Asian gambling market to hit 'tipping point', says Credit Suisse expert
MANILA, Philippines - Epidemics, crime waves and fashion trends all have a tipping point where their momentum reaches a critical point, tips past a threshold and spreads unstoppably. So why shouldn't gambling have one too?
A regional gambling expert, Gabriel Chan, the Director for Non-Japan Asia Gaming and Lodging for Credit Suisse, explained that the Asian gaming market is poised to reach a tipping point, like the one hit in the Chinese gambling haven of Macau.
"The tipping point was largely after the financial crisis. We saw the robust growth in the luxury retail sector. We saw all the luxury brands opening shops in China. At the same time Macau grew very fast (as part of) that," said Chan.
Chan added, "There's no macroeconomic model that can predict when (the tipping point will happen). It's different across different countries."
He said reaching the tipping point would be a matter of how fast disposable income and cost of living rises. With China no longer world's cheapest factory for low-cost exports, Chan said, it's inevitable that "growth will spread out to other countries."
Within the Association of South East Asian Nations (ASEAN), the middle class population is expected to rise from 24% in 2010 to 65% in 2030 disclosed the Asian Development Bank during its annual meeting on May 2.
The Credit Suisse Director said, "In terms of gaming, this is where we find the growth in demand. Asia has the fastest income growth among regions and I think Asians also have a higher propensity to gamble." He said that comparing income to GDP showed "the propensity to gamble is much higher for many Chinese than many Americans."
"Yes China has a much larger population than the states but it's also (that) on average they spend more per person on gambling," when factoring in relative income and GDP level.
He said that was largely why, "In 2011, Macau generated six times the GGR (gross gaming revenue) of the Las Vegas Strip."
Double-digit growth rate expected for Macau and Singapore
Though Chan can't say when exactly the Asian gaming market will pass its tipping point, he was bullish about the outlook for Macau and Singapore in 2012.
"For Macau we are forecasting about 25% year on year growth this year. I think for Singapore it will be slightly lower, about 15% for Singapore," he said.
He explained, "The difference here is a couple things. Number one, Singapore doesn't have as big a local, domestic market. And number two, Singapore does not have supply growth, where as Macau we still have new casinos opening."
Why Macau and Singapore succeeded
Chan explained that Macau truly succeeded by tapping into the large domestic market in China and the demand for gambling. Over 80% of casino revenue comes from gaming. That's as opposed to Las Vegas where he said gaming revenue makes up less than 30% of total tourist receipts because the model is geared towards catering to non-gaming tourists.
Macau also focused on high rollers with VIPs making up more than 70% of gross gambling revenue. Many high rollers come through junket operators who for a 45% commission arrange for a person or tour group to visit a casino.
Chan said local government supported the gaming and even offered a corporate tax holiday for 5 years to junkets. On top of which, Macau drove up demand by increasing the number of casinos.
According to Chan, gaming is "a supply drives demand story." Putting more of the product in a destination increases the overall appeal and business of that area.
That's the reason many of the casino operators opening shop in the Philippines have said they welcome their competitors and are erecting complexes in the same vicinity.
"Singapore doesn't have as large a domestic market (as China)," said Chan, so instead the island country leveraged its well-developed infrastructure and existing tourist attractions and was able to package itself as a complete vacation location. Chan said supportive government policies and a lack of controls on capital also helped.
Philippines, other Asian countries
Chan says Singapore's success showed that the Asian "gaming market is huge and fairly under-penetrated." In his mind, demand is so high that everyone can have a slice of the pie if they cater to the right market.
"We are talking about different clienteles that different operators are targeting. In Macau we're talking about people that may play 2 million Hong Kong Dollars per hand. Going to Singapore it may be slightly lower. And in Cambodia they are targeting a lower end VIP."
"So we have a wide spectrum of players, its just having enough supplies to entertain those demands," he added.
He said Japan, Korea, Thailand, Vietnam and the Philippines could be new players in the bigger Asian gaming market.
For instance, he said, ""The traveling cost is much lower in the Philippines so the price point is attractive."
Given how relatively affordable the Philippines is compared to its neighbors, the archipelago is already going after mid-level gamblers whose money is negligible to Macau, explained Tina Garcia, the Head of Investor Relations for Filipino developer Travellers International Hotel Group.
"They may be small fish in Macau but they are super high rollers here," she said.
Chan may be right that there is enough pie to go around but it could come down to attracting the right customers for what each country is serving. - Rappler.com