Macau’s dominant VIP gaming sector shrunk to just 60 percent of total gaming revenue in the second quarter, its lowest share in almost a decade.
Official data show VIP baccarat generated MOP54.6 billion during the three months ended June 30. Proportionately, it’s the lowest percentage of total revenues since the fourth quarter of 2005, when it stood at 58.7 percent.
Sequentially, VIP was down MOP12 billion during the period, which reduced its share of the market from the first quarter’s 63.7 percent.
A number of reasons have been advanced for the downturn, from China’s slowing economy to competition from the World Cup, and investors remain divided over the implications. Some say the market lacks a clear definition of what constitutes VIP. While analysts recently surveyed by Bloomberg say it is not a cyclical trend but a reflection of a structural change in the market itself, one more oriented to cash play and stemming from a desire by casino operators to reduce their exposure to the volatile VIP sector in favor of the mass market’s much higher and more consistent margins, particularly those generated by the high-limit play known as “premium mass”.
Mass-market exposure to total revenues has grown for 11 consecutive quarters and is accelerating as operators shift more tables, which are in short supply as a result of a government-imposed cap, from VIP rooms to the public floors.
Meanwhile, overall gaming revenues failed to get a “World Cup” bounce and the July revenue report was again disappointing for analysts. Gross gaming revenues for July were $3.6 billion, down 3.6 percent from July 2013. While the comparison was difficult since July 2013 was up 20 percent from the previous July, analysts were nonetheless discounting the drop.
Union Gaming Group blamed the decline on the uncertain VIP market, which is down 20 percent year over year. The group does not expect it to pick up anytime soon, either.
“Based on numerous conversations we’ve had with industry insiders over the past few days and weeks, we believe there is nothing on the horizon to suggest that a VIP recovery is imminent,” Union Gaming wrote in a note to investors. “To the contrary, the anti-corruption crackdown in the Peoples Republic of China seems to be accelerating/expanding, which in our view should result in continued, although indirect, pressure on the VIP segment. Further, and owing to a variety of factors including economic ones, certain smaller junkets are experiencing financial difficulties that are in all likelihood removing some amount of liquidity from the VIP system. Together we believe these dynamics will keep the lid on any sort of VIP recovery for the time being.”
