Year-on-year revenue growth in Macau’s lucrative mass market fell in July to its lowest rate in four years in a sign that tougher economic conditions in China and a nationwide crackdown on corruption are affecting more than the high rollers.
Revenue from the territory’s cash tables grew 17.3 percent last month, only about half the 32.5 percent achieved through the first half, and it appears the impacts from a host of factors—from the economy and the spotlight on corruption, to consolidation in the junket industry, to tighter scrutiny of visa activity by mainlanders traveling to Macau, to their use of state-owned UnionPay bank cards to evade currency restrictions—are deeper than analysts predicted.
Gaming revenue market-wide in July was down 3.6 percent year on year to MOP28.4 billion (US$3.56 billion), official data show.
“While we had forecast increased volatility in the mass-market growth rate, July’s deceleration was even a bit more than we had expected,” Telsey Advisory Group said in a recent client note.
Even when compared to June, a soft month the included the first decline of revenues in five years, July’s performance was surprising. In June, the mass market grew 26.9 percent year-on-year, 50 percent more than in July.
The mass segment is vital for casinos here. First, because it has a much higher profit margin than VIP, and second, because it can compensate for the decline in high rollers this year, whose revenues have tanked 15 percent so far in 2014.
Operators that reported second quarter results until now have all failed to meet market estimations for their Macau performance, with VIP dropping more than expected and mass lagging behind in growth.
Citigroup, for one, has sharply reduced its mass growth forecast for the second half from 35 percent to 13 percent and also revised downward its forecast for VIP from a 5 percent decline to minus-13 percent. The bank is expecting full-year casino gross gaming revenue to hit just 4 percent, down from its earlier projection of 11 percent.
Union Gaming has lowered its VIP revenue forecast to minus-8 percent in the second half (minus-3 percent for the year) and expects mass tables to grow by 18 percent in the second half and 26 percent for the year.
Macau’s total gaming revenue for the year to July 31 is MOP221.5 billion ($27.68 billion), a year-on-year increase of 10.2 percent.
Telsey Advisory Group analyst Chris Jones adds that tourists and middle-class visitation to Macau is also on the slide. Las Vegas has begun to benefit.
“We believe we are starting to see people relocate their gaming dollars” from Macau to Las Vegas, Jones told IBD. “That’s largely been brought on by the government crackdown.”
MGM Resorts International, Las Vegas Sands Corp., Wynn Resorts and others with casinos in Macau have been affected by the decline. Jones told IBD that Las Vegas has a more favorable tax rate than Macau, and U.S. gamblers don’t have to repatriate cash won in Las Vegas, as they do with Macau winnings.
In addition, “It’s easier to get a visa to travel from China to the U.S. than in the past,” Jones said.
None of this means an end to Macau’s primacy in the gaming industry, according to Jones. “We don’t think you will see Vegas become the ultimate place to go,” he said. “But it’s getting to be a more challenging comparison. Macau mass market revenue can’t grow at a 35 percent rate in perpetuity.”
