Saturday, July 02, 2022

Can theme parks drive non-gaming?

Asia’s ever-growing number of IRs are seeking to add non-gaming attractions to diversify their tourism base and provide a unique draw, but the jury is out as to whether combining casinos with theme parks can provide a winning combination.

The properties are incorporating spas, retail, conference facilities and fine dining as a way of driving mass market visitation to decrease the reliance on junkets, boost the length of stay and spending per capita. A growing number of resorts in the region are also planning theme park offerings.  

“The future is linking a casino proposition to many other ways to spend your leisure time and to offer an integrated, more holistic experience,” says Andrew MacGilp, director, strategy at consultants PwC.“From a revenue perspective, the majority will still come from the gaming side, but in the future it will become increasingly difficult to desegregate the non-gaming part.”

The breakdown of gaming to non-gaming revenues in the three established IR jurisdictions of Singapore, Macau and Las Vegas is respectively 80/20, 93/7 and 35/65, following the reinvention of Las Vegas as an entertainment resort, PwC figures show.

In Singapore, Marina Bay Sands and Resorts World Sentosa have increased visitation to the country by over 40 percent to about 14 million since they opened, with the average length of stay per visitor up from 3 to 4 days. The resorts opened in 2010 and by the end of 2011 the gross gaming revenue was equivalent to two thirds of the GGR of Las Vegas. They are now among the most profitable IRs globally, generating US$4.2 billion in gross gambling revenues in 2016.

The resorts non-gaming portion of revenues has also recently increased to closer to 30 percent due to the stable draw of the Universal Studios theme park and retail, hotel and conference facilities, in the face of declining table game drop.

Macau operators, under government pressure are also making an attempt to diversify. The $3.2 billion Studio City has a Ferris wheel and a Batman virtual reality ride and only about 5 percent of the development area is dedicated to gaming, the PwC report shows. Likewise the $3 billion MGM Cotai, due to open in January, will have a smaller amount of space dedicated to VIPs and devote more space to shopping and leisure. The government’s stated target for non-gaming is around 9 percent of total revenue by 2020 (up from an estimated 7 percent currently).

“Until IRs in Asia are able to truly penetrate the mass market, gaming is and will continue to be the main revenue driver into the future, with gaming comprising between 70-90 percent of total revenues,” says Wonwhee Kim, chief intelligence officer at consultancy, The Park Database.

Although theme parks themselves are big business in Asia, combining the two elements to help drive non-gaming revenue is not necessarily the answer.

Around 30 new theme parks are planned in Asia in the coming five years, with more than 10 planned in China, joining the 850 already operating in the country. China's amusement park market, including theme parks and water parks, has been expanding at a rate of 11 percent in terms of revenue over the past five years, according to Forbes. The sector in China is expected to see $3.3 billion in revenue in 2015 and $4.8 billion in 2020.

However, a report by The Park Database, The Business of Theme Parks (Part 1): How Much Money Do They Make? shows that theme park revenues conform to a power law based on funds invested and unique positioning, as well as related media and film business and resident and tourist population.

Disney Orlando and Universal Japan are the only theme parks with more than $1 billion in revenues. The report breaks it down: Super-regional Tier 1 parks, including Disney in Hong Kong and Universal Singapore, generate between $350 million to $1 billion with Tier 2, including Ferrari World, Chimelong (China) and the top 5-10 waterparks in the world, generating $100 million to $350 million. The majority of theme parks generate less than $100 million in revenues.

“The sheer economics of theme parks and attractions make them difficult to break $100-$200 million in revenues unless the budget itself is multiples of that, into the $800-$1 billion+ range, as Universal Studios Singapore was,” says the report’s author Whonwee Kim. “That said, we are watching Fox World Malaysia (set to open by end 2018) and Jeju Shinhwa World (opened in September) with some interest. Due to the scale and unique IP of these IR's, they have an above average chance of reaching a much larger proportion of attraction revenues vis-a-vis gaming. The former, due to the large investment level and first-in-the-world nature of the Fox theme park. For the latter, also because of the unique Lionsgate IP (The Hunger Games), but also because competition for gaming revenues on Jeju is simply intense, and so non-gaming revenues have a much higher chance of being more significant.”  

High attendance is also no guarantee of revenue success at theme parks. “Essentially in the world of theme parks, there is the Disney/Universal category and then everyone else,” says Kim. In fiscal 2017, Disney generated $18.42 billion from its parks and resorts, up 8 percent, and took rankings 1 to 9 of the world’s most visited amusement and theme parks. In 2015, Disney saw more than 130 million visitors to its parks worldwide. “Consider that Ocean Park (Hong Kong) is more highly attended than Hong Kong Disneyland, but has a revenue level that is 50 percent of the latter.

Samsung's Everland is among the highest-attended theme parks in Asia but is also squarely in the lower tiers in terms of revenues,” Kim says. EBITDA margins show a less pronounced variation in profitability, The Park report shows. Typical EBITDA margins at successful theme parks, regardless of size, average between 20 and 35 percent.

“To bring the answer full circle, we see the city-center IRs such as Singapore and potentially Japan as having the greatest chance of success in having a more mixed/balance breakdown of gaming to non-gaming, because of the captive resident and tourist markets. Is 60 percent gaming to 40 percent non-gaming too much to hope for? That may be a reasonable long-term target to aim for in Japan,” Kim concludes.  

Under ideal circumstances, a theme park in Asia can prove a major driver for revenue, with Resorts World Sentosa's Universal a case in point. Though few resorts possess the unique combination of elements to generate sufficient return on investment.

Asia Gaming Brief is a news and intelligence service providing up to date market information for worldwide executives on relevant gaming issues in Asia.

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