Where is Macau’s vaunted VIP market headed after last year’s 18.6 percent revenue decline? The fact that the territory’s largest junket is investing big money in a resort casino in Vietnam may provide a clue.
Hong Kong-listed Suncity Group is one of three partners behind the US$650 million Hoiana slated to open this spring on 2,400 acres of South China Sea beachfront near Da Nang with two luxury hotels, restaurants and retail shopping, a golf course, several water parks and a collection of high-end condos and villas.
Suncity, which has charge of Hoiana’s 140 gaming tables and its VIP rooms, has made no secret of its intention to fill them with the high rollers from China it’s been cultivating for years.
Union Gaming analyst Grant Govertsen believes Hoiana’s arrival “could result in the redirection of a material chunk of VIP play from Macau,” as he told Bloomberg last month.
Plenty of good reasons have been advanced for the 2019 fall-off in Macau VIP, most of them tied to uncertainties arising from a Chinese economy in the throes of its lowest growth since the ’90s.
But China’s high rollers are a sensitive lot, and politics and policy have to be factored in, too, especially when they’re emanating from a totalitarian government. So the unrest in Hong Kong, which Beijing views as an existential threat, has to be factored in, along with a recent crackdown on illegal cross-border and proxy gambling that has curtailed junket activity in the country.
In light of this, a case can be made that they’ve never fully recovered their enthusiasm for Macau after a Communist Party crackdown on corruption and capital flight sent VIP revenue into a 40 percent swoon in 2015. Even during the recovery of 2017-18 the sector never regained the market share it once had. Last year, for the first time, it was surpassed by mass market tables and slots. The MOP135.22 billion won from VIPs in 2019 amounted to a mere two-thirds of what it was just six years ago.
“We’re particularly concerned about VIP, and have been for some time,” Caitlin Noselli, gaming and lodging analyst with Bloomberg Intelligence, told GGB News. “We definitely think there will be more declines.”
If China’s high rollers haven’t lost their taste for baccarat, and it doesn’t seem likely that they have, and they’re still as rich, or almost as rich, as ever, then part of the answer must be that more and more of them are choosing other destinations to indulge it, ideally places relatively safe from the purview of Big Brother.
“Beijing gave a warning some years back that it will not tolerate Macau as a jurisdiction that will circumvent China’s exchange control regulations,” said Warwick Bartlett, principal with UK-based Global Betting & Gaming Consultants, “and the clamp-down on corruption has caused VIPs to avoid scrutiny.”
In the early years of the Macau boom there weren’t many foreign climes where one could get the action and the treatment commensurate with a big bankroll. There was Australia, there was Las Vegas, if you wanted to travel that far, there was London, if you wanted to travel even farther. That was about it.
That changed with the opening up of Singapore’s two IRs at the start of the last decade, one of them developed by Las Vegas Sands, which makes most of its money in Macau. A bustling market has emerged in Cambodia. The Philippines is now a serious competitor with three Las Vegas-scale gaming resorts in Manila, one of them backed by Macau’s Melco Resorts & Entertainment, and a fourth on the way backed by the Malaysia-based Genting resort conglomerate that also owns one of the Singapore IRs. Australia’s Gold Coast in Queensland is expected to see major resort gaming development in the years ahead.
As is South Korea, where the government has created a special tourism zone surrounding the country’s gateway Incheon International Airport. It’s already home to one resort-scale casino, with four more on the drawing board, which makes it the closest gaming market to Shanghai and the major cities of China’s populous northeast. The government says it hopes to attract two or three more.
Further down the road, in Japan, where the government has authorized three megaresorts, an A-list of global operators is swarming, waving tens of billions of dollars in proposed investments in the belief that gaming revenues there could rival Macau.
As it’s shaping up for China’s VIPs, this growing regional proposition is one of “more attractive locations to gamble as well as the factor of wanting to get out of China to do it,” said Brendan Bussmann, director of government affairs for U.S.-based industry consultants Global Market Advisors.
In Vietnam, Hoiana is envisioned as the first phase of a master-planned destination called Hoi An South. It’s pegged at $4 billion at full build-out over the next several years and enjoys the backing of a central government that sees international tourism as a major driver of the nation’s economic future.
The number of visitors to Vietnam has tripled over the last decade to surpass 15 million a year, according to research compiled by Dezan Shira & Associates, a Hong Kong-based consultancy specializing in foreign direct investment in the country. Most of those visitors, around 80 percent, are coming from elsewhere in Asia, and the largest segment, more than 40 percent, are Chinese, and their numbers have been growing year by year at double-digit rates.
Tourism is also the lifeblood of Vietnam’s casino industry, which is largely barred to its own citizens by law. This goes even more for the country’s nascent resort casino industry, where the investment bar is already set pretty high.
In terms of its own future, this is the path Suncity is charting, and clearly it sees China’s wealthy as the vehicle to get it there.
What does this imply for Macau?
“All of the juice has been squeezed out of the orange,” said David Bonnet, a contributing analyst writing last month for Bloomberg Intelligence. “Macau is starting to resemble more mature competitive markets such as Las Vegas and Atlantic City.”
Which might be overstating the case, but perhaps not by that much.
Looking beyond the city’s baccarat salons, Las Vegas Sands and Wynn Resorts are plowing several billions into expanding their already sizable offerings in the Cotai resort district. There’s a new light rail network partially up and running, a new, larger border crossing planned for neighboring Hengqin island, and a government in Beijing that’s pledged continuing economic support. And next year is expected to see the long-awaited opening in Cotai of SJM’s $4 billion Grand Lisboa Palace.
“Is it the beginning of the end? No,” Bussmann told GGB News. “There is plenty of room for growth in the market. It just depends on how you define it from a gaming and non-gaming standpoint. What you will see is more slow and steady growth.”
Global Betting & Gaming Consultants is modeling 4 percent to 5 percent increases in casino revenue in each of the next few years, which is not bad considering it’s a very high base to start with.
“We do not see this as alarming,” Bartlett said. “The operators are broadening their offer and have been doing so for some time. There is more family entertainment, better MICE facilities, and in that respect, Macau will gain from the troubles in Hong Kong. The Macau casino operators have been adjusting to an ex-VIP market for some time now.”
