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From Macau to Las Vegas : brands are betting on casinos

Aside from any cultural/political repercussions, casinos are generally an important part of the broader tourism industry. They encourage travel to a destination, and provide positive spill over for other attractions in the area. Casinos also help hotels attract guests, whilst directly and indirectly boosting other departmental revenue, i.e. non-gaming expenditures. Live from Macau.

Macau taking over as the casino hub

Travel and leisure industries dependent on consumer purchasing behaviour were se­verely impacted from the global economic crisis. In most mature markets in Europe and North America, hoteliers were recor­ding major decreases in demand, and then forced to dramatically reduce average room prices. In turn, RevPAR levels were suffering. Despite having greater offe­rings, casinos integrated resorts were cer­tainly not immune. Gambling is especially considered a luxury activity. “The gaming industry – like most other entertainment and travel segments – has been negatively impacted by the drop in consumer spen­ding that has accompanied the recession. In the US, gross gaming revenues were down in 2009 compared with 2008. As long as employment and other broader economic indicators are depressed, howe­ver, industries that depend on consumer spending will continue to suffer. We know that, throughout the recession, visitation was not significantly down. People were still coming to casinos; they were just spending less when they came,” continues Wetzel. The corporate segment also significantly cut back on MICE activity, as did couples, family-related and group leisure. Pre­viously rising oil prices certainly did not help the situation, while in Europe, the in­dustry is still suffering from the negative impact of the ban on smoking. In the US, gaming revenues fell to just under €28 billion in 2009, a decrease of 5.5% compared to 2008. Casino hotels in Europe more or less fell in line with the hotel industry. Now, just as pure hotel performance indicators are improving, the fall in GGR is starting to reverse in line with recovery in the economy. “It is starting to turn around in some mar­kets. Indications are that recovery of the gaming industry has begun, however, with gross gaming revenues toward the end of 2010 looking substantially better than at the beginning of the year when taken as a whole. Recovery will be slow, but analysts and experts in the industry agree that the future looks bright for casino gaming,” adds Wetzel. Las Vegas for instance, one of the markets hit hardest during the economic downturn, posted signs of a gradual recovery in 2010. According to numbers from the Las Vegas Convention and Visitors Authority, visita­tion increased each of the last 10 months of the year, ending 2010 up 2.7%, to 37.3 million visitors for the year. Average daily rate also saw 10 consecutive months of year-over-year increases, ending at €70.5 for the year. That’s up 2% from 2009 but still down 28% from the 2007 high of €98. Only emerging markets, such as Macau and others in Asia truly pulled through unbuttered and are now well ahead in terms of growth. These destinations were able to feed from markets still enjoying economic positive growth, therefore grea­ter consumer and business spending.Within China, the only place where gam­bling is legal is the peninsula and former Portuguese colony Macau – a short dis­tance from both Hong Kong (one-hour ferry ride, which runs 24 hours) and Zhu­hai in China, and connected to many Asian hubs via full fledge and low cost flights. Beginning in the early 1960s, Macau’s gaming operations were essentially a mo­nopoly. It was not until 2002, when the Chinese government auctioned off three gaming concessions that the market truly expanded – taken by Wynn, Galaxy Enter­tainment Group and SJM. Subsequently, three additional sub-concessions were granted to MGM/Pansy Ho, Las Vegas Sands and Melco. Today, Macau is truly the casino-hotel hub of the Far East, per­fectly positioned to funnel in demand from mega Asian markets, such as China, India, Japan, Taiwan, Hong Kong and Southeast Asia. Since 2007, gaming revenues have exceeded the amount gambled in Las Ve­gas. In 2010, gaming revenues grew by 33% to over €18 billion, or roughly two thirds of the total amount gambled in all commercial casinos in the US. Given the expanding middle-class and growing HNWI markets in Asia, gaming in Macau will likely continue to expand over the next several years. The hotel sector will no doubt mirror this develop­ment. International hotel chains already present in Macau include Accor’s Sofitel (also one of the pioneering brands), Hyatt, Best Western, Starwood’s Westin, Four Seasons, and IHG’s Holiday Inn, whilst Shangri