How China is Looking to Change Casino Gaming

Oct 09

For several decades, Las Vegas was deemed the casino capital of the world, and rightly so. If anyone mentioned the word ‘casino’, it always came with a mention of Las Vegas as well. And the ultimate goal of any casino enthusiast would always be to be able to visit the Strip and try their luck at the world-famous casinos in that area.

A Rich History

Las Vegas’ gambling history is indeed a rich one. Gambling used to be illegal in the city until 1931, when local politicians realized there was significant revenue they can make from the gambling industry. This is why the first casino license was issued in 1931. By 1954, over 8 million individuals were already frequenting the casinos every year, and the industry was earning over $200 million in revenue.

More hotels and casinos started being built in Las Vegas in the following years, and Las Vegas soon became the casino capital of the world. Everyone seemed to want to visit the city, not just gambling enthusiasts, but even regular tourists who want to experience playing in a casino and watching the live shows at the Strip.

Changing Times

Evidence shows that times have changed in recent years. As gambling became more and more popular all over the world, rival cities began to try wrestling the title of casino capital of the world away from Las Vegas. New Jersey was one of the places that became a major rival for Las Vegas, with Atlantic City becoming known as the ‘entertainment capital of the East’.

New casinos opened in Atlantic City and players started placing bets on games that are beyond the usual. The State of New Jersey even changed sports betting policy. The case they filed against the federal ban on sports gambling led to a landmark ruling that changed the gambling landscape in the United States in 2018. Now, individual states are able to legalize sports betting, and casinos are now able to run sportsbooks and earn even bigger revenue.

Recently, China has also become a major player in the world gambling stage. Macau surpassed Las Vegas and became known as the new casino capital of the world. Perhaps this isn’t as surprising as one would think, considering that Macau actually has a much longer history than Las Vegas when it comes to legalized gambling. Gambling has been legal in Macau since the 1850s, and it was even known as ‘the Monte Carlo of the East’.

Initially, only Chinese games were played in the Macau gambling industry. Western games were only introduced in the early 20th century. There are many who are critical of gambling in China, but the Macau tourist board is definitely on board with the continued growth of the gambling industry. In fact, gambling tourism is such a big deal in Macau, contributing 50% of its total revenue.

In 2007, Macau saw such a huge influx of tourists from Hong Kong, mainland China, and other countries that it actually earned significantly more revenue than the world-famous Las Vegas Strip. Having just returned to Chinese rule in 1999 as a special administrative region, Macau has different laws to the mainland and is currently the only place in China where gambling is legal, which means it is guaranteed a steady stream of customers, especially in light of the growing popularity of gambling worldwide.

In 2010, the former Portuguese colony cemented its place as the world’s gambling capital even more when it earned revenue from gambling receipts that is higher than that of the entire State of Nevada. It even has the architecture to match its ever-growing reputation as a premier gambling destination. Some of the world’s biggest and most modern casinos are found in this glittering city.

Before returning to Chinese rule in 1999, Macau had a fraught environment, with organized crime competing to gain access to sub-contracted VIP gaming rooms. These gaming rooms typically hosted high-stakes games in a private setting. They were a huge part of setting the Macau gambling experience apart from other popular casino destinations.

Macau’s International Investment

Until the year 2001, there was only one company licensed to operate casinos in Macau, the Sociedade de Turismo e Diversões de Macau, SA (STDM). But in the year 2002, casino licenses started being awarded to a number of multinational firms and joint ventures. The license awardees included companies from Australia, Hong Kong, and the United States. Some of these firms were recognisable names like Las Vegas Sands, Wynn Resorts, Galaxy, and MGM.

Given the minuscule size of Macau, it was amazing to see how they invested in huge casino resort complexes, which featured luxury hotels and even high-end shopping malls. They had to complete land reclamation projects in order to accommodate the continually growing gambling industry. By 2010, there was about six square kilometers of new land that connects the islands of Coloane to Taipa, which hosts the huge casino complexes.

The casino complexes understandably provided a significant number of job opportunities for local citizens. More than that, though, the economic impact of these developments are seen in the growing number of tourists as well as the increasing revenue generated by the industry. After a decade of steady revenue growth, tax revenue peaked in 2014, but declined a bit after Chinese President Xi Jinping launched a widespread anti-corruption campaign.

The gambling industry was affected because the money spent in the VIP rooms were believed to be proceeds of corruption and bribery in mainland China. Gaming tax revenue comprised 84% of Macau’s total revenue in 2014. In 2017, the number had declined to 79%. In terms of actual amount, the numbers declined from US$20.1 billion in 2014 to US$15.7 billion in 2017. The decline was primarily because several members of the Chinese elite stopped frequenting Macau casinos in order to avoid financial scrutiny during the corruption crackdown.

