Macau casino concessionaires are expected to sever their relationships with junket operators, possibly putting an end to the city’s once-thriving VIP sector. The move followed the arrest of Suncity Group head Alvin Chau, jailed in China on allegations that his junket business promoted gambling on the mainland and also facilitated the cross-border transfer of funds.
Suncity is not the only casualty. According to Macau Business, last week junket operator Tak Chun also issued an internal notice saying that “individual casinos” in the city will stop doing business with them, if only temporarily. Tak Chun is Macau’s second largest junket operator after Suncity but trailed it by a big margin; in 2019 Suncity commanded more than 45 percent of the market, with Tak Chun holding about 19 percent.
Wynn Macau, for one, will close all its junket-operated VIP rooms by December 20. A note from Sanford C. Bernstein says that Macau’s Gaming Inspection and Co-ordination Bureau (DICJ) has ordered junkets to stop offering credit to their high-rolling customers and only permit cash play; it was a central function of junkets to arrange credit for their wealthy clients, and also plan their travel, transportation and other perquisites.
Chau’s arrest and the closure of Suncity VIP operations marks what could be the end of the VIP sector in Macau. Junkets have been on the slide for years due to tighter Chinese controls; the number of junket operators fell from 235 in 2013 to just 85 at the start of this year. All junket licenses in the city will also expire on December 31, with new to be issued later. But according to Morgan Stanley, if gaming operators cut ties with junkets themselves, the sector could come to an end without the need for an official government order.
Morgan Stanley added that the VIP sector was more important for local tax revenue than for the concessionaire’s EBITDA.
“VIP contributed roughly 70 percent of Industry GGR and 32 per cent of EBITDA at its revenue peak in 2013,” the brokerage wrote. “However, contribution dropped to 39 percent of GGR and 9 percent of EBITDA in 2019,’ the brokerage added in a note. In 2022/23, we expect VIP to contribute less than 10-20 per cent of total revenue, and less than 5 per cent of EBITDA. Meanwhile, pre-Covid gross gaming results of US$37 billion in 2019 will likely be ‘difficult to achieve even in 2024.’”
Asia Gaming Brief reports that Wynn will probably retain its direct VIP business, which makes up about 20 percent of its VIP business. “Some (if not all) other casino operators may also follow Wynn’s move with respect to the junket room operations,” Bernstein analysts said.
Credit Suisse looked at the long-term positive side. “The VIP scale-down (15 percent of industry EBITDA in 2019) will likely hamper market sentiment but we believe that these demand should turn to higher margin premium mass and direct VIP,” the analysts wrote.
“Even though junket business would be scaling down, high-end player demand will still exist and will continue to look for quality product offerings and tailored services, in our view. Without the aggressive credits offering by the junkets, we believe that the casinos will be on a level playing field to compete through better products and services and will reallocate their junket resources to cater the group of premium players.”
In related news, two casinos in the Philippine capital of Manila confirmed to GGRAsia they no longer have links to Suncity: Okada Manila and City of Dreams Manila.
And Cambodian gaming firm NagaCorp told Inside Asian Gaming that it is focusing on the “local captive market” in Phnom Penh, including “referral VIP,” after shutting its Suncity VIP Club due to Covid-19 last March.
Australia’s Crown Resorts and Star Entertainment Group have also stopped working with Asian junkets following regulatory probes about money laundering.
Jonathan Halkyard, chief financial officer for MGM Resorts International, recently told the Morgan Stanley Global Retail and Consumer Conference that Macau has a long recovery ahead due to Covid-19.
“We all saw the revenues that were reported recently, operating at kind of 30 percent of 2019 levels—though sequentially it was a bit better—this is a market that has been impaired by the travel restrictions into it, and that’s going to last for a while.” But he added, “I don’t think any of that speaks to the long-term opportunity associated with Macau: the demand side for Macau generally speaking, is going to be fine going forward.”
Asked about the junket implosion, he said, “MGM’s business has always been more oriented towards the mass… business, which has much better margins than the junket business. … I don’t think it’s a dramatic impact on MGM.”
