Jurisdiction stabilizing, but not expected to grow
A perfect storm of negatives will keep Macau in the doldrums through 2016, says the Wall Street Journal. According to a Journal report, the oversupply of casino resorts, depressed demand, the sluggish Chinese economy and the ongoing crackdown on corruption will keep Macau from shaking off its long recession, now heading into its 20th month.
Optimists have pointed to high occupancy as an indicator of a return to health in the territory. But pessimists point out that room rates dropped 17.8 percent in November, a situation that will may be aggravated when three new resorts open this year. The Sands Parisian, Wynn Palace and MGM Cotai will add another 6,200 new rooms, which could hurt existing resorts.
As operators pin their hopes on non-gaming amenities, Studio City, the lavish $4 billion Melco Crown property that opened in late October, has had virtually no impact on traffic in the city. Notably, the Hollywood-themed resort developed by casino magnates Lawrence Ho and James Packer, opened with no VIP facilities and is focusing on mass-market customers. Its mainstream attractions include the massive “Golden Reel” Ferris wheel, a Batman-themed virtual reality ride, the Warner Bros. Fun Zone, a house of magic, and a full complement of retail, restaurants, nightlife and special events.
Even so, according to the Asia Gaming Brief, gross gaming revenue is stabilizing. December gross gaming revenue came in at MOP 18.3 billion (US$2.2 billion), a year-on-year decline of “only” 21.2 percent, according to Sanford Bernstein. That’s the smallest decline since February 2014.
“Looking ahead, we expect Macau market GGR to stabilize on a sequential basis and (year-on-year percentage) declines to become less bad,” the investment firm wrote. “As business migrates to Cotai with new properties opening and ramping up, casino operators with peninsula-concentrated product portfolios (e.g. Wynn, MGM and SJM) will face market share headwinds.”
GGRAsia reports that mass-market gambling comprised more than half of Macau’s December casino GGR, a far cry from “the boom years,” when VIPs kicked in more than 60 percent of annual GGR.
“We see no near-term recovery in VIP principally due to continuation of the anti-corruption campaign (in mainland China) and junkets being liquidity constrained, with China’s increased oversight of underground banking and Macau government expected to introduce tightened regulation over junket activities,” said Sanford Bernstein analysts led by Vitaly Umansky. Yet another brewing junket scandal—the alleged theft of millions from SJM satellite casino L’Arc Macau—“may accelerate the government’s plans to potentially introduce greater junket regulation,” the analysts added.
The analysts reported that Sands China Ltd. reaped the most market share of total GGR in December, up 2.1 percentage points to 23.7 percent, “as it benefited from increased visitor arrivals over the holiday season,” reported GGRAsia. Galaxy Entertainment Group was up 1.3 percentage points to 23.1 percent month-on-month, “largely due to better performance in VIP at both Galaxy Macau and StarWorld.” SJM lost 1.5 percentage points of share in December, with 20.3 percent of the market, “driven by weakness in both VIP rolling chip volume and mass,” the analysts wrote. Melco Crown Entertainment lost 0.4 percentage points, to close out December at 16.2 percent “on VIP weakness.” Wynn Macau gained 0.4 percentage points to 9.1 percent “on premium mass improvement.” MGM China dropped 1.9 percentage points to 7.5 percent due to “poor VIP hold,” said Sanford Bernstein.
January started on a positive note, with average daily revenue in the first weeks higher than for the month of December, aided in part by the New Year holiday. GGR for January could fall anywhere from 14 percent to 23 percent, the analysts said. Higher ADR this month “is likely driven by both VIP and premium mass, and serves as an incremental sign of Macau’s stabilization,” wrote the analysts.
Nomura expects the decline to continue this year, but will be far lower than last year’s rout. “In our view, Macau (especially VIP gaming) is not out of the woods yet, as we expect it to experience three consecutive years of falling GGR (3 percent in 2014, 35 percent in 2015 and 8 percent in 2016),” the analysts wrote.
Analysts at Morgan Stanley Asia have upgraded the Macau gaming industry from “cautious” to “in-line.”
Meanwhile, the first of Macau’s slot junket made news; the Asia Gaming Brief reported a new “first-of-its-kind” junket-run VIP slots room, which opened at the Jimei Casino on the Macau peninsula, “could be indicative of a segment of the industry (i.e. junkets) that is very much in need of revenue and willing to try an idea that in a different era would likely not have even been considered.” Though Jimei cannot compete on many levels, the publication predicted the room could cause “near-term disruption” among big players on the peninsula as premium slot players sample the new facility. Even a temporary defection could cause high-limit slot revenues at Wynn Macau, MGM Macau and Grand Lisboa to experience some decline in the first quarter.
Amid the turmoil, Forbes reports, many who made their fortunes in gaming have been hard-hit—in the pocket—by the ongoing recession. Since mid-2014, the six concessionaires’ shares have lost two-thirds of their value. “The rich are getting poorer,” the publication noted, “along with the shareholders in their casino companies.”
Melco Crown Co-chairman Lawrence Ho’s fortune declined by more than half since 2014, to US$1.57 billion. In the same period, his sister Pansy Ho, the largest individual shareholder in MGM China, has seen her personal wealth drop from $6.8 billion to $3.6 billion. SJM Managing Director Angela Leong lost $250 million last year. The Woo family of Galaxy Entertainment have seen their wealth dwindle from $21 billion two year ago to $8 billion.
They are still able to afford the raises being demanded by the rank-and-file. Wynn Macau Ltd. has promised a one-month bonus to its Wynn Macau and Wynn Palace employees, and labor group Forefront of Macao Gaming says it still expects a 5 percent raise for Wynn employees. And the Macau Gaming Enterprises Staff’s Association, an affiliate of the Macau Federation of Trade Unions, is also urging casino operators to offer pay raises and bonuses this year.
