How Big Can Macau Get?

In the past decade, Macau has grown from a seedy gambling monopoly to a gaming Mecca more than six times the size of the Las Vegas Strip. So it's now reasonable to ask just how big Macau could get. Since Las Vegas Sands (NYSE: LVS  ) first opened Sands Macau in 2004, Macau has outgrown China itself by a wide margin, so a larger and larger percentage of China's GDP is being spent on gambling. Long-term, this is a limit to Macau's growth as well as the expansion of gaming around Asia. 

A gambling habit gone crazy
Many people think there's already too much gambling in the U.S., but China really puts us to shame. Macau's gaming revenue as a percentage of China's GDP is already nearly double the comparable figure in the United States:

Metric

United States

Macau/China

2012 Gaming Revenue (Growth)

$37.3 billion (4.8%)

$38.0 billion (13.5%)

2012 GDP (Growth)

$15.7 trillion (4%)

$8.3 trillion (7.8%)

Gaming as % of GDP

0.25%

0.46%

Sources: American Gaming Association and Macau Gaming Inspection and Coordination Bureau.

The fact that China spends roughly twice as much of its GDP on gaming as the U.S. does is important, because there's a limit to how large this percentage can get. The Chinese government doesn't want 2% or 3% of GDP going to Macau, particularly to the U.S. companies that operate there.

For companies operating in Macau, the overall growth of gaming is going to be the driver of profits going forward. So Macau's gaming revenue will need to grow to 1% of China's GDP, or maybe more, to justify the high price of gaming stocks right now.

More expansion is coming
As gaming has expanded, so have operators in Macau and surrounding areas. Las Vegas Sands, Wynn Resorts (NASDAQ: WYNN  ) , MGM Resorts (NYSE: MGM  ) , and Melco Crown (NASDAQ: MPEL  ) are each spending billions to build on Cotai. If Macau gaming revenue doesn't expand, these new resorts will pull revenue from existing properties and dilute results.

Another worry should be gaming expansion in Singapore, The Philippines, South Korea, and a number of other countries are looking into legalized gaming. 

Foolish bottom line
So, how big can Macau get? I doubt China will allow Macau gaming revenue to grow larger than 1% of its overall GDP. That's just too large for any country. But Macau can double in size over the next decade, and China's economy will grow at the same time. That could bring gaming revenue to $100 billion, an incredible size and amazing opportunity for resort operators.

Macau's days of growing 40% annually are over, and with more supply hitting the market in 2016, investors should watch what they pay for gaming companies. With that said, Macau is still a huge opportunity that could grow around 10% annually for the next decade. Not bad for a small plot of land with little going for it other than games of chance.

Is Las Vegas Sands a buy?
For many companies, successfully capitalizing on a booming Chinese economy is like winning the jackpot. That's indeed the case for gaming company Las Vegas Sands, which made a big bet on Macau gaming about a decade ago that's paid off in spades. The company is now looking to spread its empire further, but will it be able to replicate its prior successes? Learn about all these opportunities, and the risks they pose, in our premium report on Las Vegas Sands. Be sure to claim your copy today by clicking here.


Read/Post Comments (6) | Recommend This Article (2)

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  • Report this Comment On June 13, 2013, at 12:36 PM, spokanimal wrote:

    Nice analogy, Travis, but overly simplistic. That's why a short ditty by you on Motley Fool will never compare with the analyses that eminate from seasoned CFAs working for major wirehouses.

    For example, a fair amount of Macau's gaming revenues come from outside China... increasingly so as Macau rapidly gains status as a world-class leisure destination. One might also consider that GDP is but one measure... how about comparing declining middle-class incomes in the U.S. to the incomes of middle-class Chinese citizens, which are growing at double-draigit rates and supporting their consideration of a high-speed train ride to Macau.

    Do comparable US stats include tribals... what percent of US GGRs come from foreigners... with future Macau GGR growth coming from it's fledgling "mass market" patrons... are there growth prospects there relative to the fully-developed mass market equivalent in the US?

    Travis, I'm sure that if you've read my comment to this point, that your mind can conjure up the other, 2 dozen addendums that could have been applied to your GDP vs GGR analogy above... and just how robustly those addendums could color your argument...