La is soon to come. All hotel properties and casinos are grand; iconic structures, luxurious and offering endless facilities. Indeed, they have be­come tourist attractions in themselves, with bus loads of groups coming every day. Massive developments are occur­ring all-round. Airport expansions and new flight connections to source markets, road infrastructure, including a number of bridges to both mainland China and Hong Kong, new tourist attractions and resi­dential. All in an effort to make this small state the preferred choice for winning and losing your money. With such growth ex­pected, many other chain hotel brands are sure to soon light the skyline neon. Of course there are still many challenges to overcome. Most notably the quality of service, as such a new destination must find and train hundreds of thousand of em­ployees who perhaps have never worked in the industry. Managing a hotel in such a mega integrated complex is also a daun­ting task.Integrated Resort – a structural advantageWhat is an integrated resort? The casino on premises includes table wagering games and may include other gambling activities, such as slot machines and sports betting. However, these establish­ments must also offer a huge range of services and amenities, such as food and beverage outlets, on-going entertainment, leisure facilities (swimming pools, spa centres and sporting activities), retail, and MICE (meetings, incentives, conferences and events). Obviously the world’s best examples of such products are in Las Ve­gas, Atlantic City and now Macau, where buildings, exterior and interior are power­ful symbols.“The main advantage is creating a pro­perty that no one can compete with, since projects are iconic and changing the tou­rism industry,” spokesman and special advisor to Chairman of the board, Las Vegas Sands Corp., Dan Raviv tells HTR Magazine. “An Integrated Resort (IR) as a matter of fact is a city of entertainment under one roof in which the casino takes only 2-3% of the total property. Sheldon Adelson's vision that led him to build the first IR, The Venetian Las Vegas, was to build a resort in which you can find all your entertainment needs around you based on conventions and exhibitions du­ring the weekdays. The idea was to build a place in which you will find within 1 or 2 minutes walk everything you may desire for your 3-5 days stay.” The Venetian Las Vegas for instance has 6,000 hotel rooms, one of the largest conventions and exhibitions centres in the US, three major theatres, countless restau­rants, huge shopping malls, spas, bars and coffee shops, Madam Tussauds, canals with gondolas, etc. and a casino. Accor­ding to Raviv, even the rooms are desig­ned for business travellers as full suites can be used for business meetings. The Venetian new venture in Macau follows a similar mega structure.“We have under the roof dozens of these elements that allow us to appeal directly to conventions and exhibitions all over the world, since for them it is a one-stop-shop with no need to run in between hotels far away from convention centres, entertain­ment in the night and so on. The vision of IR changed Las Vegas (and now Macau) for ever. Before it was opened, nobody be­lieved that honest businessmen will come to have conventions and exhibitions in a sin city like Las Vegas,” adds Raviv. Specifically for hoteliers – including those in the area that do not have a casino or other facilities – customer segments are broader, ranging from casino guests, fa­milies, FITs, groups and MICE. This also extends seasonality and offers a number of alternative revenue streams “Obviously having a multi-faceted re­sort opens a property up to increased visitation, i.e. attracting an audience to a property that may not otherwise vi­sit,” comments communications director, American Gaming Association, Holly Wetzel. “We are typically talking about the benefits of adding a hotel, spa, restau­rants, entertainment venues or other non-gaming amenities to a casino, while you are really looking at this from the opposite perspective of adding a casino to a hotel. But, we tend to say the greater variety of entertainment options you can provide your guests, the more diverse clientele you will be able to attract and the more reve­nue you will be able to generate.” Although casino IR are of much smal­ler scale in Europe and other parts of the world, they too attract more clientele by offering a greater range of facilities and services together with gaming – both for guests nights, as well as general walk-ins to the hotel’s various outlets. “The experience at such hotel properties is quite different for guest, as they have access to various other facilities, venues and entertainment. It is a true global ex­perience and a destination in itself,” says CEO, Monte-Carlo SBM, Bernard