The Macau gambling boom was on full display over Chinese New Year. The city hosted more than 1 million visitors during the extended holiday, a 12 percent increase over last year. By the time they left, the casinos were US$1 billion richer.

The week-long holiday, which began on 31 January, is expected to boost February gross gaming revenue by 20-25 percent over the same month last year, implying $4 billion at the least, or a haul equivalent to $143 million day.
China’s only legal casino market generated $45 billion in gross gaming revenues (GGR) last year—35 properties that accounted for more than 10 percent of the global gambling industry’s entire estimated win from all sources, as measured by GBGC’s Global Gambling Report.


If investment analysts are right and the market grows by 15 percent this year, Macau’s share of estimated world GGR will surpass 11 percent in 2014.
The reason is mainland China, whose tourists spend about 27 percent more per capita than the average—32 percent more for those arriving on the Individual Visit Scheme (IVS), a watershed program now in its 11th year and currently embracing 39 cities—and their impact continues to grow with their numbers. Visitor arrivals totaled 29.3 million last year, a 4 percent increase over 2012. Visitation from the mainland grew at more than twice that rate. It comprised 63 percent of all arrivals, and of those 43 percent came on the IVS.
The best part from the standpoint of the casinos is that the market has barely scratched the surface of China’s adult population.
This was driven home recently by the performance of the new Chimelong International Ocean Resort on neighboring Hengqin Island, a theme park and hotel that opened on 28 January and drew about 500,000 visitors in its first week, most of them reported to be independent travelers from Zhuhai, the closest big city on the mainland, and elsewhere in the surrounding area of the Pearl River Delta. 

Investment brokers Stern Agee expect upwards of 20 percent of tourists heading to Hengqin will also visit Macau, which could translate to as many as 1 million additional visitors in 2014 alone.
“It speaks to the fact that entertainment offerings within mainland China are in short supply,” writes Union Gaming Research Macau. “It would not be a stretch to think that this park, even in its current state, could capture up to 5.5 million persons in its first year of operation. This number will only get much bigger over the coming years as the additional theme parks on Hengqin are brought online.”
Under-pentration is why Nomura Securities, for one, is now talking about Macau in terms of $80 billion in GGR in as little as five years.
“Our analysis suggests that a penetration rate of 25 percent-plus indicates a mature market,” the firm said in a recent note to investors. “If we assume each Mainland Chinese visitor makes two-three trips to Macau per year, this implies unique visitors from China are actually about 6-9 million, which implies a penetration rate of just 1.4-2.1 percent. To put it another way, Mainland Chinese visitation to Macau needs to increase to 217 million, or 12 times the 2013 level of 19 million, before Macau approaches a mature market.” 

The firm estimates that in mature markets such as the U.S., one gaming position serves around 200 people. In Australia one gaming position serves 70 people. In Macau, one gaming position serves around 1,900 people. Not surprisingly, over the last five years, while the number of gaming positions in Macau has increased 39 percent, gaming revenue has soared 180 percent.
As Nomura also points out, the six new resorts under construction on Cotai and slated to open over the next three years will hardly make a dent.
“Even after we account for the 2015-2017 growth spurt, one gaming position in Macau only serves approximately 1,300 people.”