‘Table count’ expands ahead of table cap
Michael Grimes | 29/10/2013 | in
Count in first nine months expanded 5 pct y-o-y suggests research note – govt allows for 3 pct compound growth annually
Investment bank Morgan Stanley estimates that “table count’ in Macau’s casinos rose five percent year-on-year in the nine months to September 30.
“According to our calculations, table count rose by eight percent/five percent in 2012/9M13, respectively, and the number of four- and five-star hotel rooms rose by 17 percent/13 percent in Macau,” says the report from the bank’s managing director Praveen Choudhary in Hong Kong.
The bank uses the data to illustrate the point that there are limited catalysts currently to support boosting further the valuations of some Macau gaming stocks. It says that’s because from now until mid-2015, Macau may not see any new table and hotel additions from the six key operators, thus affecting overall revenue growth.
The bank draws no conclusions about why table count may have risen five percent in the first nine months this year.
It’s on public record that new allocation of live dealer tables – the product preferred by Chinese gamblers visiting the city – is subject to a market-wide cap equivalent to only three percent compound growth annually until 2022, from a baseline of approximately 5,500 tables recorded by the local regulator in the fourth quarter of 2012.
What then would account for the difference? One possibility is the method used to do the two counts. “Table count” is not necessarily the same thing as ‘table allocation’ from the government. The number of tables in the possession of an operator could be greater or fewer than the number of tables recorded as its official ‘allocation’.
Additionally, the number of tables any observer can physically count on the floor isn’t necessarily what the operator actually possesses. Some could be in storage or be being used for training.
It’s also on public record that operators are allowed to shift tables – including some previously in mothballs – within properties and from site-to-site in order to improve yield per table as demand has risen.
Eleven days ago Sands China Ltd chairman Sheldon Adelson said on an earnings call that his firm – in common with other operators – would “take the lower-performing tables from other properties” to improve yields.
Another potential reason for the discrepancy between ‘table count’ this year and the expansion permissible under the cap is possible government flexibility on that table cap policy.
There have been repeated signals – some specifically to Business Daily, others reportedly to equity analysts covering the city’s gaming sector, and via at least one public statement by a senior member of the government – that some leeway is possible on the cap.
The first route is via the government allocating new tables on a project demand basis – issuing more in some years and fewer in others – so that the average compound growth over the decade is equivalent to three percent per annum.
The second is for the government to ‘reward’ operators that co-operate in building non-gaming infrastructure by issuing table allocation above cap limits. The latter would potentially benefit the whole industry by broadening the base from which future compound growth is calculated.
In addition, Macau Legend Development Ltd, a company operating casinos via the licence of Sociedade de Jogos de Macau SA under a so-called ‘service agreement’ said recently the 350 new-to-market tables it asked for last year are “outside” the table cap. If that’s also the government’s view, the addition of such tables to the base will itself change the compounding calculations for the cap.
It’s not clear whether discretionary awards of tables to any or all of the six main operators – if adopted as a policy – would be subject to an announcement in the Official Gazette and therefore be open to public scrutiny.
“The government has the room to assign further tables to recently-opened casino-resorts where large investment is made and which fit its non-gaming development focus,” said Francis Tam Pak Yuen, Secretary for Economy and Finance, in January.
A source with knowledge of the situation told Business Daily in July 2012 that the policy of three percent per year compound growth from 2013, first announced by Mr Tam in March 2010, could be applied on an industry needs basis not purely incrementally.
A report issued on October 15 by analyst Philip Tulk of Standard Chartered bank in Hong Kong suggested the cap was to be raised to four percent annual compound expansion.
The following day, Macau’s casino regulator the Gaming Inspection and Coordination Bureau told Business Daily by e-mail that the government “does not have any plan” to relax the cap on live dealer casino table numbers.
Mr Tulk’s analysis assumed a baseline of 5,485 live dealer tables that were recorded in the market by the bureau at the end of the fourth quarter, and excluded the table requirements of what he describes as “the upstarts Macau Legend and Louis XIII”, the latter a reference to a boutique casino planned for the Cotai-Coloane border. Mr Tulk concluded that four percent expansion annually on a compounded basis, would deliver 2,800 new-to-market tables between now and the end of 2022, the year when the last of Macau’s six current casino concessions and sub-concessions are due to expire.
Business Daily has calculated that based on previous regulatory announcements on tables sought for new projects – including Macau Legend and Louis XIII Holdings Ltd – the territory would need at least 3,421 new tables between now and 2022.
Yet more ‘service agreements’ are coming to light. Last week this newspaper reported there are plans for a casino at a proposed new Taipa hotel called The Hollywood Roosevelt Macau, on land next to Macau Jockey Club.
I subscribe to the notion that they pushed beyond it this year in anticipation of virtually no new allocations next year, when virtually no new resorts will be launched. The 200 tables Sands got for their second C.C. casino was not nearly as many as they had hoped for, and many more were transferred in from other resorts... particularly Sands Macau resort.
Again, as I've opined, all these overages suggest that the SAR is thinking hard about what to do about Studio City's request for a gaming license, as it's already a very crowded field for 2015 thru 2017.
AS previously mentioned.....conversations on lvs comments of Spok & Grft, Mpel's Studio City has done nothing to agitate negative thinking of the SAR such as lvs with opening more competition with MBS in Singapore nicely stated by grft and thereby I mho jeopardize lots 7 & 8 and by the way, those lots are still not allocated as of yet, and as prior mentioned in other comment related comments, WE do NOT know if thingshave been done under the table.....much what happened with clwr but with a little different twist......it's still all about monies......and who pays who......its a risk but my money would be on the side that I bet it is already taken care of....good luck to you as always...goos.