronger middle (i.e. a low VIP or high mass gaming) market.

More importantly, any new measures must include a more careful selection of players brought into Macau and the instalment of players’ protection programs. During this process, Macau will most likely register a slower growth in gross casino gaming revenue due to a reduced VIP segment as a result of a tightened player

Date Posted: 07-Feb-2011

Desmond Lam is an Associate Professor of Marketing at the University of Macau. He can be contacted at DesmondL@umac.mo. Visit www.DesmondL.com.

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