VIPs took a hike
Macau’s casino industry saw another big drop in revenues for the month of January.
The 17.4 percent decline fell short of the record-shattering 30.4 percent drop last December, and a 2.6 percent decline for the year in 2014, business is still brisk in Macau. According to the Las Vegas Review-Journal, the city’s 35 casinos collected $3 billion in January alone?almost half the $6.37 billion generated on the Las Vegas Strip for all of last year.
The January numbers were “in line with our expectations of an essentially flat month on a sequential basis,” Union Gaming Group analyst Grant Govertsen told investors, adding that it “supports our recent upgrade thesis that we’ve reached a much-needed point of stabilization in the market.”
Operators in Macau now must work to diversify their offerings in a trend “dictated by Beijing,” according to the Associated Press. In a rare visit to Macau last month to mark 15 years of Chinese rule, Xi called for an end to “certain deep-seated problems formed over the years” and an “appropriately diversified and sustainable economic development.”
Gaming companies are listening. Melco Crown’s Studio City project, set to open later this year, aspires to draw vacationing families with its Hollywood-inspired entertainment complex, which includes a Batman virtual-reality ride. Las Vegas Sands Corp.’s $2.7 billion Parisian resort, complete with a half-scale replica of the Eiffel Tower, will have some 490,000 square feet of retail space as well as 3,000 hotel rooms. It will open on the Cotai Strip in 2016.
The crackdown has caused free-spending high rollers to flee Macau for fairer climes, including Manila, Singapore, Vietnam and Korea. Some big spenders are even willing to travel to the U.K. to play without undue government scrutiny.
“There’s a big chunk of that (VIP) market that’s simply disappeared largely in the wake of the anticorruption crackdown,” said Govertsen. “The challenge for the operators this year and next and beyond will be trying to find out what does the customer want other than the table game.”
A number of junket operators?who make their living serving VIPs, arranging their visits and establishing their lines of credit?also have left Macau. The David Group has shut down a total of five VIP rooms in Macau and is relocating some of its business to the Philippines, Vietnam and South Korea. It also has plans to expand to Europe. The Gold Moon Group also is looking to concentrate on overseas operations. And according to Bloomberg News, the Heng Sheng Group, one of Macau’s top junket operators, has closed three of its 10 VIP rooms since October.
“The rate and scale of junket closures beginning in the fourth quarter of last year was faster than we were expecting,” Jamie Soo, an analyst at Daiwa Securities, told Bloomberg. “More are likely to close this year.” Heng Sheng once commanded about 10 percent of the junket market share, said Soo.
Though it will likely take years for Macau to “complete its transition,” when it’s done, “ultimately everybody wins,” Govertsen added. “The government gets to say, ‘Hey, Macau has been cleaned up, there’s a lot less VIP, there’s a lot less corrupt influence. And there’s something for the average Chinese guy now.’”
Meanwhile, in addition to reevaluating their offerings, casino operators in Macau are also streamlining expenditures. “We’re charged with running our business more efficiently, examining all layers of cost,” said Sands President Rob Goldstein on the company’s earnings call. “But this has been a sea change, as you know, in a very short period of time.”
His boss, Sheldon Adelson, is taking a philosophical view of the downturn. “Everything in life is cyclical,” Adelson said during the call. “Night follows day, day follows night, recession follows expansion, expansion follows recession. This (loss of GGR) too will pass, and this too will be cyclical.”
Meanwhile, in a fourth-quarter earnings call January 28, Las Vegas Sands Chairman Sheldon Adelson said he’s made a “promise” to help Macau in its drive to create a more diverse economy?even though an accompanying anti-corruption efforts have resulted in a mass exodus of high rollers (and their money).
Net revenue from Las Vegas Sands’ four resorts in the Chinese gaming hub dropped 16.2 percent to $2.12 billion for the quarter, reported the Las Vegas Review-Journal, and across the board, Sands’ revenue fell 6.6 percent to $3.42 billion.
The decline came amid an historic push by the Chinese government to put an end to money laundering, corruption and graft. The campaign, promoted by President Xi Jinping, led to a 2.6 percent drop in gross gaming revenue during 2014, including a 30 percent drop in December alone.
Despite the slump, which continued into January for eight straight months of revenue declines, Adelson insisted he supports Xi’s position. “Everything we have invested in Macau to date and everything we will invest in the future is predicated on delivering our promise to help Macau in its economic diversification,” the 81-year-old billionaire said during the call.
