A monopoly in gaming in a region can bring riches to any company with casinos there. Forty years ago, Stanley Ho started building his gaming empire half a world away in Macau. Soon after, a similar monopoly emerged in the U.S.
Atlantic City didn't control gambling throughout the U.S., but it had a quasi-monopoly on the East Coast from the time the company simply known as Resorts opened its first casino there. But times have changed in both Atlantic City and Macau, and the two cities now tell very different tales.
Atlantic City before the fall
When Atlantic City entered its most recent heyday around the beginning of the previous decade, the few Indian casinos on the East Coast didn't have the glitz and glamour of new boardwalk casinos, and regional casinos were still years away. Donald Trump built giant casinos adorned with gold and everything Trump, and along with a handful of other casinos, his palaces birthed the Atlantic City gaming boom. Even years later, when Boyd Gaming (NYSE: BYD ) partnered with MGM Resorts (NYSE: MGM ) to build the wildly successful Borgata Resort and Casino, Atlantic City remained a good investment. This was the place to be for gamblers east of the Mississippi.
But by 2007, regional casinos started taking their toll. Upstart companies Ameristar Casinos (Nasdaq: ASCA ) , Penn National Gaming (Nasdaq: PENN ) , and Pinnacle Entertainment were creeping closer and closer to Atlantic City from the west, and more states started opening their doors to casinos. After reaching an all-time high of $5.2 billion in 2006, gaming revenue in Atlantic City had fallen to $3.6 billion by last year.
Recently, Penn National has entered Maryland; Las Vegas Sands (NYSE: LVS ) has built one of many casinos in Pennsylvania; and a new push could make some gaming legal online. Atlantic City is no longer the destination town it once was, as newer casinos located themselves closer to populated East Coast cities.
The regional monopoly that Atlantic City once had looks awfully familiar to another gaming town half a world away.
A city on the rise
Macau has experienced phenomenal growth since it allowed in new casino operators back in 2004. Las Vegas Sands, Wynn Resorts (Nasdaq: WYNN ) , Melco Crown (Nasdaq: MPEL ) , and MGM Resorts now operate casinos in the gaming enclave, all enjoying the region's fast rise in revenue.
Even after gaming revenue rose 57.8% last year, Macau remains on a roll in 2011. Gross gaming revenue was up 42.4% in May, to a record of $3.03 billion. That represents nearly an entire year of gaming revenue in Atlantic City. Year to date, Macau's gaming revenue is up 43.1%, and that rise shows no signs of stopping.
Macau is an ideal investment for gaming companies, because it's the only place in China where gambling is legal, and the Macau government regulates expansion. Even though revenue is growing at more than 40% this year, only one new casino, Galaxy Macau, is expected to open this year. That keeps the area from expanding too quickly and diluting profits at each casino.
Today, Asian gambling is locked into a regional duopoly: Macau and Singapore. With only two casinos in Singapore and no plans to expand, both cities should be able to coexist easily until other gaming hubs arise.
Proliferation isn't good for anyone
Listen to some gaming executives, and you'd think that expanding more in Asia would be a great idea. Gaming giants have talked about expanding to Vietnam, Japan, and Spain, among other places. Still, I have to wonder who'd really benefit from such a move. Macau casinos are making money hand over fist, like Atlantic City was before. Add a casino here and a casino there, and that advantage would be gone as quickly as it left Atlantic City.
The trials and tribulations of Atlantic City, and the general gaming proliferation on the East Coast, can tell us something about what to expect in Asia. If Macau and Singapore remain the only major gambling hubs, then Las Vegas Sands, Melco Crown, and Wynn Resorts will reap the benefits. But if we use Atlantic City as our guide, we shouldn't root for competition near Macau. If too many rivals spring up too close by, no one will make as much money.
It's tough not to chase the almighty dollar (or patacas, or Vietnamese dong, or Japanese yen) but it would be wise for gaming giants to consolidate their power in Macau and Singapore. In the U.S., we've seen what can happen when gaming proliferation goes too far. Frankly, it isn't pretty.
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