Masao Nangaku’s dream of an Asian gaming center started in 1987 when the billionaire plunked down $157 million for The Dunes. That was a year after Ginji Yasuda dropped $54 million for the Aladdin, making the Korean-born Japanese citizen the first ever Asian owner of a Las Vegas casino. Both Yasuda and Nangaku had grand plans to turn a slice of Vegas into a playground for rich Asians.
Yasuda’s Aladdin was in Chapter 11 by 1988.
By 1992, Nangaku’s Dunes was a financial wreck. A few years later, the Japanese economy followed suit, taking down with it the dream of an Asian Las Vegas.
It’s 7,320 miles from where the Aladdin once stood to the island of Macau, home to gaming since “fan tan” houses were made legal in 1847. But until recently, a “Macau casino” meant a room with drab, worn-through gaming floor carpet upon which Russian escorts openly and brazenly solicited visitors. The experience, stained by decades of smoke, was “gambling,” not gaming. But the 2002 end of the monopoly system on cession changed everything.
Macau gaming produced $38 billion in revenues in 2012, a significant increase from just $2.8 billion in 2002. On the back of March’s 25 percent increase in Macau gaming revenue to nearly $4 billion, Sands China CEO Edward Tracy told Bloomberg News he expects his operation’s 2013 growth to be in the “mid-teens.” With 35 casinos, 5,500 tables and 16,600 slots, Macau became the Asian gaming center envisioned by Yasuda and Nangaku, except Chinese instead of Japanese.
But Macau is just the ruby of a regional boom that is predicted to be worth nearly $80 billion by 2015, a revenue level that would surpass the U.S. and make Asia the world’s leading gaming region.
With the Valentine’s Day 2010 opening of Resorts World Sentosa and the subsequent opening of the Marina Bay Sands, Singapore immediately became the region’s second most important gaming hub and a genuine challenge to Macau’s domination. Like Las Vegas, Asia’s new casino market isn’t just about the single gamer, it’s also about family entertainment and shopping. Resorts World Sentosa offers a “S.E.A. Aquarium™ Staycation” package and boasts a Universal Studios Singapore and a seemingly endless mall full of luxury retailers.
Brunei, the Solomon Islands, Indonesia, Nepal, Laos, South Korea, the Philippines, Vietnam and Malaysia all have gaming of some kind. Nobody is even sure how many casinos are in Cambodia. Two of the more memorable include the “Winn Casino and Resort”—a knock-off of the Bellagio located 100 miles northwest of Ho Chi Minh City near the Cambodia-Vietnam borders—and “Le Macau Casino and Hotel” in Svaay Rieng. The latter has a Facebook page. Sri Lanka similarly boasts a “Bellagio Casino” and a “Bally’s Colombo,” the latter of which can also be found on Facebook. These operations outside Macau are becoming increasingly significant. TCSJOHNHUXLEY has seen considerable growth in these regions and reports that it recently completed two turnkey installations of more than 500 tables combined at the MGM Grand Ho Tram Beach and the Philippines’ Solaire Resort & Casino.
Probably the most curious feature of Asian gaming can be found in North Korea, which has not just one, but two, casinos. One is located in the basement of the Yanggakdo International Hotel. The other, the five-star Emperor Hotel & Casino, is, according to its website, “conveniently located at the Rason Special Economic Zone … adjacent to the three northeast provinces of China.” From about 1998 to early 2002, former North Las Vegas Chamber of Commerce head Robert Goodman even spearheaded marketing for the Emperor, as it targeted nearby rich Chinese as a way to bring FOREX into the embargoed nation. In 2005, China forced the temporary closure of the Emperor after a Chinese party official gambled away $423,000 in state funds. Recent warmongering has probably not made the nation’s casinos more popular, either.
The region’s casinos share a primary target market: the billion-plus, increasingly affluent Chinese. It’s no mistake that many of the region’s casinos—such as those in Laos—are strategically located on China’s borders, allowing Chinese gamblers to easily hop over and play. In fact, in many of the region’s casinos, local nationals are not allowed to gamble. Such is the case in Vietnam and Nepal. Of all of South Korea’s casinos, South Koreans are only allowed at one. But that might be changing.
Steve Karoul, the president & CEO of Euro-Asia Consulting, a former Las Vegas Sands Senior VP of Strategic Casino Marketing and a veteran of Macau and Singapore gaming, calls China “the 800 pound Gorilla.” But, he adds, “there are many other very strong gaming markets in Asia that will react much more positively if approached and personalized on an individual country basis rather than lumped all together.”
Baccarat. Baccarat. Baccarat. Slots?
It’s no secret that baccarat and table games are the focus in Asia. The gravity of the table creates challenges for suppliers moving into Asia.
“In Macau and Singapore in particular, we are bullish on low-denomination, high-volatility video slots, premium products and progressives,” says Matt Reback, senior director of marketing for Konami Gaming. Konami is just now focused on launching its suite of products in Macau and Singapore with, Reback says, “a full solution for the operators.”
Baccarat and table games are synonymous with gaming in the region. Karoul remains bullish on the perennial Asian favorite. But within the game, he sees room for horizontal growth.
“Macau has shown us that variations of the game such as EZ Baccarat, with its 40-to-1 Dragon Bet, have also proven to be very popular with the Chinese gamers,” he says.
Karoul adds that Wynn Macau’s success with VIP slots is a reason for optimism among slot makers.
TCSJOHNHUXLEY has been in Macau since 2000, where it now maintains significant operations, including administrative, manufacturing and warehousing. The group also has offices in Singapore.
TCSJOHNHUXLEY Marketing Manager Tracy Cohen acknowledges that Asia is dominated by baccarat. “We’re delighted with our progress in the Asia region,” she said. “2012 was a record year for our business, with the two large-scale openings further expanding our presence in Vietnam and the Philippines. We constantly listen to our customers’ requirements and deliver products that they need to support their business. The demand for all products, particularly our winning number displays, including sicbo, baccarat and roulette, have been very strong over the last 12 months.”
Bullishness on slots in Macau and the region as a whole is backed by statistics. Numbers from the UNLV Center for Gaming Research show a 1,600 percent growth in table games between 2002 and 2012. But that same period saw a 2,000 percent increase in slots. Moreover, Macau’s casinos have seen revenue from baccarat grow over that decade by 2,439 percent, while revenue from slots grew 5,733 percent.
These numbers are echoed by observations from Konami. “Obviously, the table games market is thriving,” Reback said. “But we are also seeing promising signs of other gaming growth including growing total slot revenues. We took the right amount of time developing products that were targeted at the Asian market and Asian player instead of merely forcing the gamut of North American product into Asia. We will have a wide range of tailored products and anticipate obtaining floor share quickly.”
Aristocrat says FA FA FA™ Hyperlink™ is its most popular game in the region, with more than 800 units in Macau and more than 1,000 more throughout Asia. The slot maker is especially bullish on regionally relevant slots like FA FA FA Hyperlink, an area in which it was a pioneer. David Punter, general manager for Aristocrat Asia Pacific, adds, “The emergence of the VIP segment saw the development of targeted high line games such as 50 Dragons™ and 100 Dragons™, which were an adaptation of the Classic 50 Lions™.” Beyond themes, Aristocrat is also working to translate all of its games into simplified Chinese characters for mainland Chinese guests in Macau and elsewhere.
In Asia, product localization goes well beyond tables vs. slots though.
“As each of our currency products is fully customizable, each product is adapted to meet the individual requirements of each casino,” says Kirsten Clark, Gaming Partners International’s (GPI) senior vice president and chief operating officer, Asia. “This has given GPI the ability to work with our core customers to design and produce some really remarkable gaming currency items.”
“The overwhelming percentage of the business comes from tables, and JCM makes bill validators for slot machines,” says Tom Nieman, JCM Global VP of marketing, explaining JCM’s challenge in Asia. To accommodate customers, JCM developed the iV8 Table Game Bill Validator largely tailored to help Macau and Singapore operators cut table money count downtime from minutes to seconds.
Even standards, while universal, need local tweaks. “Years ago, we foresaw the need for a new generation of engineers who are thoroughly trained on GSA standards and who would be prepared to create the next generation of games and systems,” says Peter DeRaedt, president of the Gaming Standards Association (GSA). “GSA has been very successful in Asia, particularly with our partnership at the Macau Polytechnic Institute (MPI).”
Hainan or Goodbye-nan?
No speculation about the future of gaming in Asia is stronger than speculation about the future of gaming on Hainan, an island province in the South China Sea that is easily accessible by ferry.
Mainland China itself has a sports lottery and a lot of underground mahjong parlors but no legal casinos. In February, Reuters news service reported that a Mangrove Tree Resort World “cashless” casino named Jesters was operating on Hainan, a.k.a. “China’s Hawaii.” Instead of money, gamers won points redeemable for goods and services at the resort. One day later, Reuters reported that the Sanya Culture and Sports Bureau had, just like that, shuttered the 50-table, 4,000-room resort’s operations. Jesters’ plans for 400 more tables were, for the time being, squashed.
