2

TABLE OF CONTENTS

List of Figures ............................................................................................................................ 4

List of Tables ............................................................................................................................. 5

1. Casino and Gaming Industry Overview ............................................................................. 6

1.1. International Gambling ............................................................................................... 6

1.2. Global Betting, Gambling and Gaming Industry ........................................................ 7

1.3. Global Online Gaming Market .................................................................................... 9

1.4. Types of Gamblers .................................................................................................... 11

2. Asia Casino and gaming industry ..................................................................................... 12

2.1. Trends and Developments ......................................................................................... 12

3. Macau Casino and Gaming Industry ................................................................................ 13

3.1. Industry Overview ..................................................................................................... 13

3.2. Gaming Market Size and Developments ................................................................... 13

3.2.1. Gross Gambling Revenue .................................................................................. 13

3.2.2. Performance in Casino Sector ............................................................................ 16

3.3. Gambling Industry Trends in Macau ........................................................................ 17

3.3.1. Visitors Arrival and Hotel Statistics .................................................................. 17

3.3.2. Gambling Industry contributing to Macau GDP ................................................ 18

3.4. Baccarat Performance in Macau ............................................................................... 19

3.5. Restriction on Setting up New Casinos ..................................................................... 20

3.6. Slot Machine Demand in Macau ............................................................................... 20

3.7. Industry Competition................................................................................................. 22

4. Future Outlook of the Casino and Gaming Industry in Macau ........................................ 22

5. Factors Influencing Industry performance ....................................................................... 24

5.1. Economy Growth ...................................................................................................... 24

5.2. Contribution of International Players ........................................................................ 24

5.3. Visitors Arrival .......................................................................................................... 25

3

5.4. Forecast Methodology ............................................................................................... 28

Data Collection Methods ...................................................................................................... 28

Approach ............................................................................................................................... 29

Reasons for the Dependent and Independent Variables ........................................................ 31

Disclaimer ......................................................................................................................... 32

4

LIST OF FIGURES

Figure 1: Global Gaming Market by Geography in % (2008) ................................................... 6

Figure 2: Global Gambling and Gaming Industry Gross Revenue and Forecast (1999-2015F)8

Figure 3: Global Gambling Market share by Product Category in 2010 (%) ............................ 9

Figure 4: Global Online Gambling Gross Gaming Revenue (2002-2010) .............................. 10

Figure 5: Global Online Gambling Market Share in 2010 (%) ............................................... 10

Figure 6: Types of Gamblers ................................................................................................... 11

Figure 7: Gross Gaming Revenues in Macau (2005-2010 & Jan-Feb 2011) .......................... 14

Figure 8: Tax Revenues from Gaming in Macau (2005-2010) ................................................ 14

Figure 9: Casino Gross Gaming Revenue in Macau (2008-2010) ........................................... 16

Figure 10: Baccarat in Macau (2002-2010) ............................................................................. 19

Figure 11: VIP Baccarat % of Total Gaming Revenues (2002-2010) ..................................... 20

Figure 12: Installed Slot Machines in Macau (2002-2009) ..................................................... 21

Figure 13: Macau Gaming Players Market Share (2007-2011F) ............................................. 22

Figure 14: Macau Casino and Gaming GGR Forecast (2010-2015F) ..................................... 23

Figure 15: Macau Gambling Industry Players Market Share in 2009 ..................................... 25

Figure 16: China Disposable Income in Urban Households (2002-2009) ............................... 27

5

LIST OF TABLES

Table 1: Gambling Sector Performance by Geography (2009 vs. 2008) ................................. 12

Table

2: Casino Gaming Revenue from VIP Segment in Macau and % of Total Gaming Revenue (2001-2010) ............................................................................................................... 15

Table 3: Gross Gaming Revenues by Segment in Macau (2005-2009) ................................... 15

Table 4: Total Number of Visitors Arrival in Macau (2008-2010) ......................................... 17

Table 5: GDP Indicators of Macau (2006-2010) ..................................................................... 18

Table 6: Macau Tourism Statistics (2000-2009) ..................................................................... 25

Table 7: Macro-Economic Factors Analysis and Sensitivity on the Sector ............................. 29

Table 8: Industry Factors Analysis and Sensitivity on the Sector ........................................... 30

6

1. CASINO AND GAMING INDUSTRY OVERVIEW

Casinos and gaming industry involves three types of betting commercial betting, state run betting and charitable. Gambling in casinos and gaming machine gambling are a part of the casinos segment. Gaming sector includes other forms of gambling such as national and other lotteries, race betting, betting on sports, bingo, pachinko and also other gaming machines which are not located in the casino premises. Gross gaming triumph includes the entire amount waged by client from which the amount paid to the winner is reduced. There is no deduction in terms of any taxes, any disbursements or for any expense.

