In good news for Macau, an August 21 memo from Morgan Stanley Asia Ltd. says high rollers are spending freely in the city’s casinos, putting the premium mass segment at the fore.
According to GGRAsia, the note from analysts Praveen Choudhary and Gareth Leung said “the top 1 percent of Mainland Chinese are traveling and spending on entertainment. This is why the recovery is premium-led and grind mass has lagged.”
They added, “Younger patrons are visible on casino floors as well as around the resorts. High-end customers are spending as much or even more than pre-Covid levels.”
Citigroup confirmed those assertions, recently identifying 24 “whales” on Macau gaming floors, just short of the 27 VIPs it recorded during the 2019 Chinese New Year. Those patrons are indulging their appetite for risk, betting HKD100,000 (about US$12,767) to HKD500,000 per hand.
That suggests that “they are still willing and able to play, despite the current state of the economy in China,” wrote Citigroup analysts George Choi and Ryan Cheung.
Morgan Stanley added that “unlike other markets, Macau is not seeing inflation.”
Choudhury and Leung said “casual junkets” for VIPs are “coming back, but the recovery might continue to be slower.” Presently, 36 licensed junkets operate at casinos throughout the city, compared to 109 at the start of 2018 and a high of 235 in 2013.
The industry declined in part because of Beijing’s crackdown on capital flight, cross-border gambling and money laundering. The city’s leading junkets, Suncity and Tak Chun, collapsed after the arrest and imprisonment of their respective CEOs, Alvin Chau and Levo Chan. Both were charged with illegal gambling and participating in a criminal syndicate; both were convicted and sentenced to 18 and 14 years in prison, respectively.
The recovery of junkets in the market has been “limited by lower profitability as revenue-sharing is banned,” the Morgan Stanley team noted. “They could at most earn 1.1875 percent of [dead-chip] roll after tax” because of a new 5 percent tax withholding tax on commissions. Under the old system, phased out last year, junkets could take advantage of a total or partial exemption from taxes on commissions.
Moreover, junkets now often use sub-agents “who need to be paid around 1.0 to 1.10 percent of roll,” the analysts wrote. Given the extra scrutiny by government and law enforcement, Macau operators are “being more cautious” about the junket business.
That said, Morgan Stanley said direct VIP business is “already above 2019 levels.”
