How Big Could Macau's Gaming Market Be in a Decade?

Macau's gaming market is now seven times the size of the Las Vegas Strip and outgrew the Sin City 18.5% to 4.8% in 2013. So, we should at least be pondering if there's an upper limit to how large the market can grow. 

Massive new resorts like Sands Cotai Central from Las Vegas Sands will bring even more players to Macau. Source: Las Vegas Sands.

It's the growth of Macau's overall market that will really drive Las Vegas Sands (NYSE: LVS  ) , Wynn Resorts (NASDAQ: WYNN  ) , Melco Crown (NASDAQ: MPEL  ) , and MGM Resorts (NYSE: MGM  ) over the next few years. Other than trading market share between one another and the other two concessionaires, SJM and Galaxy, that's the only way to grow.

First, let's look at the size of Macau's gaming revenue compared to China's GDP, a good proxy for the relative size of Macau's gaming business. I've provided the numbers below along with a comparison to the same figures in the U.S.

Region 

2013 GDP

2013 Gross Gaming Revenue

Gaming Revenue as % of GDP

United States

$15.68 trillion 

$38.1 billion* 

0.24%

Macau/China

$9.4 trillion 

$45.2 billion 

0.48%

*U.S. gross gaming revenue not yet final. Estimate based on 2012 data and 2.1% growth through November 2013. Source: UNLV Center for Gaming Research and Macau Gaming Inspection and Coordination Bureau.

The Chinese are known for their gambling, but it's a bit surprising to see double the gaming revenue as a percentage of GDP versus the U.S. Keep in mind the total market for gaming in the U.S. is about six times the size of the Las Vegas Strip, so gaming in the U.S. is much more than just Las Vegas.

One advantage Macau has over Sin City is that it's the only place in China where gambling is legal. So, while expanded gaming in Kansas may take away from Las Vegas growth, as China's economy grows, so will Macau. 

Casinos like this are packed across Macau. Source: Las Vegas Sands.

How big can Macau get?
When considering how big Macau could get over the next decade, we need to consider both China's economic growth as well as gaming as a percentage of the economy. If China's GDP grows between 7% and 8% over the next decade, the economy would double in size, giving a larger base for Macau to draw from.

So, China's growth alone will lead to growth in Macau, but so will access. As I pointed out above, Macau is the only place in China where gambling is legal and a limiting factor to tourism has been access. A high speed rail into mainland China and a bridge to Hong Kong, among other infrastructure improvements, will also lead to growth in Macau. These improvements will give China's growing middle class easy access to Macau and make it an international destination as well. Even when you consider the potential for gaming expansion around Asia, I think Macau can double its gaming revenue as a percentage of China's GDP to around 1% from 0.48% in 2013..

If China's GDP doubles, and gaming revenue as a percentage of the economy doubles, it's easy to conceive that gaming revenue could quadruple to around $200 billion by 2023. Put another way, that would be 16% annual growth, a level Macau has surpassed over the past decade.

A $200 billion gaming market may seem impossible to fathom, but as the region grows and resorts expand, it's a distinct reality. That would be a boon for Las Vegas Sands, Wynn, Melco Crown, and MGM, who will all share in the spoils of a growing Macau.

Three stocks poised to be multibaggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry, like the companies who dominate Macau today. Our analysts have found multibagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2905359, ~/Articles/ArticleHandler.aspx, 8/27/2014 5:17:42 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement