The numbers are in, and 2013 was another record year for gaming in Macau, by a wide margin. Gaming revenue rose 18.6% to $45.2 billion, seven times the Las Vegas Strip's number, which helped drive gaming stocks all year.
The year was highlighted by further expansion of Las Vegas Sands' (NYSE:LVS) Cotai Central and planning and construction starting in earnest for Las Vegas Sands, Wynn Resorts (NASDAQ:WYNN), Melco Crown (NASDAQ:MLCO), and MGM Resorts (NYSE:MGM) on Cotai, where the government's vision of an entertainment mecca is taking shape.
There were some emerging trends in 2013 that will drive growth in 2014. Here's what to keep an eye on.
Non-VIP players are picking up steam
One of the main reasons Macau wants to improve infrastructure leading to and around the area is to diversify its customer base. In recent history, VIPs have accounted for about 70% of gaming in Macau, and that's a relatively small market to count on for $45 billion in revenue.
Last year, the mass market started to play a much larger role in gaming. Mass-market baccarat grew from 21.8% of game play in 2012 to 24.8% in the first three quarters of 2013 (the most recent detailed data). By contrast, VIP baccarat fell from 69.3% of revenue to 66.6% in the same time frame.
Macau is still heavily reliant on VIPs, but the mass market is playing a bigger role every year in the special Chinese administrative region. Las Vegas Sands and Melco Crown took advantage of that last year and their presence on Cotai will help them with the mass market again this year.
Construction season is here
Investors looking at gaming stocks need to focus just as much on where new resorts are going up as where they already exist. The next growth phase for companies like Wynn Resorts and MGM Resorts really starts when they complete projects on Cotai in 2016.
Below is a map of the new construction for the U.S. traded companies. When open, they'll take away some revenue from existing resorts and also make the Macau Peninsula even less attractive to the mass market, like downtown Las Vegas of today.
The Parisian from Las Vegas Sands will complete the company's dominance of the Cotai Strip. Its neighbor Melco Crown's Studio City on the south side of Cotai is another high-potential resort, although it isn't currently approved for table games.
Watch to make sure construction goes off without a hitch this year. It'll be 2015 before any of these resorts are open, but the groundwork is being laid now.
Asia is taking notice
The biggest threat to Macau's gaming dominance comes from expanded gaming across Asia. South Korea, the Philippines, and Singapore have already opened up gaming, and Japan may be next. New resorts in these regions will be added competition for gaming dollars.
There's also the possibility that China opens up its currency to allow more money to flow out of the country. If it does, the junket structure that's driven Macau's growth could see those dollars fly elsewhere.
These threats have existed for years and thus far haven't derailed Macau's gaming growth, but they're worth keeping an eye on this year.
Macau is set up for another great year
It becomes harder to grow the bigger Macau gets, but there's nothing to indicate that 2014 won't be another strong year. Anything near double-digit growth should be considered a success and will drive gaming stocks higher.