Home How Asia’s casinos are surviving the economic slowdown

How Asia’s casinos are surviving the economic slowdown

Over the course of the last decade, Asia’s casinos have been booming. Where once it was such cities as Las Vegas that dominated the casino industry, nowadays the world-renowned Vegas Strip – widely seen as the spiritual home of casino gambling – generates a mere fraction of the revenue cities like Macau do.

The last two years have also seen Singapore emerge as a strong new casino destination thanks to its two new mega resorts, and the city state is also set to overhaul Vegas in terms of casino revenue in the short term.

But with Asia’s leading economies now showing signs of slowing, the challenge faced by its booming casinos is the sternest they’ve experienced in recent times. But as this report compiled by OnlineCasino.sg demonstrates, it’s a storm they’re presently weathering well.

Asia’s slowing economic growth

China and Macau's GDP changesFig. 1: Chinese and Macanese GDP year-on-year growth (sources: AMCM, NBSC)

To understand the problem, first one must understand its root cause – the declining rate of economic growth in Asia’s big economies. With online gambling still largely unregulated in most Asian countries, much of Asia’s gambling boom has focused on the establishment of evermore extravagant casino resorts in the likes of Macau and Singapore.

As both have relatively small populations, the lion’s share of this boom has come from gambling tourism; foreign visitors who are there principally to gamble in those countries’ casinos. In recent times, the emergence of China and India as economic superpowers, coupled with the advent of cheap air travel in Asia, has resulted in booming visitor numbers.

However, times have been changing. In China especially, economic growth has been slowing at a worrying rate. During Q1 2012, gross domestic product (GDP) increased by a year-on-year rate of 8.1%, as opposed to the predicted rate of 8.3%. This compares to 8.9% during the previous quarter, and is itself the slowest it’s been in almost three years (source: BBC).

In countries like India, the rate has been even lower. The growth in Indian GDP during the same timespan being a mere 5.3%, the lowest it’s been in nine years (source: Hindustan Times).

Much of the blame for this has been attributed to the economic problems and resultant uncertainty currently blighting the West, whose demand for goods and services produced in Asia (and China especially), has been a key factor in driving Asia’s economic boom. Nevertheless, although this had had an impact in Asia’s casinos, the sector as a whole is standing up well under the strain, with room for potential expansion.

Macau still going strong

Macau's casinosWidely recognized as the home of Asian casino gambling, no territory has benefitted from Asia’s gambling boom more than Macau. Macau’s casinos have traditionally done brisk trade, ever since its first big casinos opened in the Sixties.

This growth has accelerated in recent years though, mirroring mainland China’s emergence as an economic superpower. In 2006, it overhauled Las Vegas to become the world’s biggest gambling market; and by 2010, casino revenues were four times those of America’s gambling capital (source: Global Gaming Bulletin).

Much of this growth has been attributed to an influx of high rollers from Hong Kong and mainland China. With Macau being the only district in China where casino gambling is fully regulated, this has enabled wealthy Chinese gamblers to flock to the territory to gamble. This has made Macau especially popular with Chinese high rollers, who account for as much as 70% of Macau’s casino business.

Despite there having been some impact from the slowing rate of economic growth on the mainland, however, the overall outlook in Macau remains positive. Although the year-on-year increase in casino revenue may have only been 7.3% for May 2012 (as opposed to 27% for 2011 – source: Times of News), the two graphs below show that Macau is coping well:

Macau casino revenue, June 2010-May 2012 Fig 2: Macau casino revenue, June 2010-May 2012 (source: DSEC)

Macau visitor numbers by countryFig 3: Macau visitor numbers by country, June 2010-May 2012 (source: DSEC)

Although China and Hong Kong continue to be the main source of visitors for Macau by far, casino revenue and visitor numbers continue to grow year-on-year. And even if the rate at which these grow isn’t as strong as in years gone by, the outlook continues to remain positive.

Another key indicator of positivity in the market is the continued investment that’s going on in Macau’s casino sector. Despite the news that casino revenue was below expectation for that month, the Wynn Macau group nevertheless announced that it will be investing $4 billion in a new casino resort on Macau’s Cotai Strip.

With the Cotai Strip also being home to the likes of the Sands Cotai Central, it is being increasingly seen as the future focal point of gambling in Macau, something that hasn’t been lost on the markets. Investment bank Goldman Sachs recently upgraded shares in Wynn Macau after criticizing investor perceptions for being “too pessimistic” (source: CNBC.com), declaring that long-term prospects in Macau remain good.

