Rebalancing Act
Electronic games are a vital hedging tool against VIP table volatility, says David Kinsman
“If it was the case that Macau was only high rollers, then the foreign companies shouldn’t bother building casinos. They should just have small operations. Casinos need to be a proper balanced business, because that’s what they’ve got to be to survive,” suggests David Kinsman of Weike.
“Macau is changing character—I don’t care what anybody tells you to the contrary. No business can sustain itself on the high roller end indefinitely—for all sorts of reasons,” he asserts.
“The arguments that are being given about Macau losing money because of visas [for Mainland Chinese visitors] are just spurious. Macau is losing high-end business because people haven’t got the money. It’s that simple.
“Companies in China are going broke. Businessmen in Hong Kong haven’t got the money in their pocket to go and throw into gambling tables. Whenever that happens, it’s going to have an effect. No sensible gambling business can sustain itself just on the top end of the market,” adds Mr Kinsman.
“This industry is based on having a spread—just like a bookmaker. When a bookmaker does a book, he looks at when he’s going to take a bet, against what he already has. He measures his risk.
VIP risk
“Now when you’re 100% in the high roller business, you’re really better off getting a gun and playing Russian roulette—but with a bullet in every chamber. That’s because if you’re in the high roller business exclusively then you will get hurt—no question. You don’t have enough [hedging ability] at any one time to offset. And if the high rollers win in mass, then you get a situation like we’ve seen recently at Altira Macau, and elsewhere, where they [the house] gets wiped out. That can so easily happen,” says Mr Kinsman.
“When you have an undiversified business you are basically playing with fire and you will get caught. The sensible venues are people like Grand Lisboa, like The Venetian, like Wynn, etc., that have allowed themselves to build a mass business and then to offset that against a healthy high roller business,” he adds.
“We still don’t know the truth about the credit situation. Some time, somehow, it will come out, but who knows when? The write-offs could be horrendous. In any case, the high end of the market has lots of inherent dangers. The regulator has to really be vigilant, because with the junket [operator] you’ve introduced another party; you have the debt collection issue—in all it really becomes a difficult business to manage. It’s great while it’s good, but it’s horrendous when it goes the other way.
“In general terms, though, Macau has a wonderful future, and I am absolutely flabbergasted when I see analysts talking down Macau. These were the same people who overblew it and tried to say it was the goose that lays the golden eggs and that there was a pot of money and all you had to do was put your hand in and pull it out full of gold,” states Mr Kinsman.
“Any market that grows at 30% per year when the world is in a massive financial crisis, isn’t a tough market and isn’t a bad market. The market is restructuring, and there are certain sections of the market that are growing while others are changing—that’s fine. All markets do that,” he adds.
“The second biggest earner in Macau after baccarat is slot machines. Last year they grew in net revenue 56%—in a market with fewer machines. What does that tell you? It tells you that people are playing slots more.
“Now if the character of Macau’s visitor is changing, and if there are fewer high rollers coming in, it’s logical that the business for slots and other forms of electronic gaming could end up growing substantially,” says Mr Kinsman.
