Are slots finally gaining a foothold in Macau?

The latest financial results from Macau’s operators showed a healthy increase in slot machine revenue, indicating that a mix of product innovation, evolving customer preferences and new capacity are beginning to help them gain traction.

According to figures from Macau’s Gaming Inspection and Coordination Bureau (DICJ), GGR from slot machines in the enclave was MOP 3.82 billion (US$474 million) for the first three months of 2018, up 17.9 percent on the same period in 2017.

To be sure, slots are still a small part of the market accounting for less than five percent of Macau’s total gaming revenues compared with more than half of revenues in Las Vegas. Q1 figures also showed VIP baccarat still leading the way up 21 percent, but slots are becoming a more important part of the mix for operators with the addition of new properties on Cotai.

“Over the last many years growth in the number of slot machines has been notably lower than of tables games,” Grant Govertsen, managing director at Union Gaming Securities Asia, told AGB.

“This is clearly a function of customer preference in that mainland Chinese customers have significantly less interest in slot machines than they do in table games – especially baccarat.”

There are signs this is starting to change. The number of slot machines in Macau grew an impressive 10.1 percent to 17,205 during the first three months of 2018 versus the previous quarter.

Melco’s Studio City reported an 18.5 percent year-on-year increase in average win per unit per day on gaming machines during Q1 2018, while also increasing the number of machines by 4 percent.

At Galaxy Entertainment, electronic gaming revenue was up 14 percent year-on-year, just behind the 16 percent growth in mass. Quarter-on-quarter, it was up 9 percent, beating both VIP and mass on that basis. The slot handle at the Venetian was up 28.2 percent in Q1, just beating VIP volume and slightly lagging mass table drop, which grew 29.9 percent.

Meanwhile, MGM China Holdings said in its 2017 annual report that revenue from slot machine gaming operations increased year-on-year by 11.4 percent to HK$ 1,397.1 million, accrediting the uptick “primarily due to the continuous recovery of the Macau gaming market.” This outstripped growth in its main floor tables and VIP revenue during the year.

“Whilst Macau is a table-dominated market and likely always will be, we believe that slots will continue to play an important role in the future of Macau casinos,” Michael Cheers, sales director Asia at IGT, told AGB.

Cheers said that the key to growing Macau’s slots vertical is offering a more diverse product offering. The supplier recently launched its Hyper Hits link slot machine at MGM Cotai for the first time, saying it was “encouraged” by the positive feedback it had received.

“Casino floors throughout Macau are currently saturated with the same few game titles, and our customers are looking to diversify their floors with new, engaging games that will keep players interested,” he said.

The question both operators and manufacturers face is identifying the characteristics of slots players and tailoring their offerings accordingly.

Kevin Lee, deputy general manager of Aruze Gaming Macau, the third biggest supplier of electronic gaming machines in Macau, said slots players tend to be very distinct to those who favour table games.

He said the slots segment is younger, more likely to favour privacy, and more international in its composition compared to the predominantly Chinese customer base for Macau’s table games.

This profile is evolving, however, particularly as Macau attempts to better position itself for the mass-market.

“The collective desire for Macau to transform into a tourism destination with non-gaming amenities and integrated resorts will, over time, influence the types of slots that our customers require in terms of volatility, presentation, etc.,” said Cheers at IGT.

“We can leverage our broad slot development expertise to address this wider audience of players.”

Technical advances in the manufacture and delivery of slots have played a significant role in creating products that are more appealing to the Macau market.

Suppliers now appreciate that reskinning slots that have succeeded in Vegas with an Asian theme is not enough. Instead, products are designed from the ground up with Macau in mind, taking into account theming, maths modelling and volatility.

However, product innovation is not a seamless process. Lee at Aruze noted that “stringent controls and requirements” from the enclave’s regulator have created barriers for manufacturers.

Currently, all electronic gaming machines must comply with Macau’s technical standards and be certified by a recognised gaming testing laboratory, with only licensed manufacturers permitted to supply gaming machines.

While this is in line with other jurisdictions, it can limit the speed at which new products are brought to market.

From a regulatory perspective, slots suppliers will be more encouraged by the fact that Macau is already close to its table cap – just 657 tables short, according to research from Union Gaming.

The number of slot machines permitted remains uncapped, and although the Macau government has occasionally hinted at changing this status quo, operators could well turn to the vertical to power growth if table game expansion is limited.

The major slots suppliers including IGT and Aruze, as well as Macau market-leader Aristocrat, wait in the wings, keen to replicate the far larger market share they enjoy in Vegas and elsewhere.

Ultimately, if Macau can deliver on its long-stated ambition to grow non-gaming revenues, attract younger customers and rebrand itself as a broader entertainment destination, the slots vertical is likely to be a major beneficiary.