As Macau is a Special Administrative Region (SAR) of China, requiring mainland Chinese tourists to first obtain a passport and visa, opening Hainan to gaming would put the first casinos on the “mainland” of the People’s Republic of China. Once a malaria-infested island, home to banished officials who had run afoul of China’s emperor, the beach-filled resort island today would appear to be the perfect location for casinos, attractive to Chinese and other regional tourists alike. Hainan’s existing popularity as a vacation destination could easily transfer to gaming, particularly if it is the only mainland option—think Las Vegas or Atlantic City before the expansion of casino gaming in the U.S.
Karoul is fast to admit that when it comes to Hainan, nobody knows. He calls it his first choice, “a self-contained resort island that could easily adapt to casino gaming and it would be easy for the government to monitor.” Karoul speculates that somewhere in the north could be a second possibility. But this, he calls “still just a dream.”
Most operators and suppliers choose not to comment on Hainan, dismissing any news on the subject as mere speculation or rumor. At Konami, Reback says other markets with growing opportunities are more important now. “We are looking at emerging gaming markets like the Philippines and Vietnam and anticipate entering those markets at the right time,” he said. “We also wait until we have the right infrastructure in place before we enter a market because service is a core component of Konami’s brand.”
The conversation about Hainan could eventually be forced. Beginning in 2020, Macau licenses for the Wynn, Melo Crown, MGM, Sands, SJM and Galaxy properties will begin expiring. There is no reason to believe the licenses would not be renewed, but that said, some operators are already in Hainan. MGM Resorts International opened a resort in the city of Sanya in 2011, and Caesars Entertainment, which has offices in Shanghai, is set to open its own resort this year. While gaming in Hainan could put a kink in the works for operators with existing properties on the island, Caesars would likely welcome the opportunity after finally abandoning its six-year attempt to get a license in Macau last October.
Beijing’s inner workings are opaque. But one hint that it intends not to fiddle in Macau came out of the recent lawsuit by a former Chinese partner of Sands owner Sheldon Adelson. Addressing the charge that Adelson and Macau played a role in Beijing getting the 2008 Olympic Games, China’s central government claimed no involvement in Macau’s casino licensing process.
Gaming with Chinese Characteristics
It’s an ironic quirk that casino operators and services in Macau like MGM, Wynn and Sands all have the same worries as the North Korea’s Emperor Hotel & Casino. That is, that the Chinese government can, at will more or less, turn off the spigot. A recent austerity campaign by the Chinese Communist Party (CCP) aimed at reining in official spending has resulted in collapsing profits for high-end caterers and top-shelf Chinese liquor brands.
“It’s always a concern, as they do have the ability to restrict Macau visitation for Chinese citizens,” Clark said.
China has restricted Macau access before. And when rumors surfaced in 2008 that Beijing would limit Macau visits for Chinese citizens to one every six months, shares of Macau-based casinos slid. A year later, the central government instituted a one-visit-per-two-months rule.
Karoul points to Macau’s record March 2013 numbers, which came during an economic downturn in China, as reason to not worry about future China-driven growth for gaming in the region. Karoul sees Beijing remaining far more worried about corruption and inflation than gaming. “I think that they realize that gaming is part of the Chinese culture and would be very
difficult to control,” he said. “Therefore it may be better to direct it, such as to Macau, where they are much better able to monitor the results.”
Still, Karoul admits that by corralling gaming all in one place—Macau—“they would have a much easier time controlling it or slowing it down if they felt that it was necessary.”
Of course, the logistics of doing so are difficult. Karoul notes, “One must also be aware that a lot of the VIP gaming is not really transparent and occurs through junket reps, and therefore would be very difficult to completely shut down.”
Nieman is philosophical about China’s authority. “As a peripheral supplier, when things are good in Macau for operators and OEMs, then they are good for us,” he says. “When things are challenging for large suppliers, then they are challenging for us. So far China, as well as Singapore and now Vietnam, has been excellent for business, and we do not see any reason for worry in the near future.”
Non-Asia Asian Gaming
In April, the United Nations World Tourism Organization announced that Chinese tourists had eclipsed both Germans and Americans as the highest-spending global tourists. In 2000, 10 million Chinese nationals took international trips. Last year it was 83 million. And those tourists spent $102 billion while traveling, a whopping 40 percent increase from the year before.
This means that focusing on Asian gaming in Asia is not going to be enough for operators and suppliers. A focus on Asian gaming will also continue to become important in other markets in Europe and the U.S. Indeed, Asian gaming rooms have become a casino necessity, easily found anywhere from Chicago’s Horseshoe to Vegas’ Golden Nugget to Connecticut’s Mohegan Sun to Monaco’s Place du Casino. In 2011, the American Gaming Association said baccarat had become the Strip’s most lucrative game.