1.1. INTERNATIONAL GAMBLING

Regulations imposed on various countries differ from country to country. Government exercises a very strict control on the gambling activities. Many European countries however agree to gambling but under a tight regime. There are other European countries like Finland and Denmark who forbid it completely. India does not allow for gambling in gaming parlors but allow for betting on horse races. Japan allows betting on bicycle, horse racing and lottery. Mexicans have a liking for Jai Alai along with preference for horse betting and lottery. In European countries such as England and Denmark, betting pools are a common sight where individuals bet regularly.

Figure 1: Global Gaming Market by Geography in % (2008)

Source: GBGC

32.0%

35.0%

5.0%

1.0%

27.0% Europe

North America

Oceania

Africa

Asia & M.E.

7

In the financial year 20101 According to North American Association of State and Provincial Lotteries NASPL, the total gross sales generated were USD 70 billion in the North America region. A total amount of USD 38 billion was granted to individual with lotteries and USD 4 billion to the retailers involved in the sale of lotteries. From a total sale of USD 70 billion, approximately USD 60 billion has been re-circulated in the economy in the form of either prize, commissions or profits.

The global market for gaming industry is expanding very quickly in terms of market size and also in terms of different geographies covered. The Asian gaming industry has undergone drastic changes in the recent years making it more lucrative for foreign players as a means of investment. Macau is one of the most sought destinations for gambling in the Asia Pacific region. The US gaming industry is very rewarding in which the most horse betting is one the most prominent form of gambling.

Technology has played a very crucial role over the development of gaming industry with the advent of internet gambling, though it is illegal in the US.

1.2. GLOBAL BETTING, GAMBLING AND GAMING INDUSTRY

Global recession had adversely affected the gambling industry. It is anticipated that spending on gambling and betting activities will improve once the economies recover from recession. Global gambling and gaming revenues registered a growth rate of 3% in 2008 and a decline of 2.4% in 2009. The overall industry has continued to grow at a slower growth rate. . The total gaming and gambling industry in 2009 reached USD 385.3 billion and the casino market reached USD 103 billion, registering a decline of 1.8%. In 2010, the gambling and gaming industry is expected to register a growth of 2.4%. The expected growth is likely to continue in the near future.

In 2008, the global gambling market was approximately USD 376.3 billion. During the period from 2004-2009, the gambling industry registered a CAGR of 3.58%. The industry is expected to register a CAGR growth of 3.50% during the period from 2010-2015.

1. Year ends in June

8

Figure 2: Global Gambling and Gaming Industry Gross Revenue and Forecast (1999-2015F)

217.0 228.0 250.0 268.0 271.0312.0 325.0 358.0 367.8 376.3 385.3 394.6 401.9 419.4 438.7 459.8 485.1

0

100

200

300

400

500

600

USD

Bil

lion

Source: Global Betting and Gaming Consultant and AM Mindpower Solutions

Note: Statistics for 2008 & 2009 calculated from various industry parameters such as inflation rate, performance of industry segments, disposable income, tourist arrival, hotel occupancy rate, etc.

9

Figure 3: Global Gambling Market share by Product Category in 2010 (%)

Source: AM Mindpower Solutions

1.3. GLOBAL ONLINE GAMING MARKET

During the period from 2002-2010, the global online gaming market has grown at a CAGR of 18.21% and reached around USD 29.3 billion in 2010. The increased growth of the online gaming industry has been mainly due to the growth registered in poker, casino and sports betting market. Betting industry accounts with the largest share of 41% followed by casino with 20.5% of the market. Poker is the third largest segment with 15.0% of the market. The State lotteries accounted for 13% of the market share followed by bingo with 6%.

Europe was the leader and had the highest share of global online gaming market followed by North America. Asia and Middle East are the other prominent regions accounting for nearly 25% of the global market share.

