The VIP sector’s revenues seem to be increasing again, contrary to the expected trend. Analysts say it is difficult to explain, considering the crackdown on corruption in Mainland China is still ongoing, but they mention the uptick is still relatively “simple”.
Casino revenue from VIPs rose 13 percent last quarter, and their contribution to Macau’s overall gambling revenue gained about six percentage points from July to January, according to data compiled by Bloomberg Intelligence. Revenue for some of the biggest junket operators has jumped more than 20 percent since the last quarter compared to a year ago, according to Kwok Chi Chung, president of the Association of Gaming & Entertainment Promoters of Macau, quoted by Bloomberg.
Andrew M. Klebanow, senior partner of US-based consultancy firm, Global Market Advisors, says “while there has been a reasonable increase in VIP gaming revenues, the percentage of increase appears inordinately large, simply because the base number had declined so precipitously.” Plus, wealthy gamblers are “now returning to the territory,” now that they are no longer afraid of being caught in the “dragnet”.
The decline in VIP gaming revenues was mostly caused by two factors: “the crackdown on political corruption, which in turn caused a decline in conspicuous consumption.” As a result, wealthy Chinese visitors, even if not engaged in corrupt practices, believed it “best to not draw attention to themselves by gambling and shopping in Macau”. They feared being targeted simply because of their display of wealth. “Their fears seem to have subsided and they are now returning to Macau,” Klebanow explains.
Yet, despite these recent increases, he maintains that “the long-term success of Macau’s tourism/gaming industries is its continued focus on growing mass market gaming revenues,” considering the “volatility” of the VIP gaming, as the past two years have demonstrated. In fact, with the industry relying heavily on the VIP segment, the crackdown on corruption “had an outsized impact on gaming revenue”. Plus, “the margins on VIP gaming are very low, relative to the mass market”. Overall, the mass market offers “far more stability”.
As for his expectations, Klebanow mentions that gaming revenues “now appear to be on the uptick, driven by the opening of new properties, a dramatic increase in room supply and a modest increase in VIP revenue”. Even though he expects growth to continue, he also mentions it is “impossible” to predict the rate of growth, especially because there are many factors to consider. “From a purely market demand perspective, Macau has the potential to return to its pre-2015 growth rate and surpass $50 billion in annual gross gaming revenue,” he says. Yet, “the problem is that Macau’s growth will always be constrained by public policy, whether those policies are visa restrictions, movement of currency, or periodic crackdowns on corruption.”
Carlos Siu Lam, an associate professor in the Gaming Teaching and Research Centre at the Macau Polytechnic University, says “after years of adjustment, the VIP sector has stabilised.” In his opinion, Macau might have gained from “the recent hot money flowing into Hong Kong and other places,” which has “more to do with business opportunities,” unlike the crackdown on corruption.
With Macau’s increasing integration within the Pearl River Delta region, Mr Siu believes “the mass market will play a more important role than before,” even though the VIP market “will still play a role in Macau’s gambling market in the foreseeable future”.
Still, it is “unrealistic” to expect the VIP market to grow at the levels of 2013 and 2014, “as the Macau market is now better regulated to prevent the occurrence of money laundering and other unpopular acts”.
Last month, in an interview with CLOSER, the principal and analyst for the Union Gaming Group, Grant Govertsen mentioned that the VIP sector’s growth is “somewhat unexpected or unexplainable”. Still, he agrees with Mr Klebanow about the future of gaming in the territory. “By and large, mass market is the future of Macau, especially as it relates to casino operators.” The six licensees have a much bigger profit margin in the mass market, compared to the VIP sector. “For every dollar of revenue on VIP compared to mass, they’re making roughly 10 cents of profit in VIP and 40 cents in mass.”
In Brief
Melco changes
Asian casino developer and operator Melco Crown Entertainment Ltd is changing its English-language name to Melco Resorts and Entertainment Ltd. The company’s Chinese name will not be changed. The group also intends to change its Nasdaq symbol from MPEL to MLCO. The move happens after “Melco International Development Ltd’s purchase of additional interest in, [and] thereby assumed majority ownership of Melco Crown Entertainment in February 2017,” according to a press release.
Almost On
Macau’s new Pac On ferry terminal should be ready to start operations in May, said the director of the city’s Marine and Water Bureau, Susana Wong Soi Man. Currently, the bureau is undergoing inspections and tests so as to be ready for operations. “We are making preparations towards this goal [May opening]. We are having meetings with the ferry companies. They are also testing the facility’s software and hardware,” Ms Wong said, according to local public broadcaster TDM.
Galaxy’s non-gaming space
Galaxy Entertainment revealed in its 2016 annual report that it is about to start construction on the resort’s third and fourth phases, but the expansion won’t add much in terms of gaming space.Its additions will be used for entertainment and recreationalactivities. The Hong-Kong-based company hopes to start construction on phase three in the late first quarter or early second quarter of 2017.
