Why Macau Is A Lucrative Location for Gaming Companies

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Macau, the Asian replica of Las Vegas, has witnessed unprecedented growth levels. In 2011, the region collected $33.5 billion in gaming revenues. [1] Macau surpassed the Las Vegas Strip as the world’s biggest gambling hub in 2006 and has gained paramount importance for gaming companies such as Wynn Resorts (NASDAQ:WYNN), Las Vegas Sands (NYSE:LVS) and MGM Resorts International (NYSE:MGM).

According to a study by PricewaterhouseCoopers, Macau’s growth is expected to more than double to $62.2 billion between 2010 and 2015. [2] In this analysis, we discuss the factors that make Macau a lucrative investment option for casino operators.

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Shielded from global economic repercussions

  • Macau is a source of diversified revenues for casino operators as it is relatively safeguarded from global economic volatility.
  • At present, the major world economies like the U.S. and Europe are fragile. The U.S. economy is recovering, but it is still early to say how long it would take to reach its pre-recession levels. While Europe is juggling with a delicate economic environment, the current euro-crisis has made the situation more grim.

Chinese visitors driving growth

  • An increasing population of Chinese high net worth individuals (HNIs) is the key driver behind Macau’s robust growth. According to a recent Cap Gemini-Merrill Lynch Private Wealth report, China recently surpassed the U.K. to become the fourth largest population of HNIs.
  • Increasing disposable income in China’s growing middle class population is driving growth of mass market in Macau. Mass market represents about one-third of Macau’s total gaming revenues.

Locational advantage

  • Macau enjoys proximity to major Asian cities. Visitors from Hong Kong, southeast China, Taiwan and other locations in Asia can reach Macao in a relatively short period of time.
  • More than 1 billion people are estimated to live within a three-hour flight from Macao and more than 3 billion people are estimated to live within a five-hour flight from the region.

Infrastructure developments

  • The Macau government is reinforcing a series of initiatives to drive visitor growth in the region. The gaming industry is a key contributor to Macau’s GDP. Now a new railway line connects Macau to Guangzhou in China and a new road bridge links it to Hong Kong.
  • The government is building Macau Light Rapid Transit that will fully integrate different regions within Macau and is expected to complete by 2015.
  • The government is presently working on increasing the capacity of the Macau International Airport so that it can handle 12 million people annually, almost double from the current capacity of 6 million people. (See our previous post: Wynn, LVS, MGM Cheer as Macau Makes Big Investments in Infrastructure)

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  1. See: Macau gaming revenues hit $3.04 billion in February, up 22 percent, Las Vegas Review-Journal []
  2. PwC’s Global Gaming Outlook to 2015, Casino Enterprise Management, Jan 2012 []