15.6%

20.5%

5.0%

23.3%

29.1%

6.5%Betting

Casino

US Indian Gaming

Gaming Machines

Lotteries

Other (Bingo Etc)

10

Figure 4: Global Online Gambling Gross Gaming Revenue (2002-2010)

Source: AM Mindpower Solutions

Figure 5: Global Online Gambling Market Share in 2010 (%)

Source: AM Mindpower Solutions

6.57.9

10.1

13.716.5 17.7

2325.4

29.3

0

5

10

15

20

25

30

35

2002 2003 2004 2005 2006 2007 2008 2009 2010

USD

Bill

ion

41.0%

20.5%

15.0%

6.0%

13.0%

3.5%

Betting

Casino

Poker

Bingo

State Lotteries

Other Gaming

11

1.4. TYPES OF GAMBLERS

Figure 6: Types of Gamblers

Types of Gamblers

Professional Gambler

Casual Social Gambler

Serious Social Gambler

Relief and Escape Gambler

Compulsive Gambler

Antisocial Personality

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2. ASIA CASINO AND GAMING INDUSTRY

2.1. TRENDS AND DEVELOPMENTS

There is huge potential for growth of casino and gaming industry in the Asia Pacific region. Macau represents more than half of the gambling market in the region. It is expected that the market will grow in the near future on account of the growth expected in the economy, worldwide recognition and development of new casinos in the market.

The casinos in the Asia region registered a growth of 3.4% and reached USD 17.2 billion. The first half of 2010 witnessed a higher growth of 2.9% compared to the same period last year.

Table 1: Gambling Sector Performance by Geography (2009 vs. 2008)

GGY % Change

(2009 vs. 2008)

Asian casino market 4.90%

Macau's casino market 9.70%

North America casino market -7.00%

Nevada's casino market -13.70%

European casino market -12.00%

Total Global Gambling Market -2.90%

Source: GBGC

Rising middle class and increased number of working women have acted as a catalyst for the growth of the gaming and casino sector. The casino industry showed resilience even in the time of recession and showcased positive results in 2009.

The casino sector represented USD 23.5 billion of revenue in 2010 in Macau, as compared to USD 13.2 billion in 2008. The slot machine market is trying to make a stable demand in the region depending upon casino and gambling sector. Gambling in Asia Pacific, and particularly in Macau, is still dominated by gambling tables. But with so much foreign capital being poured into this region, Macau’s casino market could shift closer to the Las Vegas market, where slot machines are the dominant source of gambling revenue.

13

3. MACAU CASINO AND GAMING INDUSTRY

3.1. INDUSTRY OVERVIEW

Macau is one of the most prominent places for gambling in the APAC region. In terms of market the country holds the maximum share. It is one of the very few countries where gambling is lawful. Two prominent cities hold approximately 41 gambling casinos. Venetian Casino Resort is the biggest casino in Taipa. Macau is giving tough competition to Las Vegas in the gaming markets.

Table games hold the largest share in terms of gaming markets in Macau. A large untapped market for slot gaming and gaming machines presents vast growth opportunities. The gaming operators are also paying more attention towards the demand for slot machines and are increasing their numbers in the casinos.

3.2. GAMING MARKET SIZE AND DEVELOPMENTS

3.2.1. GROSS GAMBLING REVENUE

Gross gambling revenue in Macau has been rising steadily with tourists spending heavily on gambling. The place has been one of the favorite destinations among the tourists with the investments in the luxury hotels and other sources of entertainment industry.

Gambling revenue in Macau was highest in Jan 2008 (MOP 10,425 million) but after that started declining and showed an instable performance up to July 2009. Gambling revenue started an incline from August 2009 and continued till December 2010 and reached USD 2.3 million, showcasing an increase of 66% from a year earlier.

The gambling revenue for Macau increased from USD 14.8 billion in 2009 to USD 23.2 billion in 2010. In 2009, the city suffered from the economic depression and also got affected due to swine flu. The industry is expected to continue its growth progression in 2011 particularly in the month of May and June which is the holiday season and opening of galaxy Cota.