Lam­bert, who’s group comprises 2 palaces and 2 deluxe hotels, 5 casinos, 60 conference and banqueting rooms, 33 bars and restau­rants, 3 spas including, as well as various cultural, leisure and sports venues.Measuring performance; gaming Vs room nightsPerformance in the gaming sector is mea­sured by gross gambling revenue (GGR), which is the figure used to determine what a casino, or other gaming operation earns before taxes, salaries and other expenses are paid — the equivalent of sales. It is the amount wagered minus the winnings returned to players, a true measure of the economic value of gambling. This then must be the main indicator for integrated resorts in gambling destina­tions. Indeed, many room nights are offe­red complimentary to high rollers, regular patrons and for all sorts of promotions; many times also as promotional bundles or all-inclusive packages with food, be­verages, entertainment, spa and other fa­cilities. Thus, monitoring strict room or other departmental revenue can be very ambiguous. What is certain however is that they do monitor how rooms are occu­pied (basically OR), and then balance this with GGR to obtain something similar to the RevPAR. Smaller standalone casino hotels in ‘nor­mal’ cities do not offer anywhere near as many complimentary room nights or other services, therefore follow more of a strict revenue management process similar to traditional hoteliers. The casino is just like an extra outlet. “As in every hotel, we measure our per­formance through OR, ADR and RevPAR and by clientele segments. We dissociate revenues from gambling and the casino. This gives us an idea of each segment’s and department’s real performance and allows us to implement better revenue ma­nagement strategies,” verifies Lambert. “Indeed, for each casino booking there is a rate attached according to season and the day of the week.”Sector performance, following economical and general hotel trendsTravel and leisure industries dependent on consumer purchasing behaviour were se­verely impacted from the global economic crisis. In most mature markets in Europe and North America, hoteliers were recor­ding major decreases in demand, and then forced to dramatically reduce average room prices. In turn, RevPAR levels were suffering. Despite having greater offe­rings, casinos integrated resorts were cer­tainly not immune. Gambling is especially considered a luxury activity. “The gaming industry – like most other entertainment and travel segments – has been negatively impacted by the drop in consumer spen­ding that has accompanied the recession. In the US, gross gaming revenues were down in 2009 compared with 2008. As long as employment and other broader economic indicators are depressed, howe­ver, industries that depend on consumer spending will continue to suffer. We know that, throughout the recession, visitation was not significantly down. People were still coming to casinos; they were just spending less when they came,” continues Wetzel. The corporate segment also significantly cut back on MICE activity, as did couples, family-related and group leisure. Pre­viously rising oil prices certainly did not help the situation, while in Europe, the in­dustry is still suffering from the negative impact of the ban on smoking. In the US, gaming revenues fell to just under €28 billion in 2009, a decrease of 5.5% compared to 2008. Casino hotels in Europe more or less fell in line with the hotel industry. Now, just as pure hotel performance indicators are improving, the fall in GGR is starting to reverse in line with recovery in the economy. “It is starting to turn around in some mar­kets. Indications are that recovery of the gaming industry has begun, however, with gross gaming revenues toward the end of 2010 looking substantially better than at the beginning of the year when taken as a whole. Recovery will be slow, but analysts and experts in the industry agree that the future looks bright for casino gaming,” adds Wetzel. Las Vegas for instance, one of the markets hit hardest during the economic downturn, posted signs of a gradual recovery in 2010. According to numbers from the Las Vegas Convention and Visitors Authority, visita­tion increased each of the last 10 months of the year, ending 2010 up 2.7%, to 37.3 million visitors for the year. Average daily rate also saw 10 consecutive months of year-over-year increases, ending at €70.5 for the year. That’s up 2% from 2009 but still down 28% from the 2007 high of €98. Only emerging markets, such as Macau and others in Asia truly pulled through unbuttered and are now well ahead in terms of growth. These destinations were able to feed from markets still enjoying economic positive growth, therefore grea­ter consumer and business spending.

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