Macau then made a move to gradually veer away from its previous reliance on VIP rooms and step closer to mass market entertainment. The government has also began encouraging diversification, so betting companies are now moving towards expanding beyond gaming rooms and attracting exhibitions and events. Macau is definitely looking more and more like Las Vegas.

A new bridge was recently built, connecting Macau to Hong Kong, and this infrastructure is meant to support an increase in tourist visits by making travel into the territory a lot easier. The continued success of Macau as a gambling destination is highly dependent on its ability to attract mass market gamblers, along with other types of tourists. It has to be able to successfully market itself not only as a gambling destination, but also as a vacation destination.

The Middle Class Shaping the Gaming Landscape

One of the most important factors when it comes to China’s economy in recent years is the country’s exploding middle class and its growing income. Not only is the Chinese middle class growing at a rapid pace, but those who belong to it are also spending more and more of their income on trips abroad. Operators of resort complexes with gaming floors therefore grabbed the opportunity to capitalize on the evidently robust financial state of the middle class and are now focusing their efforts on serving this demographic.

Following are some quick facts that help explain how China’s middle class recently transformed into one of the region’s major consumer powers in the Asia-Pacific region. These facts also point to how this demographic is poised to become the primary customer group of resort complexes in the said region.

  • Total spending by China’s outbound tourists in 2017 was at $115.3 billion.
  • China’s middle class made 130 million outbound trips in that same year.
  • The most popular destinations for China’s outbound tourists include Cambodia, Indonesia, Japan, Russia, South Korea, Thailand, and Vietnam.
  • According to research, the middle class will comprise about 75% of urban China’s population by 2022.
  • A former Secretary-General of the UN World Tourism Organization has said that Chinese tourists are “the most powerful single source of change in the tourism industry.”
  • The disposable income of Chinese travelers has grown significantly in recent years, encouraging more and longer trips.

These quick facts show that the Chinese middle class has gotten bigger and more consumption-oriented in recent years. Where the gambling industry is concerned, that could catalyze a significant change in the casino gaming landscape of Asia, especially considering that a growing number of gaming and hospitality firms in the region is now focusing all efforts towards accommodating, feeding, and entertaining these particular consumers.

The casino resort complex model is also becoming more popular beyond Macau, right across the entire Asia-Pacific region. Unlike traditional gambling complexes, these integrated casino resorts offer a wide range of options for accommodation, retail, food and beverage, and entertainment. This means gambling isn’t the only form of entertainment being offered. Many of these establishments even have space for business meetings and convention activities.

It is safe to say that Macau paved the way for the rest of the region to adopt the integrated resort model. It is evident that this tiny administrative region on the southeastern tip of China has found the perfect formula for success in the same way Las Vegas did several decades ago. It is no wonder, then, why Macau has replaced the iconic Las Vegas Strip as the largest casino gaming hub in the world just a few years after it opened up the market for international companies to develop gambling establishments there.

These days, though, the construction of spacious resorts with dedicated casino space, along with other non-gaming facilities is not just limited to Macau. Singapore, for one, now has two such properties. And the Philippines isn’t that far behind Macau, as they now have five integrated casino resorts in operation, with plans for more of such resorts already under way.

Even South Korea has announced plans for the development of a few integrated resorts in the near future. These resorts will likely be centered around casinos, although it will offer other facilities. One such resort has, in fact, just been launched in the country just last spring. Additionally, Japan has just legalized casino gambling. The country is now working on implementing a piece of legislation that would open the doors for the construction of at least two integrated resorts with dedicated casino space.

Although the casino floors are still quite dependent on Chinese high-rollers for their revenue, it is clear that this dependence is continually weakening. Casino resorts across the region are now catering to the needs and preferences of various demographic groups as well as travelers who visit the region for a wide range of reasons. It is also worth noting that resort developers will most likely take advantage of the warming relations between China and other countries in the Asia-Pacific region, such as South Korea and the Philippines.

The move towards integrated casino resorts go hand-in-hand with the decision to veer away from VIP gaming rooms and steer closer to mass market gaming. To understand why this is a smart move, it is important to understand the difference between high-rollers and mass market consumers. Basically, high-rollers are there to gamble. And while they do gamble a lot, they typically do nothing else within the establishment. On the other hand, mass market consumers typically spend a bit of time at the tables, some time at the slot machines, and time at the other facilities within the complex. They therefore contribute to the revenue of practically all aspects of the resort.

The performance logged by integrated resort complexes over the past decade is also highly encouraging. Macau’s mass market segment showed a growth of almost 20% year-on-year in the first quarter of 2018. Furthermore, JP Morgan’s analysts have said that the casino market’s recovery encompasses all segments, including small junkets, premium mass, mid-tier mass, and grind mass. This performance certainly makes industry movers more confident that they are on the right track, and that resorts offering leisure and entertainment options beyond gambling will give them even bigger success in the future.