14

Figure 7: Gross Gaming Revenues in Macau (2005-2010 & Jan-Feb 2011)

5.666.91

10.2

13.4514.81

23.24

2.29 2.45

0

5

10

15

20

25

2005 2006 2007 2008 2009 2010 Jan-11 Feb-11

USD

Billi

on

Source: DSEC

Figure 8: Tax Revenues from Gaming in Macau (2005-2010)

2.082.49

3.77

5.13 5.45

8.43

0

1

2

3

4

5

6

7

8

9

2005 2006 2007 2008 2009 2010

USD

Billi

on

Source: DSEC

More than 70% of the casinos revenue comes from the VIP segments each year.

15

Table 2: Casino Gaming Revenue from VIP Segment in Macau and % of Total Gaming Revenue (2001-2010)

Revenue from VIP Segment

(USD Billion)

Percent of total Gaming Revenue from VIP Segment

2001 1.59 70.4

2002 2.04 73.7

2003 2.77 77.4

2004 3.72 72

2005 3.6 62.7

2006 4.59 65

2007 6.96 67.2

2008 9.21 67.9

2009 9.96 66.9

2010 16.93 72

Source: Macau Gaming Inspection and Coordination Bureau (DICJ)

Note: The exchange rate for Macau dollars to USD is 8.0134 to 1.

The revenue from tables was more in comparison to that from slot machines. In 2010, revenue from tables was more than 90% of the total revenue whereas the contribution from slot machines was minimal. The slot machines have increased in numbers in various casinos across Macau since 2005 onwards. The machines have increased from 3,421 in 2005 to 14,050 in 2010.

Table 3: Gross Gaming Revenues by Segment in Macau (2005-2009)

2005 2006 2007 2008 2009

Amt % Amt % Amt % Amt % Amt %

Revenue from Table Games

5,590 97.30 6,810 96.40 9,912 95.70 12,869 94.80 14,084 94.50

Revenue from Slot Machines

156 2.70 256 3.60 448 4.30 705 5.20 812 5.50

Source: Macau Gaming Inspection and Coordination Bureau

Note: Figures in USD Billion

16

3.2.2. PERFORMANCE IN CASINO SECTOR

In 2009, the revenue from casino industry accounted to 119.3 billion patacas (USD 14.67 billion). The revenue inclined in 2010 and reached 188.34 billion patacas (USD 23.51 billion). The growth in the Chinese economy along with the rise in the number of visitors has impelled the growth of the casino industry in the country. The unrestricted spending by the wealthy people of China would continue to drive the economy of Macau in the near future. Some of the big players operating in the casino market in Macau are Las Vegas Sands Corp via Sands China Ltd and Wynn Resorts ltd through Wynn Macau Ltd. Other big players include Galaxy Entertainment Group ltd, Melco Crown Entertainment ltd and MGM Mirage which is managed jointly. The number of casinos increased from 15 in 2004 to 33 in 2009, although some of the current openings did not have a major impact on the casino business in Macau. Some of the recent openings include Resort World at Manila in August 2009, Resorts World at Sentosa in February 2010 and Marina Bay Sands on April 2010.

The year 2008 and mid 2009 has registered a decline in the proceeds from casinos largely due to the effect of recession. The decline in number of tourist arrivals and the employment rate and per capita income has intensified the situation. During the period from April 2008-2009, the revenues registered a decline of 8.6% and reached USD 1 billion in 2009.

Figure 9: Casino Gross Gaming Revenue in Macau (2008-2010)

13.214.67

23.51

0

5

10

15

20

25

2008 2009 2010

USD

Billio

ns

Source: DSEC

17

3.3. GAMBLING INDUSTRY TRENDS IN MACAU

3.3.1. VISITORS ARRIVAL AND HOTEL STATISTICS

The Macau Statistics and Census Service stated that there was a reduction in the hotel occupancy rate which fell 3.1% each year to 72.6% in March 2009. Four star hotels lead the demand for the highest occupancy rate of 86.4% during the period. There was an increase in the number of tourists which stayed in hotels in March 2009, an increase of 5.9% year on year basis. Nearly 5, 96,000 tourists visited Macau out of which 55.7% were from China and 18.7% were from Hong Kong.

In March 2009, the average stay of visitors in hotels registered a reduction of 0.01 nights to 1.3 nights. An increase in the number of hotels rooms was also seen where the rooms increased by 17,534 in 2009 as compared to the previous year. During the same period, the percentage increase was 8.3%. Approximately 82% of the visitors come from China and Hong Kong with day trippers accounting nearly 50%. Macau is generally preferred by these individuals due to many advantages associated with it such as closeness (approximately 1-2 hours either from land or sea), ease (communication and tradition) credit availability.

