After suffering a temporary slowdown in June, as gamblers stayed home to watch the World Cup, the Macau gambling market has bounced back vigorously over the past two months.  Here are the figures:

Source:  DICJ, Macau SAR

my thoughts

1.  Of the large world gaming markets where information is publicly available–Macau, Las Vegas, Atlantic City, Australia–Macau is at present much more of a high roller market than the others.  Is that important?  Ultimately what counts is the profit return that the physical capital of the casino generates.  But one salient characteristic of the high roller, table games segment vs. the average gambler, slot machine segment is that the law of large numbers (that is, the odds balancing out) works for periods of time as short as a quarter.  In the high roller arena, on the other hand, one or two unusually lucky or unlucky gambler’s results can affect the bottom line even over a three month period.

What counts as gross revenue in the table above is the amount “held”, or won, by the Macau casinos, not the (much, much larger) amount bet.  If gamblers are unusually lucky in a given month, then the DICJ number will be correspondingly low–and vice versa.

2.  So far this year, the Macau market has growth by 63% vs. the comparable period in 2009.  This number is much more important than shifts in market share among the various market participants.  When the market matures, the relative market shares will become much more crucial.

In addition, share figures can vary substantially as new capacity opens, or as gamblers try out different venues before establishing more regular patterns of patronage, or as a given casino’s win percentage varies randomly.

3.  The Macau government has been critical to the success of the gambling market there.  It issued the licenses that permitted new blood to open up in the former Portuguese colony.   It has prevented the weaker casinos to initiate severe price competition that would have hurt everyone in Macau.  And it has slowed down the pace of new construction to try to match capacity more closely with demand.  All these moves have greatly enhanced the profitability of the gaming industry in Macau.

4. In the simplest terms, it seems to me that the publicly traded Macau casino stocks divide into two groups.

–One consists of 1128 and 1928, which are American controlled firms trying to apply the upscale casino/resort experience model they developed in Las Vegas to Macau.  Their weakness is their relatively limited knowledge of China.  The open question in investors’ minds is whether the American model will work in the Pacific.

–The rest of the market consists of firms with much stronger local Pacific contacts and experience.  Their potential weakness is that they haven’t run the upscale American model.  Also, it’s not clear that some managements would be permitted to operate in the US–although so far this fact does not appear to have been a key factor for Asian investors.