Just why is gaming revenue in Macau growing so fast?  Why has it stagnated in the United States, at least in all existing jurisdictions?  Of course, we all know that Macau has mainland China has its primary market – 1.6 billion people. While each jurisdiction in the United States has a much smaller and more limited regional population base – people living within a hundred miles.  But is that enough to predict the future for gaming in either jurisdiction?  Won’t gaming in the United States begin to grow again as soon as the economy recovers fully?  Won’t Macau slow down soon as the novelty wears off?  Is there a way to get our arms around the issue?

There might be and it might in a direction that we have not been looking.  A group of analysts have developed a unique way to think about those questions.  In a recent report, Nomura Equity Research introduced a new ratio for quantifying the relationship between population and casino capacity; the ratio of population to gaming positions.  A table game has as many positions as there seats at the table, a slot machine has one position.   Using the ratio, Nomura Equity Research is predicting that Macau will reach $70 billion in gaming revenue in 4 years.  The researchers base their estimate on a principle and on the ratio.  The principle says that an under-supplied market grows fastest; the ratio indicates China is under-supplied by Macau and the United States is oversupplied, or at least saturated.

Nomura says the artificial limit on placed on the number of table games in Macau is the catalyst for the growth they predict.  According to the report Macau has 1,891 people in its feeder market for each gaming position.  That number only includes the closest two provinces and ignores the population of majority of mainland China and the rest of Asia.  In contrast the United States has 227 people for each of its gaming positions – not much room for growth one might say.

Gaming expansion in Macau is tightly controlled and the government, even while allowing new casinos to be built, has retained essentially a stagnate number of table games.  In the United States, a given state may limit the number of casinos, but it does not control other states and their casino licenses.  Therefore a limit like that in Macau, while it might be beneficial to the casino overall in the United States, is impossible without federal legislation.  That is not likely to ever happen.  Still, the ratio could prove to be useful for many in this country; regulators, investors and operators alike could use it when planning any new gaming ventures.  The ratio could be adapted to any jurisdiction or to any locality.  We would put more emphasis on slot machines than Macau does, but slot and table game positions taken together could be effectively used to determine market penetration and saturation.

Recently, I used population and gross revenues for that purpose, saying for example that Cincinnati was capable of producing somewhere in the range of $40-60 million a month in gross gaming revenue.  Indiana casinos once got the revenue available from that area, now they share it with casinos in Ohio.  The casino in Cincinnati grew the total market revenue, but the portion leftover for casinos in Indiana is smaller.  The model could be refined greatly over the next year or two using the population of the Cincinnati-Indiana region, the number of gaming positions and the total revenue produced.  Such a model would probably suggest that one of the responses to gaming in Ohio by casinos in neighboring states might be to reduce their inventory of games.

The ratio is not a perfect way to analyze a gaming market, but it can certainly be useful.  And in these challenging times, we need all of the help we can get to understand the gaming industry and to develop a sense of its short and medium-term future.

Macau gaming revenues could reach the equivalent of $70 billion by 2017 – nearly twice last year’s tally of US$38 billion – suggests a new report from Nomura Equity Research…spotlights the combination of strong and growing consumer demand, as more Chinese cities join the mainland’s Individual Visa Scheme – with limited table supply under the Macau government’s table cap policy – as important factors in growth. “History shows that an undersupplied market grows despite macro uncertainties, and the Las Vegas market from 1990-2005 is an excellent example,” suggest the authors…The bank estimates Macau currently has 57,187 ‘gaming positions’ i.e. seats for gamblers on local casino floors…when judged on the basis of the populations of Hong Kong and urban Guangdong – still the main market for Macau casinos – it works out to 1,891 people per seat….By comparison, the United States has only 227 people per gaming position. Michael Grimes, Macau Business Daily, 5-15-13