Paradise chairman sees Macau downturn as “healthy correction” as market shifts focus

Published in: Latest Intelligence Paradise Entertainment Chairman Jay Chun has said he’s optimistic about the future of gambling in Macau, though says the market is shifting and he expects the biggest percentage of revenue to come from gaming machines within the next five to 10 years.
In an interview with AGB during the second Macao Gaming Show, Chun said he expects the Macau market to mature to become more like the U.S.
“I’m still very positive on the mass market,” he said, though added the VIP situation is challenging.
Gross gambling revenue in Macau has fallen in each of the past five months, with the 23.2 percent decline in October the worst on record. The fall has been lead by a steep drop in VIP revenue.
In an earlier written interview, Chun spoke about the outlook for Macau and the Macao Gaming Show, as well as developments at Paradise and its LT Game unit. Chun is also head of the Macau Gaming Equipment Manufacturers, which is the main organizer of MGS.
AGB: What do you see as being the outlook for Macau in the short, medium and long term?
In the short term, it is a healthy correction after 4-5 years of continuous growth. Macau has not had any new casino openings in 2013 or 2014. Since Macau visitation is still growing, we can see the bottleneck of hotel room inventory still being a problem. From an operator perspective, all of the casinos are recording strong revenues, but there has been and continues to be a change in player profile from high end to middle and middle to low end gamblers. This means that more and more long-term players cross over to grind mass market.
Medium term three new casinos are on course to open in 2015 with more scheduled in 2016, which is a very positive development and one which will add between 10-20 percent new hotel rooms over the next 2 years.
Looking ahead to the long term, we will have more than 10 new casinos by 2020. The bridge which will connect with Hong Kong and Zhuhai will open up more and more areas to Macau, meaning more and more people will have quicker and easier access to Macau. We should not forget the bridge connecting Hong Kong and Shenzhen an area that has a higher income population compared to the Zhuhai area. Also Macau will be less than a 45-minute drive from Hong Kong international airport. Over the long term Macau will benefit from all kinds of favourable conditions.
AGB: How do you envisage MGS evolving over the next few years?
Planning is very important in terms of the development of an exhibition. On the one hand we have to be very aware of the changes in the market and be able to respond to them but we also have to have a clear strategic vision to help direct that process.
MGS 2014 is still very much Asia focused, as this is the fastest growing gaming sector in the world. New opportunities are coming up in Japan, Korea, Vietnam, Cambodia and other parts of Asia. Every Macau casino will have new property openings before 2017. However, we also see Macau gaming operators starting to invest into Europe and Africa.
Research has shown that gaming is both localising and globalising at the same time. MGS will be watching this closely to ensure that we continue to meet the needs of our exhibitors and visitors.
Meanwhile, Macau SAR Government is vigorously promoting the exhibition and convention industry in Macau. Everything is in place for MGS and there is only one place for the exhibition to go and that is to become more successful by being totally in touch with the needs of our clients and our community.
AGB: How important is it for local companies to support the show by exhibiting/attending?
The gaming industry is an integral part of our economy and the Macau SAR Government has earmarked technology and the creative industries as key sectors to support.
Technology and knowledge gained from international casino operators have been internalized to become immensely useful to our young generation of entrepreneurs who want to carve a niche in the gaming industry. MGEMA strongly supports and encourages local organizations to be part of MGS and we have invited all of our local universities to participate in the exhibition this year.
All of these initiatives serve to raise the interest levels of young people and local companies to explore how they can capitalise on the wealth of gaming experience that exists in Macau.
AGB: What can local EGM-based companies contribute to the local market and beyond?
The EGM sector is now established as a creative industry and those responsible for creating captivating games, new gaming experiences, or even new gaming models and concepts are respected in creative and commercial circles.
iGaming is slowly gaining pace and the playing experience is heavily influenced by the EGM experience. Creativity has leveled the playing field which means that small companies can now be as creative as the big ones. The key, distinguishing factor is the quality of the product. Local EGM companies can look for opportunities in this area and, in the process, become more reputable and more profitable, initially within Macau, and then further afield in gaming’s key export markets.
AGB: Could Macau become a focal point for slot R&D operations?
That is definitely a possibility. Local universities have been offering courses relating to gaming play development, such as 3D animation and graphics, for several years. There are discussions about forming a slot R&D center in Macau, which requires participation from government, academics, and the slot industry as a whole. As I mentioned earlier, MGS is helping to facilitate some of these developments, and we hope to see more activities come into play in the not too distant future.
AGB: What has been the impact of new technology at Macau Jockey Club?
We are not only a casino service provider in Macau, but also a global gaming machine and system supplier. We are introducing the most advanced gaming table technology to the industry – namely the first chip-less casino in the world. We have been using our new E-baccarat table with LMG and intelligent cash handling machine at the MJC. Amongst many other benefits, this serves to:
• Increase table productivity - game turns - thanks to there no longer being the need for human calculations with the payout undertaken by the computer.
• The casino saves on labour costs with no pit boss, no cashier and minimum supervision.
• There’s increased security and lower security costs as there’s no cash or chips on the table and nothing to rob.
• Operational efficiency has increased between 30-50 percent, which means an increase in operating revenue, compared to the traditional way of operating the same size casino.
• Although we didn’t expect it, we have been seeing 40 percent MoM GGR growth since May. Although this is based on 5 months of operating, we found no problem for players to accept betting without chips using our e-baccarat table. It is the best showcase to demonstrate to other operators how casinos will operate in the future with the associated benefits of higher productivity and lower running costs.
AGB: Are you looking at any other properties in Macau?
The first priority for us is to ramp up the GGR of the new locations. We have got two established locations (Kam Pek & Lisboa 3/f LMG zone), and now we have added two more at the Waldo & MJC. Our objective is to ramp up the Waldo revenue to that of the Kam Pek level over the next 12-24 months. With four current locations, we start to enjoy the economies of scale in operation and marketing. The company will benefit with more tables and machines.
Of course, we would like to provide the casino service solution to more satellite casinos also.
AGB: Paradise EBITDA almost doubled in H1, what are the prospects for the full year?
For the casino service side, since the company has added two more new locations in the year, we are experiencing very steady double digit growth. When we start to deploy our machines to export markets we are anticipating 30-50 percent year-on-year growth.
AGB: LT Game wants to grow overseas sales in 2015 by 60 percent. What are the prospects?
We believe that LT product has the best and most authentic Chinese background, having been operating very successfully in Macau. With Australian operators starting to focus on Chinese gamblers, there’s no doubt that LT products constitute the best option.
AGB: Do you see potential for expansion elsewhere in Asia?
The company’s main focus is on Macau, the US and the Australian markets, because they are the top three global GGR contributors. However we have no problem supplying our products to other Asian casinos.
AGB: What is next for the LT brand in the U.S. and what are your future plans with IGT?
The LVS group has experienced the commercial prowess of LT products at the Palazzo, and together with the expertise of the IGT sales force I am certain that we will see more and more LT products at LVS casinos throughout the United States. We will be working very closely with IGT especially following the G2E show, where we had tremendous response from operators from the states, including Pennsylvania, Indiana, California, Florida, Maryland and Mexico.
Financial law prohibits us from disclosing any topics that are confidential, but what I can confirm is that IGT has already introduced a number of their main clients to LT. We believe the exclusive agreement with IGT is a major milestone for LT. We are no longer looking at an EGM market of 15,000 in Macau but a mega US market with over a million EGMs.
 

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