What Happened in Vegas Didn’t Stay in Vegas: It Moved to China

Lost in all the talk of soaring U.S. trade deficits, and record imports from China, is the fact that there are also some significant value-added services that America is good at exporting. Case in point: casino gambling.

Of course the U.S. did not invent the vice of gambling – nor even the casino industry. But as with many areas of commerce, it took American know-how to perfect its commercialization – viva Las Vegas!  Westward across the Pacific lies what perhaps may soon be a casino gaming destination that far exceeds even Vegas’ excess.

As has been the case in other industries from steel to construction – China’s gaming sector has exploded from humble beginnings to first-rate global status almost overnight.

The tiny island municipality of Macao (Macau), along the coast of China last year surpassed the Las Vegas Strip as the world’s #1 casino gambling destination. This former Portuguese colony (returned to Chinese sovereignty along with Hong Kong in 1999) is attracting millions of eager gambler’s from Southeast Asia – mainly China – thanks to the unique fact that it’s the only place in China where the government has legalized gambling.

 

Macao boasts 24 casinos with over 2,700 tables. Gaming revenues soared 22% in 2006 alone to nearly $7 billion as Macao attracted more than 22 million players. And analysts estimate that the house’s top-line revenue take in Macao could exceed $8 billion this year. By comparison, Las Vegas raked in about $6.5 billion in 2006 revenue, although exact year-end figures are not yet available. But the best may still be yet to come for Macao.

One big advantage Macao has over Las Vegas in spades in that the average house take at its gaming tables is seven times that of casinos on the Vegas Strip. This speaks volumes about just how popular a pastime gambling is in Asia.

Another thing the Vegas of the Far East has going for it is long-term growth prospects. In fact, Macao may have just scratched the surface of its potential market penetration.

The vast majority of Macao’s casino patrons come across the border from China. So it’s worth noting that the per capita income in Chinas stands at just $1,700 per year, that’s only 8% of the U.S. per capita income of $21,587. And of course China has a much bigger population, four times that of the U.S. in fact, which means a lot more potential gaming customers.

Still in it’s infancy, Macao’s gaming industry already exceeds that of venerable Las Vegas. In fact, some are predicting that in just the next three or four years, this key Asian gaming destination could be twice the size of Vegas … Viva Macao!

From an investment perspective, there are some interesting ways for global investors to tap into this long-term growth potential.

> Shares of Galaxy Entertainment, which owns and has plans to develop casino and hotel properties in Macao, are listed in both Honk Kong and over the counter in the U.S.

> Closer to home, the Las Vegas Sands Corp., and Wynn Resorts Ltd have built two new Vegas style casinos in Macao. Both companies are listed on U.S. stock exchanges, although neither is a pure play on Macao’s growth potential, since they also own properties in Las Vegas.

> And Sir Richard Branson’s Virgin Group just inked a deal to build a $3 billion casino-resort in Macao.

These casino operators are akin to the actual gold miners hoping to strike it rich for their shareholders by mining Macao’s growing gaming sector, but there’s also a path to potential profits through one of the industry’s leading providers of “picks and shovels”:

> International Game Technology, another U.S. company, supplies slot machines and state of the art video gaming devices worldwide, and should certainly cash in on Macao’s gaming industry expansion.

The Chinese have a voracious appetite for gambling and Macao may be perfectly positioned to capitalize. This still relatively small gaming destination has already eclipsed Las Vegas in revenues, and Macao may one day far surpass anything that Las Vegas casino operators imagined possible in their wildest dreams. So it’s worth keeping an eye on Macao’s growing casino gaming market.

It seems that even high-ranking Chinese Communist party officials can’t get enough of the games of chance offered in Macao. Unfortunately, some of them are taking this vice too far.

It seems that since 2005, Beijing has officially reprimanded nearly nine thousand party members for excessive gambling. And still they come. It seem that getting too much of a good thing is not just an American monopoly either.