Written by Elliott Morss, Morss Global Finance
Summary
- Asian gambling is growing rapidly.
- The most prevalent type of gambling differs significantly by region.
- In most regions, gambling is a “discretionary” activity, meaning people gamble less in tough times.
- US gambling demand appears to have plateaued with the consequence that casinos are increasingly catering to families rather than gamblers.
Introduction
In 2009, I wrote a piece on the global economics of gambling. The subject interests me because I had previously determined what types of entertainment people spend the most money on. It turns out that drinking, “entertainment” drugs, and sex are at the top of the list, but gambling ranked a healthy sixth after restaurants and movies.
My gambling data was provided by the Global Betting and Gaming Consultancy (GBGC). GBGC has worked with or supplied information to over 400 clients, the majority being blue chip organizations. I have found its gambling database to be the best there is. For this article, I have convinced Warwick Bartlett, GBGC’s CEO and founder, to provide me with data on gambling activities for Australia, France, Macau, Sweden, the United Kingdom United States and total global. Together, gambling revenues of these countries constitute 41% of the worldwide total.
For this new work, GBGC provided me with GGY[1] global totals on the following categories for the years 2001 – 2013:
- Betting – horse racing and sports betting;
- Casinos – Commercial, online casino and poker;
- Gaming Machines – mainly those outside casinos;
- Lotteries;
- Other – (Bingo, Keno, and charitable gaming, online bingo).
In addition to global gambling totals, GBGC provided gambling details on 5 countries: Australia, France, Sweden, United Kingdom, the United States and Macau. It provided GGY data and the Handles (the total amount staked by the customer, including recycling) for all except casinos and gambling machines.
Table 1 provides the GGY’s for these countries.
Table 1. – Gambling Revenues (GGYs) for Selected Countries and Macau, 2013
Source: GBGC and Morss Analysis
US gambling revenues are twice as large as any other country while its per capita level is about average. Macau is a gambling “destination” site for many Asians as is the west coast of
Australia. Per capital gambling revenues in Sweden and particularly France are low.
The preferred gambling activity differs significantly among our countries/region (Table 2). In Macau, most of the gambling is done in casinos while in France and Sweden, the lotteries dominate. In Australia and the US, slots/machines outside of casinos are very important. In casinos, there is a striking difference: in the US, slots dominate with revenues almost 3 times greater than card games. In Macao, Macau, card games, especially Baccarat, are the primary gambling activities.
Table 2. – Gambling Shares by Vehicle, 2013
Source: GBGC and Morss Analysis
Gambling Growth
In most of our countries/regions, legal gambling is a growth industry. As Table 3 indicates, Macau’s growth is torrid with healthy growth in 4 of our other countries. The US is a special situation to be examined later in detail.
Table 3. – Gambling Methods by Country:
Compound Average Growth Rates, 2001-13
* Sub-totals for 5 countries and Macau.
Source: GBGC and Morss Analysis
Globally, it appears that casinos are growing most rapidly (Macau) with sports betting growing rapidly in several countries.
What Happens When the Economy Turns Down?
Table 4 shows how gambling receipts were affected by the global recession. The left hand column provides the growth rate during the “good times”. For all countries but the UK, the peak was 2008 (the UK peaked in 2008). Macau never peaked – it just kept growing. The second column indicates how much revenues fell in the depression. The falloff was greatest in the UK followed by Sweden. The lowest (trough) year differed by country. For Australia, Sweden and globally, the trough year was 2009. For France and the US, GGY revenues were lowest in 2010. The UK did not hit the bottom until 2011.
Of course, at least some of these differences are explained by differences in depression severity: while GDPs fell in both Europe and the US in 2009, the GDP of China, the source of most Macau visitors, continued to grow at more than a 9% rate.
The Table 4 right hand column indicates how 2013 gambling revenues compare to the earlier peak year. Gambling fell off the most in the UK but it has since more than fully recovered. It should be kept in mind that the value of the Pound Sterling fell dramatically relative to the Dollar at the onset of the Depression before recovering later and that amplifies the UK’s swings. Neither France nor Sweden has as yet reached their earlier high. In Macau, while gambling revenues continued to grow throughout the 2008 depression, the rate of growth did fall, from 31% in 2008 to 10% the following year. However, growth picked up to 56% and 41% in 2010 and 2011, respectively.
Table 4. – Gambling (GGY) Growth Rates Through Depression (US$)
Source: GBGC and Morss Analysis
It is also interesting to ask how the different types of gambling have been affected by the global depression. As Table 5 indicates, all forms of gambling were hit by the depression. Casinos (ex-Macau) and Sports peaked in 2007 while the others peaked in 2008. Gaming machines, sports, and charitable wagering hit bottom in 2009 while 2010 was the trough for the others. However, the downturns for all forms of gambling were moderate and only gaming machine revenues, horse racing and sports betting for our subset of countries have not yet fully recovered.
