Explosive slot revenue growth in Macau is a trend that has gone unnoticed.
We wrote a rather negative note on Macau slots a couple of years ago (“ASIAN SLOTS: SELLING HAGGIS TO VEGANS?” on 07/08/08). At the time we were data dependent and the data didn’t show that the Chinese liked slots very much. Since we’re still data dependent, we’d like to point out the huge growth in slot revenue and win per day per slot (WPD) generated in Macau since Q3 2009.
It seems the trend of Macau as a slot market has gone largely under our and the Street’s radar screen. However, this trend has very positive long-term implications for the operators and the slot suppliers.
Not only are slots the highest margin revenue stream in Macau but there are no government caps on number of slots like there is for tables. It’s not like slots aren’t already important. We estimate that LVS and WYNN will generate $190 million and $175 million, respectively, in EBITDA (before fixed cost allocation) from slots in Macau in 2011. That represents over half of the total EBITDA generated by LVS and Wynn at their properties in Las Vegas.
In Macau, there has been virtually no replacement cycle given the youth of the properties. That will change in the next few years. For the suppliers, that means a double boost for revenues: replacement slots and satiating the increased demand from patrons.
In addition, win per day per slot (WPD) generated in Macau since Q3 2009 has soared. The following chart compares WPD in the Macau and Las Vegas Strip markets. After trailing the Strip by a wide margin, Macau finally caught up in 2009 and then separated big time to the upside. It is clear that 14k slots is not sustainable in Macau. The number of slots in Macau could almost double and still maintain the Strip average for WPD – and that’s without any growth. With visitation up 15%, GDP up almost 10%, and growing Chinese penchant for the slot product, we don’t see why slot revenue won’t continue to grow well into double digits.