Table 4: Total Number of Visitors Arrival in Macau (2008-2010)

2008 2009 2010

January 1,900,592 1,915,477 2,046,556

February 2,000,243 1,654,518 2,057,566

March 2,135,523 1,884,175 2,011,099

April 1,934,585 1,867,204 2,111,563

May 2,000,282 1,591,500 2,098,267

June 1,732,914 1,458,105 1,904,395

July 2,061,558 1,755,103 2,162,069

August 1,940,850 2,065,336 2,357,689

September 1,627,882 1,689,007 1,839,375

October 1,850,175 1,946,217 2,092,343

November 1,840,056 1,890,252 2,013,188

December 1,908,525 2,035,857 2,271,301

18

Total 22933185 21752751 24965411

Source: DSEC

3.3.2. GAMBLING INDUSTRY CONTRIBUTING TO MACAU GDP

The GDP of Macau has been boosted by the increasing contribution from the gambling industry. The contribution has increased the Macau GDP growth by 31.6% further in the initial four months as compared to same period last year. Gross gaming revenues also increased by 61.8% in nominal terms in the first four months of 2008 compared to the first four months in 2007 and an increase of 4.3% for total visitor’s expense.

The decrease in the GDP was registered in Q2 of 2009 whereby the GDP declined by 13.7% due to the decline in the gambling revenues and decrease in the visitors arrival as compared to 2008. Gambling revenues constitute a major proportion of the GDP of Macau. The government is taking steps to reduce the dependence of gambling on the GDP and is promoting other sectors to increase their contribution.

In 2010, the increase registered in exports, tourism and gambling services impelled the net exports (exports – imports) to increase by 66.8% which was more than the level of economic growth achieved. The relative importance of the GDP also increased from 41.9% in 2009 to 55.4% in 2010.

Table 5: GDP Indicators of Macau (2006-2010)

Indicator Year 2006 2007 2008 2009 2010

GDP, at current prices (billion MOP) 113.70 141.93 161.67 165.46 217.32

GDP growth in real terms (%) 14.4 14.7 2.8 1.5 26.2

Per-capita GDP, at current prices (MOP) 227,710 269,960 294,505 303,992 398,071

Per-capita GDP growth in real terms (%) 9.1 8.9 -1.5 2.4 25.8

Source: DSEC

19

3.4. BACCARAT PERFORMANCE IN MACAU

The proceeds from revenue showcased an increase in Q4 2010 and reached USD 6.8 billion compared to revenue of USD 6.15 billion a year ago. In 2010, the annual revenue reached USD 23.5 billion which was USD 14.7 billion a year ago.

The proceeds from Baccarat have increased in 2010 as compared to 2009. In the latter year, proceeds from Baccarat accounted for 90.6% of the total gaming revenues in Macau which were 88.2% in 2009. VIP Baccarat constituted a larger proportion of revenue from the total revenues earned from Baccarat.

Figure 10: Baccarat in Macau (2002-2010)

85.9

88.2

85.6

84.285.3

86.787.2

88.2

90.6

80

82

84

86

88

90

92

2002 2003 2004 2005 2006 2007 2008 2009 2010

%

Source: GBGC All Baccarat Macau 2010

VIP Baccarat on its own contributed 72.0% of total gaming revenues, rising back above 70% for the first time since 2004. At the end of 2010 there were 33 casinos operating in Macau, 20 of which were run by SJM Holdings.

20

Figure 11: VIP Baccarat % of Total Gaming Revenues (2002-2010)

0

10

20

30

40

50

60

70

80

90

2002 2003 2004 2005 2006 2007 2008 2009 2010

%

Source: GBGC VIP Baccarat Macau 2010

3.5. RESTRICTION ON SETTING UP NEW CASINOS

Macau government has decided to not to approve new casino projects and to allow only 500 additional gambling tables in the next three years. The decision comes as the government, which draws around 70 percent of its revenue from gaming, seeks to diversify the city's economy away from the gambling industry, with the goal of developing Macau into a popular leisure and entertainment destination. Also to promote the city for healthy reason, that is now famous for gambling hub.