    ... particulary in a direction that is quite different from your conclusion that Macau's growth could markedly slow from it's current, 14% clip.

    Spokanimal

  • Report this Comment On June 13, 2013, at 7:15 PM, cp757 wrote:

    Travis is such a goofball. LasVegas Sands is the winner in Macau so now he wants to tell people it wont go on forever. Thats amazing. Las Vegas Sands is building the Parisian and construction is currently underway and will be completed Dec 2015 and it will have 3,000 to 4,000 rooms with Gaming capacity of 450 table games and 2,500 slots and ETGs with a replica of the Eiffel Tower, and M.I.C.E. space but he wants us to just wait until 2016.

    They are going to 100 billion and that is a lot.

    He forgot about Las Vegas Sands in Madrid Spain and Tokyo but then what else is new. The Sunday paper had the comics and the Motley Fool has Travis Hoium

  • Report this Comment On June 13, 2013, at 7:56 PM, cp757 wrote:

    Macau Gaming Operators by number of rooms

    Las Vegas Sands 9,354 rooms

    Galaxy Entertainment 3,259 rooms

    Melco Crown 1,677 rooms

    Wynn Resorts 1,014 rooms

    SJM Holdings 839 rooms

    MGM China 587 rooms

    LVS will get one billion dollars from Condo sales and still have 4/5 of the rooms in Macau.

    They will also add 2500 rooms at the Marina Bay Sands resort.

  • Report this Comment On June 16, 2013, at 9:01 PM, cp757 wrote:

    Gambling revenue in the Chinese territory rose 25% from the previous year to 31.34 billion patacas ($3.92 billion) last month, according to data from Macau's Gaming Inspection and Coordination Bureau released Tuesday.

    The total revenue haul in March bested the territory's previous monthly record of 28.25 billion patacas set in December 2012.

    Grant Govertsen, an analyst from Union Gaming Group, wrote in a note following the results that he is maintaining his forecast for Macau's gambling revenue to increase by 16% in 2013 from 2012.

  • Report this Comment On June 17, 2013, at 1:45 PM, cp757 wrote:

    Gross gaming revenue, excluding electronic table games (ETGs), for the first 16 days of June generated an average daily rate (ADR) of HK $1,093.9MM. This is up sharply from last week’s level of HK$785.3MM and is currently pacing up 27.3% over last June. According to our channel checks, the week benefited from healthy VIP turnover and higher than normal win percentages. In addition, the positive trends in the mass market business continue as head counts and table play activity were strong. We would also note that China’s Dragon Boat Festival holiday was held on Wednesday June 12th, which may have resulted in additional visitation to Macau during the week

  • Report this Comment On June 18, 2013, at 9:14 AM, cp757 wrote:

    4 users liked this posts users disliked this posts 0

    Reply

    Wells Fargo, RBC and Citi Raise GGR estimates

    .

    Several gaming analysts have just revised upward their estimates for Macau’s gross gaming revenue for this month.

    This comes after the gaming industry posted a strong performance last week, with average daily revenue up by round 40 percent in comparison with the previous week.

    Based on trends through June 16, Wells Fargo senior analyst Cameron McKnight estimates Macau gaming revenue growth for June is trending between 18 to 23 percent year-on-year, versus his prior 8 to 12 percent estimate.

    In June last year, Macau recorded casino gross gaming revenue of MOP23.3 billion (US$2.9 billion).

    Mr McKnight expects momentum to accelerate in the coming months, towards Well Fargo’s 2013 gaming growth estimate for Macau of 16 percent.

    RBC’s John Kempf says last week’s performance was positively impacted by healthy VIP turnover and higher than normal win percentages. Also pushing revenue up were positive mass market trends and the Dragon Boat Festival holiday.

    Mr Kempf also raised his June forecast. He now estimates growth to reach 19 to 21 percent compared to June 2012, up from his prior forecast of 10 to 12 percent growth.

    Citigroup Anil Daswani also lifted his forecast for June, to a year-on-year growth rate of 22 percent

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