Macau’s vaunted gaming market is on the mend after the worst beating in its history. A new and almost certainly better year is under way. But forecasts, while optimistic, are freighted with caveats. Like the pandemic that laid it low, Macau’s gaming market is a complex organism.
December gaming revenue was up more than 15 percent from the previous month, helping the city claw back to a level not seen since before the Covid-19 crisis hit last January. Visitor arrivals on a daily basis—which could have been counted by hand back in the spring—were triple those at the end of the summer. Christmas week saw hotel occupancy approaching 70 percent.
Total win for 2020—MOP60.44 billion, the equivalent of US$7.56 billion, or about what Las Vegas realizes in a good year—stands in especially high relief against the six straight months in spring and summer when the market was running at minus-90 percent or worse.
“Obviously, with the closures last year and the continuing travel challenges, the way the year ended was a positive,” said Brendan Bussmann, director of government affairs for U.S.-based industry consultants Global Market Advisors.
Macau turned a corner in the second half, after Beijing restored the Individual Visit Scheme (IVS), the visa program that opens Macau to frequent personal tourism travel from mainland China. Of the roughly 28 million arrivals from the mainland in 2019, almost half were IVS visitors. Not surprisingly, the pace of recovery in 2021 will likely turn on how quickly the system returns to normal. Ramp-up so far has been painfully slow.
“The key jump in visitors will come when visa processing becomes same-day and via e-kiosk again, which may take some time,” a trio of analysts with brokerage Sanford C. Bernstein wrote in a year-end summary of the market published the first week of January. “The uncertainty in timing and complexity around visa processing, coupled with the need for Covid testing when traveling to Macau, has been a bottleneck in visitation improvement.”
It all hinges on containing the pandemic—a realizable goal, certainly, but an elusive one, as the world has learned.
“If coronavirus makes a comeback in Macau, China (most critically in or near Guangdong), or Hong Kong, any easing measures around travel restrictions may be delayed, aborted and casinos may be shut down,” the Sanford group said.
As Bussmann recently told GGB News: “We should be in a situation where all the numbers from here forward will be up. The question is, how long will the recovery take? And the problem with that is there’s no model on what the potentiality is for this. There are still only two words for it, and they’re the same words I was using 11 months ago: ‘unprecedented’ and ‘unpredictable.’”
Speaking of unprecedented, in the fourth quarter of 2020 gaming revenue in Macau was about 75 percent mass market, “by far the highest level on record,” as JP Morgan analysts D.S. Kim and Derek Choi noted in a recent report to investors.
This is a clear positive. A strong mass, especially among bigger spenders who drove 2020’s relatively strong finish, is good for EBITDA (earnings before interest, taxation, depreciation and amortization). It is also good because of what it implies about the future of non-gaming profit centers, like hotels, restaurants and retail.
Conversely, VIP has been weak by comparison. It was down year on year to a much greater degree than mass during the quarter, and continuing softness will be a concern. Many of the forces affecting the segment pre-date the Covid crisis, which places it squarely in the realm of the unpredictable.
Junket liquidity, for one, has surfaced as a major issue, and the fallout from the pandemic obviously has worked against that. VIP is believed to be more sensitive than mass to the ups and downs of China’s economy, and how wealthy the wealthy allow themselves to feel in that larger context. There is finally the question of how far Beijing will take its nationwide campaign to root out corruption and capital flight.
“Anti-corruption activity has a negative correlation with GGR growth, especially VIP,” the Sanford analysts noted. “Recent actions in China need to be monitored.”
“It all weighs on it,” said Bussmann. “If I’m a mainland resident going to Macau and I know there’s a watch on what my activities are, I would tend to be a little more cautious. That’s human nature. I think that until certain things are more clearly defined, VIP will be on a longer path of recovery.”
Then there’s Hong Kong, Macau’s giant sister city, largely isolated within greater China by political unrest and a stubborn recurrence of the virus dating back to the fall. Hong Kong is Macau’s second-largest source of visitors, accounting for 18 percent of 2019’s total and good for an estimated 10 percent to 15 percent of annual gaming revenue.
In December, the Macau government raised the mandatory quarantine for arrivals from Hong Kong from 14 to 21 days—for all intents and purposes, a ban on travel ban—and has said it has considered admitting the territory to the travel bubble it shares with mainland China and Taiwan until local transmissions of the virus are held to zero for 14 straight days.
The Sanford analysts said they don’t expect any meaningful change in the situation before the end of the first quarter.
How Will Macau End 2021?
Heading into the start of the Lunar New Year holiday on February 12, gaming revenue forecasts for January and February range from minus-35 percent year on year (Credit Suisse) to declines of 50 percent to 65 percent (Sanford Bernstein, Stifel Nicolaus). Stifel’s Steven Wieczynski has said the first quarter could end flat with 2020 or surpass it by around 8 percent. For the year, he sees 2021 finishing in the black by 200 percent to 250 percent, or $15 billion to $18.9 billion. The Sanford group is looking toward the possibility of around $29 billion, or roughly 80 percent of 2019’s total.
The width of the spread alone is a testament to the many pieces of the Macau puzzle that have yet to assemble themselves.
Bussmann sees it as a “cautionary tale” for a market whose recovery “is going to take longer than we all thought.”
“That,” he said, “is the one constant.”