Shanghai Disney a threat?
Gaming revenues in Macau will continue to fall on a year-on-year basis in June, say analysts at brokerage Sanford C. Bernstein. At best, they say, the world’s top gaming jurisdiction will realize MOP16.8 billion (US$2.1 billion) in revenues, at most, for a year-on-year decline in the 3 percent to 9 percent range, wrote Vitaly Umansky, Simon Zhang and Clifford Kurz in a report cited by the Macau Business Daily. That compares to a 10 percent year-on-year decline in May, when analysts expected to more positive results.
Cautious observers say the market will revive, but may never return to the boom years of what analyst Ben Lee called “supernormal” profits. “The probability of the gaming industry going back to its peak is minimal,” said Lee, of IGamix consultants.
The decline began two years ago with the crackdown on graft, corruption and money laundering ordered by Chinese President Xi Jinping. Nervous high rollers dropped off the radar, and revenues began to plummet. By the end of 2014, the numbers had fallen 2.6 percent for the full year. But the city really took a bruising in 2015, when revenues toppled 34.3 percent on a year-on-year basis. Through May of this year, year-on-year revenues have declined 11.9 percent.
At its pinnacle, in February 2014, the gaming industry in Macau generated 38 billion patacas (US$4.75 billion). Professor Ricardo Siu of the University of Macau says that record is “very unlikely” to be equaled or exceeded “in the near future” or even five years out. The monthly average for the first five months of 2016 has been 18.38 billion patacas (US$2.29 billion), less than half that.
“The good news is that the industry can return to profitability peak levels without having to reach peaks in terms of gross revenues,” said Grant Govertsen, an analyst at Union Gaming. “This is because the future of Macau is much more focused on the mass segment, which has significantly higher margins compared to the VIP market. In the long term, the outlook remains very bright for Macau.”
Aaron Fischer of CLSA says mass revenues will increase 10 percent per year through 2020, with VIP growing 4 percent. And Professor Samuel Huang of Macao Polytechnic Institute has reassuring words for operators in the city. “In the long term… Macau will be fine,” he said. And despite the recession, now in its third year, Macau generates four times the gaming revenues of the No. 2 jurisdiction, Las Vegas.
Visitation may shift come June, when Shanghai Disney opens, according to a poll of 1,000 Chinese gamblers. The Asia Gaming Brief said 30 percent of respondents to the survey said the opening of the new Shanghai resort would cause them to visit Macau less frequently.
Others polled said the slowing Chinese economy and the devaluation of the Chinese renminbi is more problematic for the city than the crackdown on corruption. On the bright side, however, 26 percent of respondents said they intend to gamble more in Macau in the coming year due to the opening of Wynn Palace. The survey also found that 51 percent of total respondents have gambled in Macau in the last 12 months, an increase from 30 percent who took the survey last year.
In other Macau news, gaming expert Albert Climent, founder of BlueSea Consulting, says Macau could be the next big hub of iGaming, if the government acts promptly and thinks beyond integrated resorts as the primary business model.
“If China ever wants to regulate online gaming, it certainly should start in Macau,” Climent told the Business Daily. “Worldwide, we’re seeing more and more jurisdictions starting to regulate iGaming, as nobody wants to lose the possible tax money.”
