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Revenue Up, But Some Got The Short End

The big news from Macau is gaming revues are up 40%, and happy days are here again. This is a bit of a dog-bites-man story. It is notable for some because of the more sedate growth last year. The real story though is in piecing together the details.

A common refrain is the claim that revenue is driven by VIP business. Extending that out to other numbers though raises some questions. MICE (Meetings, Incentives, Conventions, and Exhibitions) visits were up 18% this year so far. Meanwhile tourism arrivals in general are up 23% this year. To think these notable improvements are not incidental to gaming growth, as some readings would have you believe, is a little illogical.

Yet on the other side to this discussion, tourism spending only rose 3%, while this may not include gaming revenue it indicates the new tourists are not exactly free-spending. Meanwhile, Shun Tak, a leading company offering ferry service between Hong Kong and Macau (dba TurboJet), posted a loss of about US$3 million on its ferry business, indicating that the mass market business from rich Hong Kong (where gaming was up 7% via the horse track) may not be adding to the growth. Anyway, the menagerie of numbers supports my hesitancy to accept the primacy of VIP gaming in Macau.

There is some anecdotal data showing that Wynn's Encore tower has been greeted with a "ho-hum" from its target audience. To take you back less than a year ago, when the Macau Encore was in its final stages, Steve Wynn himself talked how Encore was built aimed at "what we considered to be the real, real sensitivities of the people who come to Macau who spend the real money." Letís translate that. The "real money" is commonly understood to mean VIP gaming tables. Meanwhile this past two quarters gaming rose 40%, reportedly on a rise in "real money" VIP gaming. Meanwhile, Melco Crown last month overtook Wynn for third place in the market (16% vs. 14%). For what itís worth, Wynn claims 80% growth in VIP revenue, yet the loss of market share hints it may be losing the race, despite its focus, and Encore is not packing the VIP's in as projected.

A further look deeper shows quite a few conflicts on how Macau is handling the recent growth. Tourism service performance looks suspicious. Macau is on pace to have twice as many consumer complaints this year about consumer services. About 25% of the complaints came from the extra-ordinary collapse of VIVA Macau, a local budget airline. Yet even if you account for VIVA Macau, there remains about 60% more customer service complaints year on year. Those are not tourism specific, but still it is a troubling indication of customer service in the SAR.

Dealers have seen their wages rise to above twice the poverty line in Macau recently, likely a response to the 74% more vacancies in the sector over last year. This points to the aforementioned clamp down on foreign workers raising standards, but getting to be detriment to growth (not to mention the prospect of inflation). No word on what is going to happen when Galaxy and the "three dominos", as I like to call them, across the Venetian are open. Galaxy alone is expected to add 22,000 jobs from what I read. The good times have spurred lending, with an over 20% rise in the number of home mortgages.

Meanwhile, 19 bidders participated in the general contract to reclaim the south end of the Cotai landfill. Naturally for tourism space, the activity hints the new-projects ban may be more temporal than believed.

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