Macau now has around 5000 gambling tables and six licensed casino operators, some of which have projects under construction that could add around 1300 tables by 2011.

3.6. SLOT MACHINE DEMAND IN MACAU

The slot machine market is trying to create a stable demand in the region and further growth depends upon casino and gambling sector. Gambling in Asia, and particularly in Macau, is still dominated by gambling tables. But with so much foreign capital being poured into this region, Macau’s casino market could shift closer to the Las Vegas market, where slot machines are the dominant source of gambling revenue. In 2009, Macau slot machines generate revenue of USD 812 million which was 5.45% of the total revenue generated from

21

gambling industry in Macau. Although revenue from table games was much higher that slot machines, it reflects opportunity for slot machines to cover the untapped market.

Figure 12: Installed Slot Machines in Macau (2002-2009)

808 8142,254

3,421

6,546

13,26711,856

14,363

0

2000

4000

6000

8000

10000

12000

14000

16000

2002 2003 2004 2005 2006 2007 2008 2009

Source: Gaming inspection and coordination bureau, Macau

22

3.7. INDUSTRY COMPETITION

Industry experts believe Macau’s competitive landscape to heat up with the large incoming supply from 2011 onwards. Demand may not be able to catch up with supply in the short-term (especially at Cotai), possibly leading to another “price war” as players jostle for market share.

Figure 13: Macau Gaming Players Market Share (2007-2011F)

15% 21%39%

14% 12%

16%23%

26%

8%27%

14%

23%

29%

9%

26%17%

20%

29%

9%

25%17%

21%

27%

11%

24%

0%

20%

40%

60%

80%

100%

120%

140%

160%

Wynn Macau Sands China SJM Galaxy Others

2011F

2010F

2009

2008

2007

Source: Company Reports

With only Encore opening in 2010, Wynn is expected to gain significant mileage with its market share leaping by 3ppt to 17%. Similarly, Galaxy is expected to see its market share increasing by 2ppt to 11% in 2011F with the opening of Galaxy Macau. As for leader SJM, there could be a 2ppt dip in 2011F to 27% with the renovation of Casino Lisboa and loss of grind market share to newer IRs (especially at third-party promoted casinos).

4. FUTURE OUTLOOK OF THE CASINO AND GAMING INDUSTRY IN MACAU

The gaming industry in Macau is growing rapidly in comparison to other counterparts in the Asia Pacific region impelled by the increase in the number tourist visitors and the increasing level of middle class in the country. Macau is offering stiff competition to Las Vegas which has been for many years the number one market for gambling and casinos in terms of revenue generation. Macau is also a potential destination for slot gaming and machine manufacturers

23

as the market is still a untapped in this respect. Gambling industry is one of the major contributors to the country’s GDP. In order to lessen the dependency of economy on the gambling industry, government is taking stringent steps to regulate and diversify the economy to other industries which can contribute to the GDP of the country.

Government is trying to make the regulations more structured which will benefit the residents of the country, further government has restricted immigrant labor and banned foreigners with only tourist visas from working in the city and it leaves a direct impact over the country’s casinos and gaming houses in coming years. Also government is planning to tighten the restrictions on setting up gaming house in Macau which will make difficult for foreign players to invest in the market.

By 2011, the proceeds from gaming and casino industry would reach USD 28 billion, at an expected growth of 20.5% compared to the growth achieved in the previous year. By 2015, the gaming and casino market is expected to grow at a CAGR of 15.8% till 2015.

Figure 14: Macau Casino and Gaming GGR Forecast (2010-2015F)

23.2428

34.6340.52

46.8

55.94

0

10

20

30

40

50

60

2010 2011F 2012F 2013F 2014F 2015F

USD

Billi

on

Source: AM Mindpower Solutions

24

5. FACTORS INFLUENCING INDUSTRY PERFORMANCE

5.1. ECONOMY GROWTH

Macau is benefiting from its location near to Hong Kong, participation of international players in the country’s gambling market has made Macau one of the most on demand place to gamble. Macau economy is growing continuously supported by trade activities in China which is attracting foreign players; revenues earned by gambling, and other manufacturing activities. In recent past manufacturing declined in the country but gambling settled down after a slight fall and here GDP plays an important role, account for per capita disposable income.