With China’s property market now showing signs of recovery, and China’s central back having recently cut interest rates for the first time since 2008 (source: BBC) – plus the promise of new and improved casinos on the Cotai Strip – this should convince high rollers and their backers to retain faith in Macau in the years ahead.

Singapore, Asia’s exciting newcomer

While Singapore might be a relative newcomer to casino gambling, this small nation’s two resort-style casinos have had quite an impact already. The first of these, the Resorts World Sentosa, opened in January 2010, while the second, the Marina Bay Sands, followed in February 2011.

Singapore visitor numbers by countryFig. 4: Singapore visitor numbers by country (source: Statistics Singapore)

Singapore GDP 2008-2011Fig. 5: Singapore GDP (Source: Statistics Singapore)

Although Singapore’s economy is more diverse than Macau’s (making it less dependent on gambling and tourism), as the two graphs show, the opening of the two casinos in 2010 and 2011 have coincided with increases in both GDP and the number of tourists visiting the country, most notably from Singapore’s fellow ASEAN member states.

Given that both casinos are still new, assessing their full impact is a difficult undertaking at this stage. But already, its two casinos are performing well, and Singapore is tipped to overhaul Las Vegas in terms of overall casino revenue soon – indeed, it may well have done so already (source: Asia Times).

Casinos in SingaporeCrucially, the success of Singapore’s new casinos seems not to have been born out of taking away Macau’s existing customers, but has come from previously untapped demand among Singapore’s neighbors. As figure 4 shows, during the timeframe shown, visitor numbers from Taiwan, Hong Kong and mainland China have remained largely unchanged. By contrast, visitor numbers from ASEAN nations for 2010 and 2011 are significantly higher than in 2008 and 2009.

Likewise, visitor numbers in Macau also seem unaffected by Singapore’s arrival as a gambling destination.

While the years ahead will show if this is the case, the signs are that the regional market is more than capable of sustaining significant casinos in Singapore.

Branching out – casino growth in other areas of Asia

Given the meteoric growth of casino gambling in Macau and Singapore over the course of the last decade, it should come as no surprise that other countries are now looking to cash in on the casino gambling craze.

Recognizing the success that other cities have had, many Asian nations now see casino gambling as a key means to boost tourism, with the amount of money the operators and gamblers bringing with them being sufficient to significantly boost tax revenue and create jobs.

Recent projects to be announced include Macanese operator Melco Crown Entertainment’s plans to develop a $1 billion resort in Manila, the Philippines (source: Bloomberg Businessweek), and plans to turn the Russian port of Vladivostok – an industrial city, and home to Russia’s Pacific Fleet – into a ‘casino zone’, subject to investment (source: Reuters).

Similarly, casino projects are already underway in Vietnam as well, while similar plans for Japan and Australia have also been discussed.

Although some may fear the emergence of new casino resorts elsewhere in Asia could negatively impact demand in Macau and Singapore, as Singapore shows, this needn’t be the case. Indeed, these casinos could create new regional markets.

Were new resort-style casinos to open in Japan or Vladivostok, these would give gamblers in north-eastern Asia a place to gamble. In such instances, the impact on traditional casino destinations would be minimal; Korean and Japanese tourists typically account for less than 3% of Macau’s visitor arrivals (source: DSEC), but gamblers in those countries may well wish to have a gambling location close to (or in) their own countries.

Las Vegas still in decline

Highlighting that Asia’s casinos remain in a positive position is the world’s former top casino gambling city, Las Vegas. Although America’s economy has shown some signs of recovery since the financial crisis of 2008, Vegas’ casinos have continued to struggle.

Total gaming winnings for NevadaFig. 6: Total gaming winnings for Nevada (source: Nevada Gaming Commission)

As figure 6 shows, although Nevada’s casinos have managed to stop the decline in the annual total gaming winnings over the last few years, they show little sign of returning to their 2007 levels at this time.

Given the present fragile nature of Western economies, coupled with the emergence of online gambling in the Western world, it remains highly unlikely that Las Vegas will be able to challenge its Asian rivals for the foreseeable future.

Growth generation – why Asia is right to embrace casino gambling

Although it’s fair to say traditional centers of gambling such as Macau have experienced a degree of economic slowdown thanks to the slowing of economic growth in countries such as China, Asia’s casino gambling sector remains strong.

The fact two major casinos were able to launch in Singapore without it affecting Macau visitor numbers or casino revenue demonstrates that demand for such casinos in Asia has still to be met.

Given Asia’s size and geography, there’s clearly the potential for more regional gambling hubs to emerge, generating income and investment that will create jobs, drive tourism, generate tax revenue and stimulate the local economies. And with the West unlikely to resolve its economic issues in the short term, this could be a welcome boost for Asia’s own economies.