All In

PUBLISHED : Friday, 08 May, 2009, 12:00am
UPDATED : Friday, 08 May, 2009, 12:00am

Mass market shows promise as the high rollers take a hit

If the stock market is any gauge (and that's debatable) then Macau's casinos have not just rebounded but are back in rip-roaring form.

Investors have displayed no difficulties in looking beyond the rather ugly headline numbers that came out this week - net losses for the quarter of US$87.68 million at Las Vegas Sands and US$33.81 million at Wynn Resorts - and have proceeded to send shares in Macau gambling companies soaring.

The market appears focused on increasing signs that things have bottomed out, and indeed it looks like Macau's worst months are behind it after casino revenue troughed between September and December last year.

Still, the recovery for now appears as lopsided as the boom that preceded it. VIP market volume remains depressed because of credit issues, while the cash-based mass market continues its slow but steady growth. For example, VIP wagering volumes at the Wynn Macau were down 27.7 per cent from a year ago and 2.7 per cent from the previous quarter at US$10.7 billion (see first chart). And that wasn't an accident.

'I think in the first quarter in '09 volume was down partly because of the economy, but the bigger part was by design because we do want to be more careful with credit,' Wynn International Marketing president and Wynn Macau chief operating officer Linda Chen said on an investors' conference call.

Casino and junket operators in Macau have pulled back on issuing credit to their customers, who in turn are still gambling but in smaller volumes or for shorter periods of time. The result is lower VIP revenues. But contrast that with the mass market - specifically the performance of slot machines. Both Wynn and the Venetian Macao are fairly representative of the market in seeing steady increases in mass-market play. The difference of course being that the mass market is more tourist oriented and is cash driven.

Fear of gamblers delaying or defaulting on debt repayments to their junket agents is a non-issue in the mass market, because it doesn't revolve around credit like the VIP segment does.

As a result, revenue on the main-floor mass-market tables is holding steady across Macau.

Indeed, Las Vegas Sands executives were quick to boast that the VIP market - which accounts for about 65 per cent of casino revenue across Macau - contributed only 18 per cent of the Venetian's cash flow for the first quarter, down from 22 per cent a year ago.

And at the traditional grind end of the mass market, slot machines continued to shine (see second chart). Of course, in Macau, the one-armed bandits have attracted a sizeable following among high rollers too. But thankfully, for now anyhow, they don't take credit.

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