Transforming Cotai

Davis Fong, Director of the Institute for the Study of Commercial Gaming

Director of the Institute for the Study of Commercial Gaming, Davis Fong sits down with Business Daily to talk about the future of the Cotai Strip, the various industries that will be affected by changes in infrastructure, and the plans for growth announced in the five-year plan, as well as why the full ban on gaming workers from casinos is a good initiative.
Infrastructure projects have dominated the Cotai scenery for a long time. Do you think that once the LRT is completed it is going to be a significant driver for the mass market to the Cotai strip?
No. I don’t think it’s because of the light railway system. The major differences comparing the Vegas strip and Cotai strip are the willingness of the tourists to move around. Looking at the Vegas strip, every day more than 100,000 people move from one property to another, around and around. Almost a two-hour ring, around 40 casinos.
Looking at Macau: I can see some of the people now that are willing to move – since August. Check the selfie pictures before and after August. And you can see before August, it was so rare to find people moving around. But after that the people move: from the Venetian to Four Seasons, Parisian and Studio City, and back and forth. And sometimes they just go to CoD – this ring.
The light railway system actually can move the people the first time. Move them, let’s say, from Gongbei terminal up to the door of the casino. That’s fine.
However this is not the right strategy or the only strategy.
We should connect all the properties together in a proper way so that we can help the people to move from one property to another. To prolong the duration of stay: stay longer and spend more. This is the main purpose. Why is this the most important? First – Macau is very small. We can’t have 50 million or 60 million day-trippers, but we can have 30 million – two days or three days – no problem. So this is the most important, but how do we make it happen?
This is a good time for the six operators to sit down together and think about the connectivity. To make a so-called all-weather 24/7 connection – all the casinos together at the Cotai area. My plan is two circles – connecting all the Cotai area, walking, 24 hours a day, with air conditioning – this is the most important. Because we have rainy days, summer and most important: humidity.

Do you think that future political changes in the MSAR could drastically change the outcome of casinos in the city?
I don’t think that the new bench of the Legislative Assembly would change the overall attitude towards the casinos. Because the government has announced the five-year plan already. Based on my memory, the government announced it in September and from the report, the government may take 20 years to achieve the ‘World Centre of Tourism and Leisure’. This is the most important position of Macau and this is confirmed by the central government. So that’s why no matter who the parties are inside the legislative assembly, I don’t think we can change, because the five-year plan is confirmed already. The growth rate already has a wide range of consultation processes, and everybody agrees with it. And then I don’t think the new bench may be against it.
The most important here is that: the five-year plan is confirmed, the 20-year target is confirmed, but how to achieve it? In more details, year-by-year, step-by-step. This is even more important, not just an announcement, not just a mission, but also a strategy, tactics. And then achieve it year-by-year.

To do that, they need to actually get in touch with the elements of the local business community. But it doesn’t appear that that has happened, right?
You’re right. That’s why I’m looking forward to 2017 because the tourism office may announce the most important 10-year master plan for tourism. Which is actually the project of a company in Hong Kong, it’s not local. It’s a big project, a very big project. It’s a very famous consultancy company in Hong Kong and helps lots of tourism destinations to develop their master plans. So next year, the master plan will be announced and from that particular master plan I anticipate they will provide a more detailed strategy as to what the role of the private sector is, what’s the role of the public sector. So how to cooperate with the big companies, the small companies to achieve such a world tourism and leisure centre. I’m looking forward to this.

Recently the Cultural and Creative Industries Committee added representatives of the concessionaires and sub-concessionaires to the committee. Why do you think that is?
Important – I think this is the most important thing here in Macau. If you’re talking about the cultural and creative industry, look at the experience in Japan, look at the experience in the UK. These two places we can learn a lot from. Most important is that there must be a very big industry or economic set-up to support. Even South Korea is the same. So for South Korea we call it the modern cultural and creative stuff – supported by what? By television, by the mobile, by cosmetic companies, backed up by them. Japan same, UK same – backed up by the industry. Here in Macau we don’t have a long history, a famous history of cultural and creative products. We’re starting from an infant stage. How can I make them have high awareness so that finally it becomes a business? We need help from the most competitive industry we’ve got – the casino industry here. Because the casino and tourism industry brings in 30 million tourists. Only then can it bring in competitiveness and help the creative industry to push up the high awareness of the product and then demonstrate the product in front of the tourists. So this is I think doing the right thing – the same idea as mine talking about connectivity. If we connect them and then let all the creative and cultural industry along the connectivity, the bridge or no matter what it is, and most of the tourists can experience this and finally they can understand ‘oh this is a product from locals, from local cultures here, a new product’. So there’s a synergy effect – so I think it’s a good move.

Do you foresee the granting of licenses for individual performances expanding to the Cotai strip?
I hope. I hope that they can create cluster effects. Because from the experience in Hong Kong, if you develop so many attraction points for tourists in different places in the city, it will mess up the whole city management. And tourists are very hesitant or haven’t found a good transportation network here in Macau. It’s not like Tokyo or other places, even Hong Kong – you go to the MTR and then you can go anywhere you like, there’s more convenience. The network is so well developed. But here in Macau this is very tough, even taxis have become a very heavy problem in Macau already. So I’m not encouraging the government to put so many attractions around the city and move the tourists just back and forth, back and forth. I don’t think that’s a good idea.
Can you see a lot of tourists moving around by themselves? No. So types of (small, un-clustered) attractions would only attract local people, rather than tourists. So if the tourist office would like to develop for the tourists, I would rather say – cluster effects. Putting there, just in the Cotai area – and then let them to move around (within Cotai) – no problem. However, if you move them to downtown or even St. Paul’s church, it could lead to transportation and maybe other issues.
I understand some of the local residents may need the government’s help, especially for small businesses and the old part of Macau and the downtown area, but in the end, if you move too many tourists around the downtown area it may not be a good idea.

