…a lot depends on how you measure.
the Nevada comparison
Let’s compare Macau with Las Vegas.
According to the Nevada State Gaming Control Board, during the three months ending February 29th (the latest figures available as I’m writing this) the Las Vegas strip casinos had revenue of $1.67 billion. The downtown area of Las Vegas added about a tenth to that.
During the same three months, according to the Macau Gaming Inspection and Coordination Bureau, Macau casinos took in MOP 72.9 billion, which translates into US$9.1 billion.
On this measure, then, the Macau market is 5x the size of Las Vegas.
gross revenue vs. net
That’s not the whole story, however.
The official figures don’t report the total amounts that are being bet in the market. Instead, they record the net amount that the casinos win from customers during the period.. The amounts bet are much larger.
We have precise figures for Las Vegas. On average, gamblers lost 9.6% of the amounts they bet in Las Vegas during December, January and February. So they actually bet $17.4 billion during that period.
We don’t have comparable official numbers for Macau. So we have to estimate. Conveniently, though, virtually the only game played in the SAR at present is high-stakes baccarat, where casino win typically ranges from 2.7% to 3.0% of the money bet. To err on the conservative side, let’s say that the win over the winter for the Macau market was impossibly high at 4%. Using that percentage will give us a low-ball figure for total wagers.
In Macau gamblers actually bet $228 billion during the three months. On this measure, Macau is already 12x the size of Las Vegas.
When I began following casino stocks in the early 1980s, casino operators regarded hotels, restaurants and shopping as regrettable necessities (cost centers, in accounting jargon). They basically gave the food away to draw patronage. And the more spartan the room, the better. That way gamblers spent the maximum amount of time in the casinos and not lounging around watching TV.
Since then the Las Vegas industry has been transformed–with a large assist from Steve Wynn and Sheldon Adelson–into a resort destination. Prior to the Great Recession (and the accompanying Great Overbuilding), non-casino operations in Las Vegas made up about half the total revenue–and about an equal amount of profit. In other words, by developing Las Vegas as a resort/convention center, the casinos doubled the size of their market. This is the model Macau wants to copy.
My guess is that, at present non-casino revenue is only about 15% the size of casino win in Macau. So the nascent resort business in Macau could, if it’s successful in emulating Las Vegas, be at least 3x the current size. That would mean that–even without market growth–visitors to Macau could be spending half a trillion dollars a quarter and company profits could be close to 2x the current level.
The Financial Times just wrote a good summary of the current supply constrained situation in the SAR.
but there’s more
In its latest quarterly reporting to shareholders, LVS included in its packet of earnings presentation slides an appendix that touches on growth potential for the Macau market.
–Slide 21 illustrates the proposed high-speed rail system that will connect all the major cities, including Macau, in eastern and central China.
–The more interesting slide is #22, which breaks out recent visitors to Macau by domicile. It shows that 72% come from nearby Guangdong province, an area with a population of 95 million. Hunan and Chongqing provinces, which together also have a population of 95 million, but which are somewhat farther away, represent less than 7% of visitors so far. But that number is starting to grow at a much faster than 50% annual clip. This implies, I think, that the Macau casino market has come nowhere close to tapping its entire Chinese potential.