Third-quarter gaming revenues in Macau will continue to slump, according to brokerage Sanford C. Bernstein, as lower consumer confidence among the Chinese affects visitation and spend.
A 48-page report from Bernstein analysts entitled, “China Premium Consumer Tracker: Consumer Confidence Low After Q2,” sized up key economic metrics including Macau gaming and China travel, as well as luxury goods, apparel, automotive and other segments.
With declining GDP in China and a drop in consumption, the analysts wrote, “The severity of these (had) lessened significantly by the end of the quarter, although consumer confidence is yet to recover.”
Beijing continues to stand by its strict “zero-Covid” policy, which puts the brakes on business and cross-border travel whenever new viral outbreaks occur. The most recent quarter ended with the city’s biggest-ever Covid outbreak, with some 1,800 new cases identified.
As reported by Asia Gaming Brief, quarantine requirements eased recently to encourage travel mobility and buying, but the situation remains “volatile.” Gross gaming revenues (GGR) in Macau, meanwhile, took a hit in the quarter—down 67 percent year-on-year—due to limits on travel from China and Hong Kong. The Bernstein team noted that the drop in GGR was largely due to the falloff in VIP revenues, while premium mass was more stable and the luxury retail segment was strong.
At the end of the second quarter and the start of the third, Macau’s borders were closed for more than 40 days due to the recent outbreak. The local government locked down casinos from July 11 to July 22, resulting in a punishing dip in GGR by 98 percent as compared to July 2019.
“July 2022 was the worst month since Covid began,” the Bernstein team wrote. “August may slightly recover, but is expected to remain dull and down by 90 percent versus August 2019.”
Chinese visitation to Macau was down 79 percent in the second quarter versus 2019. Bernstein expects travel between Hong Kong, Macau, China and potentially Taiwan to be near-normal by the end of the year, with a rebound to come in 2023. The report added that, despite Beijing’s insistence on a less gaming-reliant economy in Macau, China “wants an economically viable and politically healthy Macau and the gaming industry plays a critical role in allowing that to continue.”
As a result of the upheaval, per the Macao News, the city’s population fell by 4,400 quarter-to-quarter to 677,300 at the end of June, mainly due to a drop in the number of non-resident workers living locally, the Statistics and Census Bureau (DSEC) announced. Inside Asian Gaming reports that gaming industry staff down 3,100 in Q2, with 4,100 underemployed.
Among those, 45.6 percent are on unpaid leave or company-arranged paid leave. As the DSEC said, “The underemployed population increased as some establishments were suspended or operated at a minimum due to the impact of the pandemic prevention policy.”
The total number of underemployed people reached 15,700 in the second quarter, an increase of 5,100 compared to the first quarter of this year. A total of 13,900 people were unemployed. Among them, 3,900 were working in the gaming industry before losing their jobs, an increase of 500 from the first quarter.
U.S. gaming operators in the market, meanwhile, hope to see their concessions renewed by the end of the year, albeit for only 10 years, half the previous term of 20 years. But according to a report in the Las Vegas Review-Journal, amid growing tensions between Chinese President Xi Jinping and Washington D.C., there are no guarantees that Wynn Resorts, MGM Resorts International and the Las Vegas Sands Corp. will remain in the market. And the government’s new requirements for operators plus a shorter license term in Macau may dampen operator enthusiasm overall.
As MGM President and CEO Bill Hornbuckle noted in the company’s second-quarter results call, “It’s been obviously a tough couple of years …The 10-year licensing window presents some challenges when you think about we’re still in the midst of Covid.”
Gaming analyst Andrew Scott told the Review-Journal, “Given the stone-cold economic-zero of the current Macau market, the incredibly onerous expectations being imposed upon concession tenderers and the wide-ranging concerns of the international investment community about any investment connected to China, I suspect the Macau Tender Commission is in for a rude awakening” if it expects a rush of new bidders for gaming concessions in the Chinese special administrative region.
“Aside from the existing six concessionaires,” he said, “who on earth is going to be interested in investing in Macau?”