What about with the new bridge coming in? And then the travel companies themselves will try and spread those tourists across Macau. Will that mean that it just continues to get worse?
The airport brings in VIP, it brings in conventions, they’re not bringing in day-trippers or the regular gamblers. The Hong Kong-Zhuhai-Macau Bridge, the connection with the Hong Kong International Airport. Who flies to Hong Kong International Airport and then shows up in Macau?
Nowadays if you’re talking about the major cities – Shanghai, Beijing and even some major cities in provinces on the east coast – we have direct flights to Macau International Airport already. If the VIP flies here I don’t think they need to fly to Hong Kong.
Also nowadays, Macau International Airport’s capacity is not that big, so the airfares are very high compared to Hong Kong. So maybe some of the second rank of the VIPs may take flights to Hong Kong and then take the bus or the turbojet to show up in Macau, maybe. Because maybe 1,000 to 2,000 difference in airfare. So this is second tier, not first tier. The first tier is no problem, because the VIP is the VIP, their airfare is not a problem. So second tier VIPs may take that.
Secondly – who may go to the HKIA? The convention guests. If we take the convention centres, if we invite guests from around the world, there’s no way for them to go to Macau International Airport because we don’t have many direct flights. Okay, so they go to Hong Kong and then take the bridge here. So this is the second group, I guess.
The third group – long haul. Not convention, not VIP gamblers, but certainly they found Macau or Hong Kong a good trip, one trip multiple destinations. So this group of people may dominate the major source of guests using the bridge.
Do you think that’s going to be a lot? I assume no. The majority still use two ways to come here: Gongbei terminal and the new Taipa ferry terminal. Because the new ferry terminal is huge, huge. So I anticipate in the near future the government may use the Taipa ferry terminal a lot because it’s in the Cotai area, so no traffic congestion with the near downtown area. So use it, short to Cotai area, no problem at all.
So these two sources – the ferry terminal and Gongbei will still be the major sources.

So would that mean that the non-gaming sector will be the one that would benefit most from the bridge?
I think so, especially convention guests.

And do they gamble?
Yes and no. One thing to understand is the norm of human gambling behaviour. If you talk about gambling behaviour across the world – U.S., Europe or even Southeast Asia - it’s around 50 per cent. Fifty per cent of the people did gamble in the last 12 months. No matter what type of country you are talking about. Could be online, could be social gambling, could be football betting. No matter what it is, 50 per cent.
So if I invite a guest say to join our convention, I can say one out of two did gamble in the last 12 months. If we had some product we may attract them to try it, based on our statistics, 40 per cent of tourists did gamble before they left, in Macau. No matter what it is (day trippers, two day etc). 40 per cent. So what does that mean – even the convention guests, I can use the same number – 40 per cent. But their affordability is very high, because they’re convention guests, their income is very high, they’re company representatives. So we may say they gamble more than just a normal gambler.

But are those a significant contributions to the mass market?
It depends on what strategy the government is using as well as the casino operators. Look at Vegas – Vegas as a convention centre of the U.S., with the 10 biggest convention centres in the U.S. attracting millions of guests. That’s why if the six operators and the government work together, this is also a policy address – the most important thing. Li Keqiang came here – one of the most important things – he supports Macau to develop an international well-known convention industry – his message. And then it worked together to develop Macau into a convention centre, it may be a significant income from tourism. Number one – from Monday to Thursday hotel rooms, because now the room rate is very low in order to keep the occupancy rate. If we can attract convention guests, the room rate will be higher so that it will push up the EPR (earnings per room) ratio of the concessionaires and sub-concessionaires here. Number two: of course the synergy between the convention and other parts. The convention is part of life, they also need fine dining, shopping, gambling. So the second one is much more important – to push up the gross gaming revenue, the EBITDA (earnings before interest, taxation, depreciation and amortisation). And this is most important, I would say, the government understands it, some operators understand it – but not all. They’re trying to do new things, such as Galaxy wanting to develop Phase Three purely as a convention house, purely convention hotels.

They’re proposing a full ban on casino workers going to casinos when they’re not working. Do you think that will be effective?
If it did happen, I think it would be effective.
Number one – because from our study, not just the study, from the facts, for how many people seek help, we have a database provided by the social welfare bureau. From the statistics we understand that around 30 per cent of real cases are from gaming employees. They’re the risky group.
Number two – only Macau people can be dealers. This policy will not change in the next five years, because the government announced it, again. So that means that even 3 per cent more tables every year is still 3 per cent more employees. Local people.
Number three – not just the gaming employees but we also are talking about the families. Because it’s not like drugs or smoking where you kill yourself, gambling you kill your family.
Number four – the nature of the product, meaning the gambling table. This is the major, major risk factor. Because in Vegas a slot machine – if the machine has some problems, turn it on, turn it off and solve the problem mechanically. How about the table games? You’re eight hours inside there, in a game, gambling with the guests together, simultaneously. So that’s the most risky thing. Our brains are actually dominated by most of the gambling activities every day, eight hours a day. And it may become a part of your brain. Very risky.
Number five – looking at the news, facts again, criminal activities in the last three years reported by the police department: borrowing money, cheating. Most of them involve staff crimes. Looking at the details, the reason behind most of them are gambling related.
So the evidence is here, the theory is here, the survey is here and proving that they are a risky occupation.
And one more, before the handover, the old STDM actually prohibited their staff from gambling inside the casino. This is not new! But after the casino liberalisation, the government forgot about changing the rules! Because at that time there was only one casino, but now it’s six!
So for me, I think I would support it, I would support it to protect them.