Table 5. – Gambling Revenue Changes, by Gambling Vehicle (US$)
* Sub-totals for 5 countries and Macau.
** Ex-Macau
Source: GBGC and Morss Analysis
The data presented above make it clear that unlike food purchases, gambling activities are significantly influenced by the economic cycle: people gamble more in good times than bad.
Odds
In addition to GGY’s, GBGC provided “handles”/sales data. These data approximate what people actually bet, while the GGY’s are the “house’s take”. That means the GGY/handle ratio are the odds against winning – in economic terms, the price of betting, i.e., what on average a bettor loses. Having this ratio allows us to address three interesting questions:
- What types of betting have the highest odds against (price)?
- Do countries with lower “prices” have more per capita gambling?
- As handles fell off in the ’08 depression, did the betting “price” fall to attract more bettors?
Table 6 provides odds data for several gambling activities. It appears that Lotteries have the highest odds against followed by Bingo/other charity gambling events and Horse Racing. Our countries/regions vary significantly on odds against, with Sweden having the highest average odds and Macau the lowest.
Table 6. – Average Odds Against, by Country and Gambling Vehicle, 2013
Source: GBGC and Morss Analysis
Question: do countries with the best odds for the bettors have more betting? The answer is no. As Table 7 indicates, there is no correlation between per capita GGYs and odds.
Table 7. – Betting Odds and GGYs per Capita
Source: GBGC and Morss Analysis
A review of the odds data during the gambling decline during the depression shows no evidence of an adjustment of odds downward to attract more bettors.
It is interesting to look at odds offered in casinos. While I do not have comprehensive data on our countries/regions, I do have data for Nevada, and they are presented in Table 8. Here, the data suggests a reduction in odds in the downturn: the total odds against fell by 3% from 2008 to 2009 and increased by about the same amount in the recovery.
Table 8. – Odds Against Data, Nevada
Source: Nevada State Gaming Control Board
Looking Ahead – Macau vs. the US: A Study in Contrasts
Table 9 provides GGY growth data for the last three years. With the exception of Macau, the Table does not present an altogether promising picture.
Table 9. GGY Growth (US$)
Source: GBGC and Morss Analysis
To highlight the differences, consider gambling in Macau and the US.
Macau is a destination site for Asian gamblers. The government limits its gambling growth by how many visas it issues to Chinese citizens. The Macau “package” includes smoking, drinking, gambling and sex.
Things are quite different in the US: there are indications that the demand for gambling per so has leveled out. The casino mainstay is smokers who want an opportunity to smoke and drink indoors. So the vast majority of casino space is given over to slots and other gaming machines where smoking is permitted. But most Americans are concerned about second-hand smoke. The casino operators are aware of this so they are trying to convert gambling sites into Disney-type locales that will appeal to families. Indoor malls are primary recreation sites for families, and casinos want to copy them. So Foxwoods is putting in 75 discount outlets. It is interesting that when MGM announced plans for its new casino in Springfield MA, it focused on plans for a new 5-star hotel and a number of high-end restaurants.
In earlier work, I have predicted a casino glut in the US northeast as the Governors of Massachusetts and New York move ahead with plans for casinos. Understandably, they want to collecting tax dollars for their states. That will happen but I believe these revenues will come mostly from the Connecticut casinos – Foxwoods and Mohegan Sun, both of which are having serious financial problems.
It is interesting to note how quickly attendance at horse races fell when off-track betting was installed. Now, pari mutual handles are off, both at the race courses and off-track.
Investment Implications
As mentioned above, Warwick Bartlett is the CEO of GBGC. He offered the following on investments:
“Governments are now seeing the taxation of gambling without any backlash from voters so there is a drift upwards throughout the world except Nevada and Macau. Gambling companies are therefore easy targets. So taking that into account those that supply the industry have more insulation and are best placed. Playtech on the London Stock Exchange (PTEC.L) and Net Entertain (NET-B.ST) provide software for egaming companies. Otherwise you have to look to Macau: Galaxy Entertainment (27:HK), Wynn (WYNN) and Las Vegas Sands LVS). For a pure Macau play, buy Galaxy.
What are the risks?
China’s economy, I doubt the Chinese Government will issue so many visas to Macau if economic growth suffers. It would not be politically correct. Also the medium to small business owners may have less money to spend in Macau but over the next 10 years it is a no brainer. The Zhuhai Bridge will be complete in 2015 making it much easier to get to Macau. Huge developments are taking place by Galaxy and these will add to earnings (phases 2, 3 and 4 on Cotai).”
Endnote
[1] The gross turnover less the amount paid out to players as winnings.
