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Las Vegas Sands Corp. (LVS), Melco Crown Entertainment Ltd (ADR) (MPEL): The Game That Drives Chinese Gambling

Las Vegas Sands Corp. (NYSE:LVS)Macau’s hot streak continued in July after a 20% increase in gaming revenue from a year earlier and increasing the full-year jump to 15.9% from a year ago. Clearly, the gaming market isn’t slowing, particularly the mass market that will likely drive the industry’s growth in coming years.

Macau’s growth won’t stop
Macau really comes down to one game in two segments: VIP baccarat and mass-market baccarat. In the first half of the year, this single game accounted for 91.3% of gaming revenue, and the trend doesn’t appear to be stopping. What is changing is the players gambling. No longer is baccarat only a high-roller game in Macau; the mass market is where the real growth is.

Below I’ve built a table showing the gaming revenue (in Macanese patacas) generated from baccarat since 2010. As you can see, all segments of the market are growing, but the mass market is growing fastest.

Time Period VIP Baccarat Mass-Market Baccarat VIP Percentage
2010 135,648 34,917 79.5%
2011 196,126 48,669 80.1%
2012 210,850 66,251 76.1%
Q1 2013 57,815 20,016 74.3%
Q2 2013 58,026 20,715 73.7%

Source: Macau Gaming Inspection and Coordination Bureau.

The impact of these trends on casino owners can’t be understated, especially as Cotai grows its offerings.

Cotai still the gaming hotspot
The trend of mass-market growth is particularly important on Cotai, where casinos are built for mass-market players and not just VIPs and junkets. Las Vegas Sands Corp. (NYSE:LVS) and Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) have built sprawling resorts with entertainment, convention space, and massive hotels to house mass-market gamblers. With growth in this space, they’re taking hold, and outstanding results in the second quarter show the fruits of that strategy.

The map below shows exactly why there’s such a distinction between Cotai and the Macau Peninsula. They’re separated by a body of water, and like the Las Vegas Strip, once you’re there there’s more to do than anyone can cover in a few days.

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Growth on Cotai will continue as the Chinese middle class grows and infrastructure to Macau improves. The map also shows a few of those projects that will bring more people to the area. For now, investors should look to Las Vegas Sands Corp. (NYSE:LVS) and Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) for exposure to the area. MGM Resorts International (NYSE:MGM) and Wynn Resorts, Limited (NASDAQ:WYNN) have been blocked out of Cotai’s growth so far and are still about three years from their resorts on Cotai.

Foolish bottom line
Baccarat is still the dominant game in Macau, but there’s a growing number of people playing it. With the expansion of gaming on Cotai, the mass market has become a bigger player of the game, and that’s driving Macau’s growth.

The article The Game That Drives Chinese Gambling originally appeared on Fool.com and is written by Travis Hoium.

Fool contributor Travis Hoium manages an account that owns shares of Wynn Resorts. The Motley Fool has no position in any of the stocks mentioned.

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