Bloomberg predicted 8 percent drop
As Macau began its third year of recession, casino operators must have been discouraged by a steeper-than-expected drop in gaming revenues for the month of May.
Bloomberg News reported that analysts it surveyed forecast an 8 percent decline for May, officially the 24th consecutive month in which gaming revenues declined in the jurisdiction. They were off the mark—gross gaming receipts fell 9.6 percent to 18.4 billion patacas (US$2.3 billion), according to the city’s Gaming Inspection and Coordination Bureau. That followed a 9.5 percent decrease in April.
May’s decline was “partly due to the tightening policies on the industry, especially the recent ban on phone betting,” Daiwa Capital Markets Hong Kong analyst Jamie Soo. The larger recession, which began in mid-2014, has been caused and exacerbated by many factors, chiefly a slowing Chinese economy, and Chinese President Xi Jinping’s crackdown on corruption and money laundering, which caused high rollers to leave the jurisdiction in droves.
The city’s government is keeping the pressure on with stricter rules for junkets, the ban on proxy betting that took effect in May, and other corrective measures such as a complete smoking ban that would be sure to have an impact on revenues.
“This increasing scrutiny and policy tightening, while positive for the segment’s long-term prospects, will likely be detrimental to the shorter-term prospect for the junket operators, VIP revenue and their related activities,” said Soo. “Junkets facing further operating pressures may result in further VIP room closures.”
In a morsel of positive news, most members of the Legislative Assembly committee charged with discussing a revised tobacco control bill are against a full smoking ban inside casinos, according to the Macau Daily News.Secretary Alexis Tam has continued to push for a full smoking ban, but Chan Chak Mo, president of the Legislative Assembly’s Second Standing Committee, said, “Most members of this committee agree with setting up smoking lounges in casinos, as long as they meet some requirements. That means not impacting the health of other people. The creation of smoking rooms in casinos will affect neither workers nor non-smokers. That’s why we agree with it.”
The city, the only place in China where it is legal to gamble, also may suffer from oversupply as lavish new resorts continue to open along the Cotai Strip. At the same time, a 3 percent annual cap on new-to-market gaming tables has caused operators to scramble to fill their new casino floors.
There is hope on the horizon: the government has called for more diverse, less gaming-focused economy, an approach that officials say can enable Macau to become a full-fledged entertainment metropolis. That policy has been embraced by Wynn Macau Ltd. and Sands China, and is reflected in the Hollywood-themed Studio City resort, which opened last year with a Hollywood theme and mainstream, theme-park attractions. According to the website CalvinAyre.com, Moody’s Investor Service says the government’s plan to broaden Macau’s appeal makes economic growth “volatile and susceptible to shifts in external demand.”
“The government has expressed plans to diversify the economic base. But these are at an early stage of development, centering primarily around the execution of existing infrastructure efforts and on vertical diversification within the tourism sector itself,” Moody’s wrote. “Lacking a track record of implementing such reform, there is a risk that these measures will not stem the deceleration in growth in the near-term nor diversify the economy over the medium-term.”
Right now, Macau relies on the $30 billion gaming industry for 80 percent of its economy and tax revenues.
Operators are tightening their belts, but cost-cutting may be difficult given the new supply and flat revenues, said Deutsche Bank in a research report cited by the Asia Gaming Brief. “At present, we see further cost mitigation efforts as more challenging and with new supply and flattish revenue, we expect the recent year-on-year margin improvements to inflect negative again in the 2H16.”
Revenues dropped 34 percent last year, to US$29 billion, and average monthly revenues are half of what they were when the recession began. But as the Daily News pointed, annual income in Macau is still five times that of the Las Vegas Strip.
Amid all this turbulence, casino regulators are evaluating the city’s six primary casino concessionaires as part of a mid-term review to determine if their licenses will be renewed starting in 2020. The Macau News reports that some casino workers are perturbed because their views and opinions are not being sought out.
“They have never consulted our opinions and I think the entire report is too dull,” said Wong, a dealer for SJM Holdings. “Many of us were not aware of the report as we are not involved in the drafting process. The government should have widely collected our opinions in the first place.”
“The government simply assigned a university to carry out this report. The report is too single-minded and not comprehensive enough. This is not fair for us because our voices and opinions now remain in the dark,” said Chan, a pit manager at Lan Kwai Fong.