For all of 2014, Las Vegas Sands said its net profit was $2.84 billion, a 20.3 percent increase, reported Bloomberg. Overall revenue increased 5.9 percent to $14.58 billion.
But Sands China continues to invest in Macau, the world’s leading gaming jurisdiction. The company is expected to open the St. Regis hotel tower at the Sands Cotai site this year and is developing the $2.7 billion Paris-themed Parisian on Cotai, expected to open “sometime” in 2016, Adelson said during the call. The 3,000-room resort will have capacity for up to 450 gaming tables and 2,500 slot machines and electronic table games. It will also have a life-size replica of the Eiffel Tower.
When the Parisian opens, Sands China will have almost 13,000 hotel rooms in Macau, or about 45 percent of the total inventory. All told, “We will have invested in excess of $13 billion, an investment that reflects our unrivaled commitment to Macau’s diversification and to its future success,” said Adelson, who will take over as head of the China unit on March 6, when Edward Tracy retires.
The company will compete with several new projects on the city’s Cotai Strip, including a $3.2 billion Melco Crown Entertainment Ltd. resort that includes a family entertainment center with a Batman theme. The project is part of the company’s plan to shift resources away from high rollers.
“While it has become fashionable for everyone to talk about Macau’s diversification from gaming, we have consistently been delivering on all aspects of diversification over the past decade,” Adelson said. He pointed out that visitation to Macau from Mainland China rose 14 percent in 2014, and his nongaming revenue in former Portuguese colony was higher than the five other Macau gaming operators combined.
“I have every confidence in our ability to continue to grow over the long term,” Adelson said.
Las Vegas Sands has the largest holdings of the three Nevada-based companies that operate in Macau. Las Vegas Sands holdings in Macau include the Venetian Macau, Sands Macau, Four Seasons Macau and the multi-hotel Sands Cotai Central complex.
Even Wynn Resorts Chairman Steve Wynn knew what was coming. The quarter that ended December 31 saw Wynn Resorts revenue from its two Macau casinos drop 32 percent from 2013. When you factor in the 5.8 percent decline in revenue for its two Las Vegas casinos, Wynn’s net income for the quarter wound up at $109.3 million, compared to $213.9 million from the year before.
Wynn’s net revenue for the quarter was also down 25.1 percent from $1.52 in 2013 to $1.14 billion. With Macau currently facing an eight-month skid, January saw the market slip 17.4 percent in gaming revenue, but Steve Wynn told analysts his casinos grew on the month.
The recent shake up on local corruption continues to affect Macanese casinos, leaving tough decisions for casino operators and how to combat declining numbers. Wynn Macau has recently gone from 13 to nine junket operators. “We want to do business with only the most conservative counterparts in that industry,” Wynn said.
“And Suncity is financially, probably the most powerful of the junket operators. We’d never had them in our facility. And we’re welcoming them with a sparkling new really dramatically lovely space and they are enthused about that,” Wynn added. He also said the new Wynn Macau VIP area should be up this week.
One major area of concern lies in the fact these startling numbers come at a time when Wynn has plans for the $4.1 billion dollar, 1,700-room resort Wynn Palace, set to open on Macau’s Cotai Strip in the first half of 2016. Originally, the plan was for the massive property to open on Chinese New Year of 2016, but issues with the building company pushed the date back.
While not as big in terms of hotel rooms or cost of construction, Wynn will also build a $1.6 billion development in Everett, Massachusetts, just outside of Boston. Wynn said, “Along with the Palace, they are the best work this company has ever done.” He added, “We worked hard for the right to operate in Massachusetts.”
Wynn is quick to point out that it’s not gambling he is selling to the public. He said the experience you give to a customer must be unique. “Every damn slot machine on earth looks like another,” he said. Wynn added, “Aspirationally, all folks are the same. When the go on vacation, they want to live bigger and better.”
While Macau numbers are down, Wynn and Encore accomplished a feat no other American casino has done in over a year, hit $515 million in earnings before interest, tax, depreciation and amortization. “It’s a pretty big deal,” John DeCree, an analyst with Las Vegas-based Union Gaming said. He went on to say it’s a sign Wynn’s Las Vegas branch is in better shape than in pre-recession 2007, even though the company didn’t have the Encore tower at that time.