Macau can also be recognized as a hub for offshoring finances, regulated by monetary authority of Macau.

5.2. CONTRIBUTION OF INTERNATIONAL PLAYERS

Few years back domestic players had monopoly in the market and not any foreign player was allowed to invest. After 2002, government performed some amendments which opened the market for foreign players and since then gambling industry is continuously growing in Macau with improved service quality and become a destination of tourist attraction.

In 2007, Macau gambling industry surpassed Las Vegas which added another reason for people to visit Macau. There are some foreign players accounting for a big percentage of the market:

25

Figure 15: Macau Gambling Industry Players Market Share in 2009

Source: Company Reports

5.3. VISITORS ARRIVAL

Slowly and gradually Macau is becoming one of the favorite destinations for tourists which reflects from the figures released by statistics and census service department Number of visitors indicate demand for gambling. In 2010 the total visitor arrival has reached 24.965 million up by 15% y/y, with visitor arrival in package tour increased by 24% to 5,745,222.

In December alone, tourist arrivals jumped 7.8% from the same period a year earlier to 524,500. Visitors from mainland China were rose 9.5% to 364,300 in December, while those from Hong Kong and South Korea advanced 36% and 115% respectively.

Table 6: Macau Tourism Statistics (2000-2009)

Number of Visitors (in millions)

Avg. length of stay in Macau (days)

Hotel Occupancy Rate (%)

2000 9.16 1.3 57.60%

2001 10.28 1.3 60.70%

2002 11.53 1.2 67.10%

2003 11.89 1.2 64.30%

9.2%

23.0%

18.0%12.7%

10.5%

22.0%

4.6%

26

2004 16.67 1.1 75.60%

2005 16.98 1.1 70.90%

2006 22 1.1 72.20%

2007 27 1.1 77.20%

2008 22.91 1.1 74.50%

2009 1.1

Source: Statistics and census Service of Macau

China economic growth also helped Macau to grow with a large number of visitors comes from China for gambling or tourism. Mainland China has become Macao’s leading tourist source, followed by Hong Kong and Taiwan.

Legal Gambling and High Disposable Income

The importance of Macau as a destination of gambling is because the government has legalized gambling activities in Macau including internet gambling. The gaming revolution started from 2002 in the country when, to control crime and force modernization Chinese government auctioned three gaming connection. These casinos not only perform in casino houses but also big ones are publicly traded and listed in regional exchanges.

In mainland China, high disposable income is the result of increasing trade activities, tourist destinations and skilled labor, which works as pillars of a country’s economy. A large number of people every year visit Macau from China to take part in gambling activities and utilize their high disposable income. This trend is expected to continue and support gambling activities in Macau further.

27

Figure 16: China Disposable Income in Urban Households (2002-2009)

Source: China gov Statistics

0

500

1000

1500

2000

2500

3000

2002 2003 2004 2005 2006 2007 2008 2009

USD

28

5.4. FORECAST METHODOLOGY

Several statistical methods such Covariance, Correlation, Regression and Coefficient of Determination (R square) analysis have been used to assess the industry performance and analyze the future outlook of the industry.

Correlation analysis is a measure of degree of association between two set of quantitative data. Correlation coefficient describes the direction and strength (both positive and negative) of association between the dependent variable and independent variables and overcome the shortcomings of covariance analysis.

Regression analysis helps to calculate the value of one variable from known or assumed values of other variables related to it. The report has independently studied the cause and effect relationship between dependent and independent variables and has formulated the regression coefficient explaining the estimated change in the response variable due to a unit change in the corresponding explanatory variable, conditional on the other explanatory variables remaining constant.

R Square is the coefficient of determination that represents the proportion of total variation in the dependent variable that is accounted for by the variation in the factors. In simple terms, it explains the validity of the independent variables and reflects the degree of influence independent variables have on the dependent variables.

The report has analyzed several socio-economic, demographic, political, and regulatory market factors which directly or indirectly affect the industry performance by indicating their degree of impact in the cause and effect relationship between them. The reason for selected these macro-economic and industry factors has also been explained.

DATA COLLECTION METHODS

In terms of data collection, we have used both primary and secondary data sources.

Secondary Data Sources: Secondary data sources includes the analysis of existing macro economic and demographic factors, obtained from national statistics of various countries and from magazines, journals and online articles The secondary data sources are used to form the initial perception and contention on several forces playing their role in determining the future growth in the industry.

