Can you name the gambling capital of the world?
If your answer is “Las Vegas,” you’re wrong.
Macau is the world’s leading destination for betting, having passed Vegas back in 2006 in terms of gambling revenue.
This 11-square-mile special administrative region of China is a self-governed casino destination along China’s southern coast. Last year, gambling accounted for 50% of Macau’s GDP and 84% of its fiscal revenues.
So what’s the best way to play this intriguing and rapidly growing market?
Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) is the absolute best pure play on the Macau gaming market, generating 100% of its revenue from the region.
Other major casino operators have a presence in Macau, including Las Vegas Sands Corp. (NYSE:LVS), MGM Resorts International (NYSE:MGM) and Wynn Resorts, Limited (NASDAQ:WYNN), but their revenues are diluted by their exposure to Las Vegas and other U.S. markets. Vegas Sands gets 52% of EBITDA (earnings before interest, taxes,depreciation and amortization) from Macau, while MGM Resorts International (NYSE:MGM) receives 33% and Wynn Resorts, Limited (NASDAQ:WYNN) earns 74%.
Why Does Macau Matter?
Macau is already generating more than six times as much gambling revenue as Vegas. The Macau GDP growth rate is head and shoulders above the U.S., and its unemployment rate is at multi-year lows. Macau’s GDP expanded at an impressive 10.8% during the first quarter, and its unemployment rate fell to a record-low 1.8% in May. Putting these numbers in perspective, U.S. GDP grew 1.8% in the first quarter, and the unemployment rate in May was 7.5%.
People continue to visit Macau in droves. During the first five months of this year, visitor arrivals increased 3% year over year. What’s most impressive is that more than 60% of visitors are from mainland China and nearly 25% are from Hong Kong. The long-haul visitors, from the likes of the U.S. and Canada, make up a much smaller portion of Macau’s total visitors.
The trend in the U.S. toward legalization of gambling gives Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) another advantage over its U.S.-based competitors. Melco’s Asian focus insulates it from the rapidly changing U.S. online gambling market, which could well steal market share from casino operators. Nearly three-quarters of U.S. states currently allow online betting on games that require a minimum degree of “skill,” and a bill was introduced in Congress this month that would pave the way for states to legalize online poker.
The other big headwind that U.S.-based casino operators face is the spread of casinos. Twenty years ago, only six states had commercially operated casinos; today, 20 states have commercial casinos.
Macau is already generating more than six times as much gambling revenue as Vegas. During the first five months of this year, visitor arrivals increased 3% year over year.