Unhappy Anniversary

The casino industry in Macau is marking 12 straight months of revenue declines as the historic slump drags on and on. A looming full smoking ban won’t help, nor will the 3 percent annual cap on table growth. But at least the comps will be easier.

Is rebound on the horizon?

The world’s dominant gaming jurisdiction has marked a year of consecutive declines in monthly casino revenue. Gaming halls in Macau generated a collective $2.5 billion in May, down 37 percent from 2014, according to Macau’s Gaming Inspection and Coordination Bureau.

It was the eighth straight double-digit decrease and the fourth straight month of declines of 30 percent or more, reported the Las Vegas Review-Journal. February was the worst month ever in Macau, with gaming revenue down 49 percent year-on-year.

The slump began with a government crackdown on corruption and graft, which sent high rollers heading for the hills—and for other markets. A slowing economy in Mainland China has also been a factor.

Wells Fargo analyst Cameron Knight told investors the firm “remains neutral as the market adjusts to a new normal.” Union Gaming Group Director Grant Govertsen said the market may have bottomed out, but added that “trends could still be choppy for some number of months … before we see any breakout to the upside.”

The decline could be exacerbated by Beijing’s stricter no-smoking law, which soon may extend to casinos as well as other public places. Govertsen noted that so-called “smoking lounges” at the Beijing Capital International Airport have been replaced by outdoor-smoking zones, a move that could indicate that casinos are next.

“Beijing’s tough stance on smoking could provide the Macau government with enough political cover to carry out their plans for a full smoking ban,” Govertsen said. “Previously the Macau government has made comments that the full smoking bill could be introduced early next year.”

As the market struggles, a number of multibillion-dollar megaresorts are preparing to open on the Cotai Strip. Galaxy Entertainment’s Phase II and Broadway expansions opened earlier this month, but could be hobbled by the government’s decision to allot only 150 table games in resorts built to accommodate 500.

In the coming years, the Strip will add a $3 billion MGM Cotai; a $2.7 billion Paris-themed resort from the Las Vegas Sands Corp.; Steven Hung’s new $1.5 billion Louis XIII resort; the $4.1 billion Wynn Palace; the $3.2 billion Studio City resort from Melco Crown; and SJM’s $3.9 billion Lisboa Palace.

The Macau Business Daily reported that gaming revenues dropped 37.1 per cent year-on-year last month. May revenue declined to MOP20.3 billion (US$2.5 billion) from the MOP32.4 billion (US$4.1 billion) posted in May 2014.

To provide some relief to Macau’s casino operators, an economist has urged the government to reevaluate its 3 percent annual cap on gaming tables. Local officials “shouldn’t be locked into a policy that was designed when the gaming industry was going through a different kind of evolution,” said Albano Martins. “The situation has changed, hence the government must change its policy. Otherwise, it will be complicated.”

Despite problems in the market, Bloomberg News reported last week that investors were buying casino shares at a brisker pace. And Galaxy Entertainment Deputy Chairman Francis Lui continues to insist that the city’s casinos will rebound in the second half of this year.

In a note to investors, Bloomberg analyst Tim Craighead wrote, “At the city government’s behest, resorts are pursuing middle-class tourists instead of high rollers for what should be more consistent and sustainable growth. Mass-market margins are three times wider, and most operators are shifting gambling tables to that segment.”