The opening of Galaxy Macau seems to have spurred real market growth
Two weeks’ trading doesn’t make a business revolution—but it does appear that Galaxy Macau actually expanded the Macau gaming market in May rather than merely cannibalising its rivals.
At the time Inside Asian Gaming went to press, Lusa—the Portuguese news agency—was reporting market sources saying gross gaming revenues (GGR) for May were likely to hit MOP24 billion (US$3 billion). This implied an average daily gross for the month of MOP774 million. That’s around 13% higher than Macau’s MOP683 million average daily gross in April 2011. April was itself a year on year record, bringing in MOP20.5 billion across the month.
There are good reasons to be cautious, however, about such comparisons and using them to extrapolate in relation to Galaxy Macau. One is that April has one fewer day than May. A second is that seasonal variations in market-wide visitor traffic make month on month comparisons less useful than year on year ones. A third is that the Macau market is dominated by live table baccarat, and that game has a lot of volatility in the amount the operator gets to ‘hold’ and thus what profit the operator makes from that part of the gaming business. Some weeks and some quarters can be particularly lucky for the players, and other periods can work well for the house—even though over the long-term this volatility gets ‘smoothed’ for all the operators, thus reflecting the underlying (and very low) house advantage in the baccarat game. But for the financial community—focused on quarterly, half-yearly and year on year business trends—these win-rate variations are an important variable to be factored in.
Despite all those very necessary caveats, there does appear room for a larger than normal dose of optimism about the trajectory of the Macau gaming market and Galaxy Macau’s place in it. If the MOP24 billion figure for total May revenue comes to pass by the time readers see this, it will have meant a year on year growth in GGR of 41% when compared to May 2010’s total of MOP17 billion.
Galaxy Macau’s operator, Hong Kong-listed Galaxy Entertainment Group, said 20,000 people visited the Cotai resort in the very first hour-and-a-half of its phase one opening on Sunday 15th May. Even taking into account the opening ‘bounce’ in visitors that every new property in Macau has experienced, that looks impressive.
The issue is, can Galaxy Macau maintain a consistent and above market average performance in the coming months, even if—as many observers expect—the initial frenzy dies down and daily guest numbers drop somewhat. And one visitor through the door is not the same thing as one gambler at the tables. Sources at Sands China, for example, said The Venetian did more revenues over the first two days after Galaxy Macau opened than it had been averaging on a month-to-date basis. This was despite the fact it appeared to IAG and some other observers that The Venetian’s foot traffic on the main floor was down from its normal levels in the week of the Galaxy Macau opening.
IAG’s observations of Galaxy Macau and anecdotes from other sources—while not scientific— do suggest sustained high use of the gaming tables and also the slots in the first two weeks of the property opening. The slot performance—in terms of people actually queuing to get on machines—is particularly interesting given that in Macau during 2010 the contribution of slots as a percentage of the gaming gross actually fell compared to 2009. Galaxy Macau may have taken a leaf out of Genting Singapore’s book over at Resorts World Sentosa in the Lion City. At RWS, the slots are in sociable clusters and integrated with table areas rather than spread out in endless rows often extending well away from table areas in the manner of Las Vegas Sands’ Marina Bay Sands in Singapore, or The Venetian on Cotai. At RWS, all of the slot zones are on the way to somewhere, naturally creating foot traffic and the potential for casual play. The same principle seems to apply at Galaxy Macau.
Peter Johns, Vice President of Electronic Gaming at Galaxy Macau, and his team seem to have succeeded in producing both a portfolio of ‘hot’ games appropriate to the market and one that is visually appealing across the floor in terms of top boxes and other electronic promotional media. The return to player percentage at Galaxy Macau (how much the machines give back to the playing public as a percentage of total money wagered) is—for the time being at least—a well-kept secret and could stay that way given that there is currently no legal minimum RTP for slots in Macau (unlike Singapore). But it seems likely that at Galaxy Macau, a combination of competitive RTP and word of mouth among players is providing at least some of the enthusiastic slot traffic.
As one industry executive told IAG: “From his days opening and running slots at MGM Macau, I would expect his RTP at Galaxy Macau to be among the most competitive in the market.”
Window shopping
Another important factor in the apparent success of Galaxy Macau’s slots and mass market tables could be the property’s unambiguous player rewards scheme. Examples of the gifts players can get for their points are actually on display in glass cases at the Galaxy Privilege Club desk, which takes up a significant portion of the eastern side of the main gaming floor.
