The anemic growth of domestic slot sales and the lengthening of the replacement cycle are well known dynamics of the current slot environment. As they should, Bulls are shrugging off near term trough sales and looking long term. However, I am beginning to question one of the pillars of the long term thesis on this space: international (Asian) growth. A closer look at the Macau gaming picture reveals some cautioning trends for investors expecting big slot unit growth in Asia.
- The first chart shows the YoY change in revenue (win) per slot per day and revenue per table per day. Revenue per slot has not had a positive quarter since Q1 2005. One could reasonably attribute the cause of the consistent decline to the large increase in the number of slots. In my opinion, that is certainly the explanation for the YoY decline in revenue per table as the number of tables has exploded too.
- However, the volume increase is only part of the answer in the slot trends. Look at the next chart that compares Macau slot metrics with Las Vegas. Despite a slot to table ratio of 30, almost 10x higher than Macau at 3, Las Vegas casinos generate revenue per slot per day at a level almost equivalent to that in Macau. As you may know, casinos in Las Vegas generate the lowest revenue per slot of any major market in the US. Slot supply there is not capped and Las Vegas is the most mature market. Compare the slot performance with the next chart. Clearly, this chart depicts a much different situation for table games. Despite the tremendous growth in number of Macau tables, revenue per table remains well above the Las Vegas level, indicating significant growth potential.
- What does this tell us about the Macau slot market? It may already have matured at only 14,000 slots, offering little growth to suppliers. Culturally, Asians may not adapt well to the slot product. A broader question is what does this mean for the rest of Asia? Singapore, Japan, Thailand, Taiwan, Malaysia, South Korea, Philippines, etc. are all potential growth markets for gaming. Culturally will gamers there align closer to China or the West? It might be time to redefine the international growth thesis for slot machine companies.