Macau: The Future Entertainment Capital of the World?
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Case Code: ECON024 Case Length: 19 Pages Period: 1999-2007 Pub Date: 2007 Teaching Note: Not Available |
Price: Rs.300 Organization : - Industry : Miscellaneous Countries : Macau SAR, China Themes: Economics and Politics |
Abstract Case Intro 1 Case Intro 2 Excerpts
"The fact is, as we stand today, Macao is going to be a bigger market than Las Vegas. And by the end of the decade it could be twice the size of Las Vegas."
- Harry Curtis, a gambling analyst at JP Morgan, in July, 2007
"Macau is potentially one of the best markets to ever open up."
- Matthew Jacob, an analyst with Majestic Research in New York, in August, 2006
"The prospect of an oversupply [in Macau] is a major concern...Going forward, we intend to provide more gaming facilities, not hotel rooms."
- Vanessa Fan, Managing Director, Emperor Group, Hong Kong, in February, 2006
Introduction
In 2006, Macau, a Special Administrative Region (SAR) of the People's Republic of China (PRC), with its 27 casinos, replaced Las Vegas as the biggest center of gambling in the world (Refer Exhibit I for a map of Macau). Macau's casinos had revenues of 55.9 billion Macanese Patacas (US$ 7 billion), an increase of 22% (year-on-year). According to Rob Hart, a Hong Kong-based gaming and property market strategist for Morgan Stanley, Macau's gaming revenues were expected to reach US$ 10 billion in 2007.8 Macau's gaming industry developed in the 18th century, when the Portuguese administered the island. Since then the gaming industry has grown manifold, with the patronage of visitors from China, a country where all forms of gambling are banned.
When Macau became a SAR of the PRC on December 20, 1999, the Chinese government implemented the "one country, two systems" policy, which ensured that Macau's gaming industry remained legal. Soon after the SAR government was formed, it announced that it would reduce Macau's dependence on the gaming industry. However, since Macau's economy was heavily dependent on gaming revenues and there were few alternatives for the economy's growth, the government decided to develop a master plan that would help Macau become a tourism and gaming hub in Asia. The Beijing government too supported the master plan. In 2002, Macau's gaming industry was opened up. The opening up of the gaming industry attracted several foreign casino operators, including some based in Las Vegas, into Macau. These foreign operators announced grand plans to build integrated casino-resorts with hotels, convention centers, and shopping malls.
By the time these projects reached completion, Macau was expected to be transformed into a world-class gaming and entertainment hotspot. In 2003, China eased travel restrictions on Chinese wishing to travel to Macau. This contributed significantly to the growth of the gaming industry in 2003-04, and Macau's economy as a whole grew by 28%. Meanwhile, around this time, several neighboring countries, including Singapore, announced plans to liberalize their gaming sectors and to build huge gaming resorts (Refer Exhibit II for some gaming centers around the world). Analysts said that as some of these places were better connected, Macau could face some serious competition in the future. Also, there was concern that with new competition and with the new casinos that were to open in 2008-09, Macau's gaming industry could face oversupply leading to a decline in profit margins. However, others felt that Macau's proximity to China and its affordability would ensure that the Chinese, who formed most of the visitors to Macau's casinos, would not shift loyalties and would continue to provide strong demand.
Some analysts felt that the gaming industry was becoming excessively dominant in Macau's economy. The overemphasis on the tourism and gaming industry could hurt small and medium enterprises (SMEs), they said. The SME sector was already suffering from a shortage of labor as locals found employment in the gaming industry much more lucrative.
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