Primary Data Sources: Structured interviews are conducted through telecon with several industry veterans including major decision makers of companies operating in the sector, representatives of several statistical associations and research institute. These interviews help

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the research team to authenticate the data collected from secondary data sources and to reject or accept the hypothesis regarding the future projections.

APPROACH

Our research team follows a “Top-down” approach for the future projections in which they first study the effect of economic factors and then industry factors on the sector.

This approach indicates the several independent macro-economic and industry variables and their degree of relationship with the sector. The below mentioned macro-economic factors analyze the future projections.

Table 7: Macro-Economic Factors Analysis and Sensitivity on the Sector

Macro-Economic Factors

Relationship; Degree of Market

Impact

Comments

GDP Growth Positive; Cause: Expected Strong Economic Growth in

Asia Pacific in Future

Effect: Increase in spending power which allows participating in leisure activities like gambling.

Increase in Number of Tourists Positive; Cause: Tourists attraction-China, Hong Kong &

Singapore

Effect: Anticipated to increase number of players in land based casinos

Expected increase in the demand for slot machines

Rise in Personal Disposable Income

Positive; Cause: Estimated strong growth in the purchasing power

Effect: Participation rate in online gambling expected to increase.

Increase in the upper Middle Class population Positive; Cause: Entry of multinational companies and

demand for new technology in which China and Japan has the leadership

Effect: To spend leisure time in Macau and Singapore casinos.

Mounting Inflation Negative; Cause: Anticipated rise in consumer price index

Effect: Adversely affected the real growth in the Sector and spending power.

Note: Shaded region represents the degree of impact on the market

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Table 8: Industry Factors Analysis and Sensitivity on the Sector

Industry Factors Market Impact Comments

Increase in Working Women Population

Positive+ Indirect;

Cause: Increased Literacy and Employment level

among the women’s population

Effect: Rising spending power led to change in lifestyle and expected to increase interest in gaming.

Technology Advancement, Gaming Machines Positive; Cause: Increasing focus to streamline and integrate

the designing to provide different gaming experience

Effect: Anticipated increase in competition between gaming machine manufacturers and land based casinos.

Restrictive Government Policies and Regulations Moderate; Cause: Rise in the government controls to minimize

illegal gambling and save young population from betting.

Effect: Multiple effects- difficult for foreign players to set up unit, labor reforms to restrict foreign migrants to work on tourist visa and short time effect on industry revenues

Note: Shaded region represents the degree of impact on the market

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REASONS FOR THE DEPENDENT AND INDEPENDENT VARIABLES

Following are the reasons for the selection of independent variables:

Working women are more likely to participate in casino and other forms of gaming than house wives. In Asia-Pacific countries working women population is rising continuously supported by education facilities and multinational companies offering employment opportunities allow to spend in leisure activities. The East Asian sub region leads the world in women's employment, with female employment-to-population ratios—65.2% of all working-age women are employed—remaining the world’s highest in 2007.

Internet Penetration and online gambling- According to a study, 51 percent of the Asia-Pacific Internet population visited gaming sites in August 2008, spending an average of 87 minutes on the sites, and averaging 11.5 visits per visitor during the month. Online gaming is one of the largest and most engaging site categories in the region, which represents an attractive opportunity for advertisers.

Aging population- In Asia-Pacific region aging population is continuously rising with decline in death rates. Older segment of the population prefer to spend their time in different activities especially enjoy leisure activities like casino.

Relation of Tourism and Gambling- Tourist spending helped fuel Singapore’s 14.7 per cent gross domestic product (GDP) growth in 2010, making it Asia’s fastest-growing economy, after a 1.3 per cent contraction in 2009 which ultimately helped land based gambling industry with rising income level. Any change in GDP of a country directly impact spending power, resultant a change in spending on leisure activities.

Technology Advancements- The gaming industry is adopting newer centrally managed systems, such as IGT's Wide Area Progressive (WAP) network systems that link machines across several casinos in a given region, greatly simplifying casino operation. Similarly to technological advancement, customers' constantly changing tastes can render certain gaming products obsolete. With advancement in technology gaming industry is able to provide games according to the interest of large population which helps to increase participation rate.

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