Most of the mass market membership desks and schemes IAG has seen in rival operators’ venues focus on abstract concepts such as precious metals to denote membership levels in the manner of credit cards. Galaxy Macau gets right to the heart of the matter.
Divided but united
The main floor at Galaxy Macau is vast but not nearly as intimidating as The Venetian. Like Wynn Macau, it is broken up into zones, but unlike Wynn Macau you still get a sense of the whole and you have a horizon to work with. This allows guests to navigate their way around easily. If you want to find Elektroncek’s new 34-station three-game Organic Island installation (sic bo, roulette and fish ‘shrimp’ crab), for example, that’s no problem. The sightlines are such that you can see the overhead display of the installation from almost any point when you’re in that half of the floor.
Let there be light
Some Western observers have commented that the illumination of the main floor looks too bright. They might like to consider the fact that in many working class and lower middle class Chinese homes in Hong Kong and Macau as well as in the PRC, living rooms are powered by bright strip lights, not by tiny lamps dotted around the place as in many Western homes. And for Chinese people—who value baccarat as ‘the fair game’ because of its low house advantage—a well-lit gaming table can only be a good thing. “There’s less chance of someone at the table cheating and getting away with it,” is the likely outlook of the average mass market player.
As one executive of a rival operator said to us on the opening day: “I really think—probably for the first time in the mass-market in Macau—an operator got the lighting just right.
No cage fighting
There are plenty of cages located along the sides of the mass floor—unlike some properties we could mention where guests deserve a marathon winner’s medal by the time they a) locate; and b) walk to; the cage. One glitch we did notice, though, is that the queues of people at the cages on the second day were snaking back into the slot and table playing zone. That could be a function of several things, including the unusually high traffic levels and the relative lack of live operational experience on the part of at least some of the cage staff. If the issue persists, an easy fix should be to move some of the banks of slots further in from the side of the room, though the same issue might be slightly harder to fix in the table zones without creating a sense of crowding.
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A big VIP offer
Much comment and analysis has naturally focused on what Galaxy Macau will do for the mass market. But in a place where around 72% of gross revenues come from high roller baccarat, no new property can afford to overlook the VIP segment. Galaxy Macau has a lot of product and variety, with eight main VIP rooms around the property as well as high limit tables and slots as the bandstand-like centrepiece of the main floor (a characteristic shared with the unsung SJM-licensed Babylon casino at Fisherman’s Wharf).
The feedback we got from industry sources is that commission rather than revenue share is most commonly the business model being used in the Galaxy Macau VIP rooms (at least in this opening phase). Perhaps the more important general point is that Galaxy doesn’t try and rob Peter to pay Paul in its dealings with junkets. In other words, it doesn’t try simply to restructure its offer and claw back its profit in some other way, such as squeezing the junkets on soft costs such as player ‘comps’. Galaxy has built a reputation for building solid and mutually beneficial relationships with the junkets.
As one VIP room executive put it to us: “The Chinese way in business is to share so that you all get rich together. The Western way is to beat the other guy and get rich at his expense.”
Cotai is not a zero-sum game. The ‘stickiness’ of The Venetian as a first stop on Cotai probably resides in the fact that it’s a photo opportunity entirely independent of its gaming offer. That allows it to capture gamblers and non-gamblers. It has a lot of shops, even if conventional wisdom suggests there are rather too many midmarket, underwhelming brands (to Chinese consumers at least). Some analysts we spoke to—while very impressed by Galaxy Macau’s gaming offer in both key segments— still wonder if the property can carve a role as a tourism stop in its own right. They cite some doubts that the artificial beach—impressive as it is—will achieve that.
After the initial opening rush, Galaxy Macau needs to establish itself as a first gambling stop on Cotai. The shopping offer by itself won’t be a crucial draw. There are also important logistical reasons why it will be a challenge to make Galaxy Macau a ‘second stop’ on Cotai for Venetian customers. Galaxy Macau may be just a little too far away from The Venetian to be a comfortable walk in a muggy Macau summer. Getting a taxi away from The Venetian often requires a long, uncomfortable wait outdoors. City of Dreams has vulnerabilities—the Hard Rock casino is not a well-known brand in China and is often sparsely populated, in our experience—but it is only a short walk from The Venetian, making it a natural number two destination for Sands China’s Cotai customers.
IAG is aware, however, that Galaxy’s management has been very focused on creating the right infrastructure in terms of marketing, bus services and greeters to develop the pipeline of ‘first stop’ visitors to Galaxy Macau. That’s important, and is likely to be key in ensuring the sustained success of the property.
