The Green Felt Road Is Bumpy, But Macau Is Bouncing

The tourist visa system that controls entry to Macau is crucial to a gaming recovery has been slow to ramp up in China. But the market is already seeing the benefits. Visitation has improved to 40,000 a day on average (Macau-Zhuhai border gate at left), and casino win is expected to approach half of pre-pandemic levels by year’s end.

The Green Felt Road Is Bumpy, But Macau Is Bouncing

There have been some glitches in China’s restoration of tourist travel to Macau, but the positive effects in terms of visitation and gaming revenue clearly are making themselves felt.

“We’re not at pre-pandemic levels, as we hoped, but I think we will see a continual slow and steady climb as the visa situation improves and the travel bubble expands,” said Brendan Bussmann, director of government affairs for U.S.-based industry consultants Global Market Advisors.

Analysts on the scene are reporting visitation increasing to 40,000 a day in the early going in November. That’s about double October’s daily average. Correspondingly, gaming revenue has been averaging MOP$250 million a day, which is better than post-Golden Week October by double digits and could result in a take of MOP7.5 billion, or around US$940 million, for the month.

“We expect visitation to continue to increase over the next few weeks and months with a pickup in gaming visitors, as visa processing (in China) improves overtime,” said a trio of analysts with brokerage Sanford Bernstein.

Analysts with JP Morgan expect November to conclude in a gaming revenue decline of minus-60-65 percent versus the same month last year, a healthy improvement over October’s minus-72.5 percent. They expect December to finish better still at minus-50-55 percent. If that holds true, it won’t be a far cry in relative terms from the 55 percent decline vis a vis 2019 recently announced in the Macau government’s modeling for a recovery in 2021 to MOP130 billion ($16.3 billion).

“I would characterize it more as an ‘improvement’ rather than a ‘recovery,’” said Lorien Piling, research director with UK-based analysts Global Betting & Gaming Consultants. “October’s revenue figure was the highest since January and three times greater than the figure for September. But it was still more than 70 percent below October 2019.”

Everyone agrees that the market won’t fully turn the corner until travel from China returns to something approaching pre-pandemic levels.

“The key jump in visitors will come when visa processing becomes same-day and via e-kiosk again, which may take some time,” the Bernstein group said.

More than 70 percent of Macau’s annual visitation originates in mainland China, and the Individual Visit Scheme, as the tourist visa system there is known, generates close to half of it. From the standpoint of the casinos, it is key to the ability of wealthier gamblers to enter the city and enter more often. The program was open to residents of 49 mainland cities in 2019 before it was suspended by order of the central government in January to contain the spread of the Covid-19 virus, which was first identified in China in December. Its gradual restoration, first in Macau’s sister city of Zhuhai in mid-August, then across all of neighboring Guangdong province, and finally nationwide in late September, has been the driver of the gaming revenue recovery seen thus far in the second half.

Its ramp-up has been slow, however, and the processing of visa applications uneven from province to province, according to testimony from the Macau side cited in recent news reports.

“We’re still having some trouble in terms of IVS and how IVS is currently working right now,” said David Sisk, chief operating officer of Melco Resorts’ three Macau casinos. “One of the things you can see is you can go to a non-Guangdong Province, and it can take a day. In Guangdong, sometimes it can take 14 days. We still haven’t seen a real consistent pattern other than just the incredible inconsistency that seems to go on.”

He added, “A lot of our Guangdong players that came in early October have been told basically they can’t come back for two months. So we’ve really been focusing on trying to get our players back as quickly as we can. But it’s really kind of hit and miss.”

Getting Hong Kong back into the pipeline is another key. The city contributes around 18 percent of Macau’s annual visitation and an estimated 10 percent of gaming revenue. The government’s forecasting is heavily based on an easing of travel between the cities by the middle of next year.

There are hopeful signs. Hong Kong residents returning from Macau and Guangdong recently were declared exempt from mandatory quarantine provided they can show a negative virus test obtained no later than 72 hours before arrival and a clean bill of health based on a coding system worked out by authorities in the three jurisdictions.

Going the other way, though, the situation remains problematic. Anyone wishing to visit Macau from Hong Kong needs to produce a Covid-free certificate issued within 24 hours of arrival and still must undergo a 14-day quarantine.

“Obviously, the ability to get visas is a key to the recovery. I would add improved testing to that, continued reductions in restrictions on travel and, really, just people’s desire to return to normalcy,” Bussmann told GGB News.

Another potential hitch, Piling notes, is a fresh round of restrictions in China on “non-essential” travel aimed at inhibiting the spread of the virus during the winter months when it’s believed to be especially active, although it’s not certain if these will apply to Macau and Hong Kong.

Fortunately, for all stakeholders, public- and private-sector both, normalcy is where everyone’s interests align.

Macau, for its part, wants its citizens fully employed, prosperous and politically docile and its tax base restored to the largesse of pre-pandemic days, all of which depend almost entirely on a bustling casino industry.

Beijing’s interests obviously are the same.

Moreover, as Bussmann sees it, a healthy Macau locks in with the priority the central government has assigned in recent months to stamping out a chronic capital flight problem it blames in large part on gambling funds escaping to countries beyond its jurisdiction.

The downside of this “Broken Chain Initiative,” as the crackdown is officially styled and which began in earnest in 2019, is the financial pressures it implies for the junket industry, the entities that drive the high-roller trade in Macau through their ability to maneuver around the central government’s ban on gambling marketing and its strict currency controls.

“The junkets could be hurt more long-term by the currency restrictions, which does hurt the VIP sector in Macau,” Piling told GGB News. “But it could make Macau a more attractive and acceptable destination for Chinese gamblers at the mass (market) and premium-mass levels.”

Bussmann agrees. “Everything points to Macau being the hub in light of Chinese policy,” he said. “The signs are pointing to all roads leading through Macau.”

Articles by Author: James Rutherford

James Rutherford is a journalist based in Atlantic City. Prior to joining GGB News, he worked in Macau as an editor and writer with the English-language monthly Inside Asian Gaming. He is co-author of “Trumped! The Inside Story of the Real Donald Trump: His Cunning Rise and Spectacular Fall” (Crossroad Press, 2015).