Diversification, or Macau Can't Live on Gambling Alone

Can Manny help Macau diversify from gambling?

Let's get ready to ruuuuumble: To be sure, if you compare Macau to Las Vegas in terms of gaming revenues, it's a first-round TKO for the Chinese gaming town. Since the turn of the millennium, Macau has left the former home of gambling in the dust as revenues have increased at a rapid clip. However, all good things must come to an end. Given Macau's reliance on punters (Brit-speak for gamblers) from the mainland, the growth slowdown there was bound to have knock-on effects for the Asian betting mecca. For the first time since the PRC bean counters have kept monthly tallies of Macau gaming revenues (in 2010), they fell in June 2014 year-on-year:

Gambling revenue in Macau fell 3.7 percent in June on an annual basis, the first decline in more than four years, with analysts saying the soccer World Cup had diverted gamblers and their hefty bets away from the world's largest casino hub...

Gambling revenue from Macau's 35 casinos fell to 27.2 billion patacas in June ($3.4 billion) from 28.3 billion patacas a year earlier, according to data released by the Macau government on Tuesday. Analysts were expecting a drop of between 4-6 percent. Chinese punters have instead been wagering on the football competition in Brazil. Authorities arrested 22 people on June 18 for their involvement in an illicit soccer betting ring according to Macau police. Betting slips the ring received in one week reached as much as HK$5 billion ($645.19 million) and the average daily amount of betting was more than HK$700 million.

Aside from Chinese bettors preferring to wager on the World Cup, PRC authorities have further cracked down on the amounts that can be taken out of the mainland to gamble in Macau. Why limit the stakes? Simple: officials (read: Communist Party members) have been--embarrassingly if unsurprisingly--among the high rollers in Macau, using public monies to gamble there. While there was previously a loophole allowing patrons to abuse payment systems to transfer money from the mainland above imposed limits, stricter monitoring is closing it:

Over the past two months, global investors have pared bets on stocks geared to Macau after a raft of regulatory curbs sparked concerns about slowing revenue growth. Among the measures are restrictions on the use of state bank card UnionPay, which Chinese nationals use to get out millions of yuan. Legally they are only allowed to take 20,000 yuan ($3,200) out of China per day. To get around this, they pretend to purchase expensive items from stores using their UnionPay cards and instead of actually receiving the items, they get cash.

There are a boatload of other reasons offered dealing with either nannyism or harder times in the PRC:

While restrictions on UnionPay are unlikely to significantly impinge on revenue growth, analysts remain cautious on the sector in the near term, citing weighing economic factors like constrained liquidity, softening housing prices and concerns over the integrity of debt collateral, all of which are likely to add pressure on Macau's high-roller VIP segment. A smoking ban, set to come into effect by October, and restrictions on transit visas, are also issues that may impact the number of visitors in the coming months.

As the post title implies, the authorities are now looking to broaden the reasons why tourists would visit Macau outside of gambling. To be fair, it is in this respect that Macau falls well short of Las Vegas. Think of music--Celine Dion and Elton John aren't playing in Macau, are they? Shows are also in short supply such as elaborate circuses and the like. Macau is trying to bring in more sporting events too such as with the Manny Pacquiao vs. Brandon Rios fight help late last year and Pacquiao's forthcoming match against undefeated Chris Algieri scheduled for 22 November.

Local authorities and top officials in Beijing are pushing to diversify Macau away from its reliance on gaming. The expansion of shows like Melco Crown's House of Dancing Water and Sands China's boxing events are intended to attract a wider visitor base who come to Macau for leisure and tourism rather than to play at the felted baccarat tables.

Is it just me or does "House of Dancing Water" sound stereotypically Asian? Anyway, the first thing they teach you in business school is "portfolio diversification," or that you should not put all your eggs in one basket. Whether it concerns commodity-based economies like Zambia or service-based economies like Macau, the advice is generally sound. To some extent Las Vegas has been "Disneyfied" in not being the seedy, dark gambling den it used to be. Rather, Las Vegas and Macau aim to be more business-friendly (think conventions) and family-friendly (think theme parks) destinations. Las Vegas has almost completed this transition; whether Macau can follow suit is an open question.