Can Manila steal Macau’s Las Vegas dream?

Filipinos’ well known love for entertainment means the country’s casinos may see significant upside from their non-gaming attractions if they get the mix right, giving Macau a run for its money when it comes to creating a diversified entertainment hub in Asia.

According to Fitch estimates, non-gaming revenue in the Philippines was just 7 percent of total revenue in 2016 and a fraction of the 66 percent generated by attractions in Las Vegas.

Morgan Stanley estimates non-gaming at 8 percent of the total and 16 percent when it comes to the mass market, compared with 12 percent in Macau. However, it expects the Philippine figure to rise significantly. The firm sees non-gaming revenue as being 20 percent of what it projects will be a $5 billion market by 2020. “We estimate that non-gaming can contribute revenue of US$1.25 billion, significantly higher than 1Q17 annualized of US$200 million,” it says.

So why the optimism? John Raczka, former Vice President of Entertainment Development and Operations for Melco Resorts & Entertainment in Macau, points out that Filipinos spend a disproportionate amount of their discretionary dollars on entertainment.

“There is a greater predisposition to enjoy non-gaming entertainment and gaming during the same visit by the average resort guest in Manila than Macau,” says Raczka, who developed the entertainment ecosystem plans for Studio City Macau and City of Dreams Manila.

However, he says to date Filipinos have been underserved when it comes to international touring shows and world class theme parks. Part of this has been because of a lack of suitable venues.

“There are a number of touring shows that are not booked in Manila, not because of audience interest levels or potential ticket prices, but rather a lack of modern and conveniently located venues at which shows can be placed economically, and that will provide optimal customer experiences,” he says.

For example, one such gap in the market is the 3,000-seat multi-purpose venue, which can better support niche genre programming or even family ice shows for an extended period without the rental cost and less intimate feel of larger venues in the market. It’s “a definite opportunity for a gaming operator to address in Manila Bay,” he says.

“From an available touring show volume perspective appropriate for the market, there is currently room for only one of these on that side of the city, so first one to own one there wins, bringing entertainment programming to the district currently absent that an IR can well leverage.”

Traditionally, stage productions in the Philippines have been locally produced using local talent. Live entertainment and especially music has a universal appeal in the country for which IRs can draw from an enormous and inexpensive local talent pool. However, International productions are starting to grow in presence.

Resorts World Manila has just staged its seventh musical, Annie, which it says was its most successful production to date. Its parent company, Travellers International, says the resort’s stage productions feature all local performers. However, Bloomberry Resorts’ Solaire will be hosting the London West End production of The Sound of Music from September, and also hosted the West End production of Wicked in February.

“To date, Resorts World’s Newport Performing Arts Theater has entertained over half a million patrons—a testament to the ongoing revolution in Philippine theater,” the company said in an email. However, the gambling revenue mix in the Philippines is changing and this is likely to lead to adjustments in non-gaming programming. According to Morgan Stanley’s research, foreign tourists made up 45 percent of total gross gambling revenue last year and that figure is expected to rise.

The government has set an ambitious target to double tourism numbers from the current level of six million by 2020. Raczka says this dynamic creates an opportunity for Manila IR’s to host shows during specific holidays that speak more directly to foreign VIP segments, such as Korean, Japanese or Chinese. “Not necessarily younger artists that currently generate the most “likes” in social media, but also classic artists that represent the fabric of their home nations, appealing to country pride of the foreign VIP guests, while gaining an even greater interpretation of customer appreciation and respect for the IR.”

He says fixed entertainment attractions theming based on intellectual properties popular in the Philippines, as well as in other inbound tourism markets, is also worth considering to optimize appeal of an IR’s entertainment mix. He points out by way of example that the Philippines was the leading country globally for Iron Man merchandise sales when the film series released, a franchise that was also a box office hit in Japan and South Korea.

The Philippines enjoys a few other key advantages over Macau when it comes to devising non-gaming programs and making them pay. There are more than 12 million people living in the Metro Manila area. Macau’s fixed population is just over 600,000. Neighbouring Hong Kong has an additional 7.3 million who are able to freely visit, however, potential visitors still need to grapple with ferry travel, when high level non-gaming entertainment is readily available at home.

“You do not have to “sell” Filipinos on consuming entertainment—they love it, the more the better. Also, a significant sponsorship sector exists to help defray costs. The country’s economic growth curve continues to increase discretionary income among the masses, and if amenities support it, whole families will make the visit.”

Raczka says there is a common misconception that due to the lower average income level in the Philippines all shows need to work on volume rather than individual ticket price margins to pencil out.

“When the SM Mall of Asia Arena opened, for example, it debuted with two sold out nights of Lady Gaga performing at the same average ticket price level as venues in more economically mature markets across Asia—that was in 2012, so this is not a new phenomenon, pointing to an even greater misperception now five years later.”

However, will the Philippines ultimately top Macau when it comes to non-gaming offerings? Raczka isn’t betting on it.

“In all likelihood, Macau should hold the lead, due to the density and scale of its resorts and entertainment vehicles that exist and those soon coming, its IR’s geographic marketing reach and greater average spend of Macau’s visitor base.”