Junket problems tell the story
Macau has just marked its 20th month in the dumps. According to government data released February 1, gross gaming revenues in the former Portuguese territory fell for the 20th consecutive month in January, to 18.7 billion patacas (US$2.33 billion).
Analysts looking for an end to the stubborn recession say this may be it. Last month’s figures are an improvement over December’s 21.2 percent drop, and in line with a median 22 percent drop predicted by analysts surveyed by Bloomberg News. In addition, January is typically a slow month ahead of the Chinese New Year festivities, which start February 7. Last February, in which casino revenues plummeted 49 percent year-on-year, was “unprecedented,” according to Forbes, and is unlikely to be repeated this year.
Analyst Billy Ng of Bank of America Merrill Lynch said new resorts on the Cotai Strip are helping the city, because they target middle-class patrons, not the big-spending VIPs who once were the industry’s bread-and-butter. Wynn Macau and Sands Macau reported stronger-than-expected fourth quarters because of mass-market players. And the new resorts—including Melco Crown’s Studio City and Galaxy Entertainment’s Broadway, which opened last year, and a cluster of new resorts set to debut in 2016—also include more non-gaming amenities, like superhero-themed virtual-reality rides, Ferris wheels, a faux Eiffel Tower, gondola rides, plus more retail and restaurants.
Ng predicts total revenue growth will remain flat this year, reported Bloomberg. Francis Lui Yiu Tung, deputy chairman of Galaxy Entertainment, said “the worst is already over” for the overall gaming industry here.
In a Q4 2015 earnings call, Sands China chief Sheldon Adelson predicted a turnaround “in the near future, certainly in 2016.” The Las Vegas Sands’ Chinese unit saw its share price slump 30 percent in 2015, then rally 14 percent in the fourth quarter.
Despite the encouraging news, Bloomberg reports that the appearance of slot machines in the city’s VIP rooms is a clear sign of “desperation at Macau casinos,” the clearest indicator of a high-roller market devastated by a government crackdown on corruption and money laundering. But Zhang Zheng, operator of a junket room at the Jimei Casino, says there’s a place for slots in the changing environment. “Operating a traditional baccarat VIP room can barely make profit these days,” said Zhang. “I am confident the VIP slots room can perform well, because it faces less competition.”
“Junkets are still in economic distress, as they are willing to try anything to increase revenue,” said Grant Govertsen of Union Gaming Group. The rooms have also suffered as a result of recent high-profile thefts, including alleged multimillion-dollar thefts at Wynn Macau’s Dore Entertainment operation and L’Arc Macau’s junket room.
In 2015, more than 30 VIP rooms closed in a span of four months; the total number of junket operators in the city has dropped 23 percent, to 141, in the past 12 months. And more closures may loom, Kwok Chi-chung, president of Macau’s Association of Gaming & Entertainment Promoters told the Washington Post.
“Junkets have not enough capital or they dare not take the risk to lend in the weakening economy,” said financial controller Derrick Wong of the Nasdaq-listed junket operator Iao Kun Group. One operator, Cali Group, shut down two of its four VIP rooms in recent weeks and will shift part of its operations to the Philippines.
Meanwhile,a new group has been launched to “positively promote Macau’s gaming industry, as well as promote and maintain the rights of the gaming investors and gaming operators and their staff’s legal rights,” said businessman Tony Tong, vice chairman of the new Macau Gaming Information Association, also known as MGIA.
But Rob Goldstein, president and chief operating officer of the Las Vegas Sands Corp., predicts more junkets “will fold later this year. The ones that are still standing … actually, they’re in pretty good shape and there is sufficient liquidity.”
Govertsen added, “Most of these junkets that disappeared from the list this year, in all likelihood, were on life support in 2015.”
