Macau casino fortunes hit 5-year low, lead on Vegas narrows
Macau casino revenue sunk to the lowest level in five years as Chinese high-rollers stayed away in 2015, narrowing the world’s largest gambling hub’s lead on Las Vegas.
Gross gaming revenue fell 34.3 per cent to 231 billion patacas (US$29 billion) last year, according to data released by Macau’s Gaming Inspection and Coordination Bureau. While casino takings dropped 21.2 per cent in December – falling for the 19th straight month – that represented the smallest year-on-year decline since last January.
Macau’s six gambling houses have seen about US$45 billion in market value wiped out this year amid a free-fall in casino receipts, as China’s corruption crackdown scared off high-stake players and a slowing economy hurt mass-market gambling. Stricter government policies and key personnel changes, including a new regulator and adviser to oversee gambling, could further impact the hard-hit industry.
“Macau has seen much greater pain in 2015 than everyone expected at the beginning of the year,” Aaron Fischer, head of consumer and gaming research at CLSA, said before the data was released. “It would be difficult for the first half of the year for sure because there’re not so many catalysts to drive a rebound.”
Macau’s casino industry, which raked in gambling revenue about seven times more than the Las Vegas Strip in 2014, has seen its lead on the US casino district narrow to 4.6 times last year amid the slump.
The high-valued punters known as VIPs have led the downturn. VIP revenue, which accounted for more than half of Macau’s total gambling receipts, saw a 41 per cent drop in the first nine months of 2015 compared with a year ago.
Macau’s VIP gambling segment is set to fall another 13 per cent this year, compared with a 6 per cent rebound for the mass market, according to the median estimate of analysts. High-stakes gambling are expected to only recover in 2017, rising by 1 per cent versus 11 per cent growth for the mass market the same year.
Analysts are forecasting another 5 per cent decline in 2016 before rebounding 7 per cent in 2017. A continued liquidity squeeze in the junkets industry – middle-men operators who bring in high-rollers and lend them money to gamble with – is expected to cause further pain to the VIP segment.
The case of an alleged theft in September by an employee of junket operator Dore Entertainment prompted some investors to withdraw funds from the company and other junkets, causing a liquidity shortage and curbing high-rollers, according to Nomura Holdings’ Richard Huang. The analyst said he cut his 2016 revenue estimate to a 9 per cent drop from a 5 per cent growth as weakness in the VIP segment may persist.
“Conversations with casino operators don’t give us confidence that junket volumes improve in the New Year,” Union Gaming Group analyst Christopher Jones said. “Most seem preparing for further moderation in junket VIP in 2016.”
Potential bright spots could come from new casino resorts by three Las Vegas-based operators due to start in 2016, after projects opened by Galaxy Entertainment Group and Melco Crown Entertainment last year. Wynn Macau will have a new resort surrounded by cable cars and Sands China features a half-size Eiffel Tower replica, while MGM China Holdings designed one to look like a stack of jewellery boxes.
While Melco’s October opening of the Hollywood-themed Studio City hasn’t translated into much of a boost for the industry, Fischer said he sees the addition of more new resorts helping improve customer traffic to Macau, with individual owners gaining market share when their projects start operations.
Any recovery could still be hampered by stricter government policies, such as tougher restrictions on smoking, junkets and gaming tables, as well as closer scrutiny on the use of China UnionPay debit cards. The cards are commonly used by patrons to purchase luxury items in exchange for cash to gamble with.
There could be further shakeup in the industry next year. Macau is in the midst of reviewing operators’ performance and contributions to the city in the past decade, the result of which will be used to help the government map out the industry’s future development. The operators’ 20-year concession contracts will come up for renewal from 2020 to 2022 and Macau may become stricter with gaming rules.