“Every single operator in Macau is buying business.”
That’s the current state of affairs for Seaport Research Partners Senior Analyst Vitaly Umansky.
Speaking at G2E Asia on Tuesday, Umansky noted that competition amongst Macau operators has reached a level at which they are “constrained by having to look over their shoulder and match cost escalation from their competitors.”
In order to incentivize play, operators are increasing their marketing and player reinvestment at the cost of profitability and ROI – a situation the analyst deems “likely to continue.”
Despite the elimination of most of Macau’s junkets, “agents are back in proliferation,” the analyst added, highlighting how compensation to attract players is increasing, with operators even “paying customers that six years ago wouldn’t have gotten paid.”
Lacking a resurgence of base mass, a situation “prohibitively difficult” due to the lack of hotel rooms, now “the issue is wallet size and how big a player needs to be to move the needle.”
Side bet fever
One highly successful strategy to attract more patrons has been side bets, from which Umansky estimates up to 30% of gross gaming revenue (GGR) is being derived.
“Side bets in Macau have allowed a new baccarat player to come in who is more focused on high volatility outcomes – lower bet volumes and higher wins,” encouraging players who hadn’t previously been attracted to baccarat to try their hand. But this comes at a cost.
“Effectively you accelerate losses,” notes the analyst, indicating that players tend to “burn out faster.”
The success of side bets is, in part, due to smart tables, which “have allowed the proliferation of multiple amounts and varieties of side bets, making them interesting for high-volatility play … without Angel or Walker (Digital Table Systems), it would be difficult to implement the level of side-betting (currently taking place),” he said.
For George Choi, Director – Global Head of Gaming Research for Citi Research, despite their tendency to make punters burn through their cash quicker, introducing more side bets could help balance out the intense player reinvestment that is taking place – helping to “buy them some time before any corrective action” against steadily increasing agent fees could be introduced – similar to junket caps previously introduced in Macau during the sector’s heyday.
No matter what, Macau has effectively become a “mature market,” according to Umansky, making the fight for market share – and the opex that goes along with it – an unavoidable reality, at least until the economic condition in China improves and players are willing to open up their pocketbooks again.
