chinese high rollers drive macau’s casino rebound...“unfortunately, macau’s casino operators...
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9/21/2017 Chinese high rollers drive Macau's casino rebound | Asia Times
http://www.atimes.com/article/chinese-high-rollers-drive-macaus-casino-rebound/ 1/6
By MUHAMMAD COHEN | HONG KONG, SEPTEMBER 21, 2017 10:56 AM (UTC+8)
BUSINESS GAMING
Chinese high rollers drive Macau’scasino reboundLongstanding market assumptions that political leaderships in Macau and Beijing prefer mass to high-end gamblingdubious with a recent surge in VIP earnings
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Gamblers place their bets in a Macau casino. Photo: Wikimedia Commons/Niels Elgaard Larsen
onventional wisdom in Macau says authorities favor mass
market gambling by tourists over VIP play from high rollers
using junket promoters to circumvent China’s currency
transfer restrictions.
Both mainland China and Macau Five-Year Plans urge the global
casino capital to diversify its economy and become a world center for
tourism and leisure.
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Underscoring the point, Chinese President Xi Jinping’s anti-
corruption drive triggered 26 months of declining casino revenue that
took the biggest bite out of VIP play.
Now, as Macau’s recovery
steams into its second year
with VIP revenue growth
outstripping the mass
market for the first time
since 2011, it’s time to
reconsider conventional
official views on well-heeled
gamblers.
“Chinese officials never said
they prefer mass gaming over VIP,” IGamiX Management & Consulting
managing partner Ben Lee recently told Macau Television’s TDM talk
show. “If you think about it, who would you rather have lose their
money: poor working class Chinese or a handful of rich entrepreneurs
who have a sustainable ability to make such losses?”
In a follow-up interview, Lee emphasized, “There is no stated objective
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Longstanding market
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leaderships in Macau and
Beijing prefer mass to high-
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non-gaming.”
Macau still has much to do on that front: non-gaming revenue barely
touches double-digits as a percentage of total revenue, compared with
68% non-gaming revenue for the Las Vegas Strip in America.
Macau’s failure to diversify meaningfully into non-gaming “led to the
rhetoric that we have diversified gaming,” Lee says.
High-end ups and downs
Shifts in the mass market to VIP balance have been striking. VIP
earnings have fallen from nearly 70% of total gaming revenue in 2011 to
48% through the first half of this year, based on casino financial
reports compiled by Union Gaming in Macau, a boutique investment
bank and advisory.
In 2013, Macau’s VIP revenue comprised US$29.8 billion of US$45.1
billion in total; through 2016, VIP income fell steadily to US$12.7
billion, a collapse of 57%, or US$17.1 billion.
Over the same period, as total gaming earnings dropped 38%, mass
revenue rose then fell and ended last year less than 1% below its 2013
total.
However, VIP leads the current comeback, growing 30% in the second
quarter year on year and up 19% for the first half of 2017, while mass
revenue has only grown 14%. The last time VIP outgrew mass was in
the third quarter of 2011, Union managing director in Macau Grant
Govertsen says.
Like the tourism and leisure track authorities prefer, mass gaming
bets on China’s growing middle class. Mass revenue tends to be more
stable than VIP thanks to its broader base, compared with the smaller
universe of high rollers, who, according to JP Morgan, punt an average
of HK$5-HK$10 million (US$644,000-US$1.28 million) per casino visit.
Virtuous Circle
For casino operators, mass gaming has profit margins four times
greater than VIP yields and, at least in theory, presents further
opportunities for growth beyond the casino floor since mass
customers routinely pay for rooms, meals and shows that premium
customers expect for free.
Ideally, mass customer spending promotes a virtuous circle that
encourages further development of non-gaming attractions that make
Macau a more appealing travel destination, advancing the tourism and
leisure paradigm.
“I do believe that the authorities prefer mass gaming to VIP gaming,”
Global Market Advisors senior partner Andrew Klebanow says.
“Unfortunately, Macau’s casino operators cannot break free from the
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Macau’s skyline at dusk. Photo: iStock/Getty Images
allure of the VIP segment. Granted, the margins are lower for VIP than
mass gaming, but there is less risk. The junket operators get the
players and money into the market, and they can go and collect on the
markers,” he said.
That includes lowered reporting thresholds for cash carried across the
border and overseas transfers. Leading junket group Suncity Group
recently issued a warning for its customers and agents to comply with
the new rules, a caution that left many in Macau mystified. A group
representative declined to elaborate on the warning.
Card Play
Restrictions on mainland bank cards in Macau, including facial
recognition and national identity card scans at ATMs since July, and
crackdowns on illegal UnionPay point of sale processors that make
overseas transactions appear to take place on mainland soil, don’t hit
VIPS or junkets.
Still, Morgan Stanley analyst Praveen Choudhary cites them as a key
reason behind “rising risks” to the premium mass market, the sweet
spot for casinos comprising VIP level players who don’t require junket
commissions or credit.
Morgan Stanley’s new report, based on its annual survey of 1,000
mainland gamblers in Macau, highlights growing dependence on
UnionPay cards across the mass market, plus slowing growth for
premium mass.
The report notes mass revenue growth slowed during the second
quarter at the two casinos with the highest concentration of premium
mass, Melco’s City of Dreams and MGM Macau.
No published analysis, however, explains why mainland officials have
repeatedly moved against underground banking networks and illegal
fund transfers, even corporate overseas acquisitions, but haven’t
targeted junket money transfer activities.
Macau toughened financial reporting requirements for junkets agent
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9/21/2017 Chinese high rollers drive Macau's casino rebound | Asia Times
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UnionPay credit cards issued by Chinese banks. Photo: iStock/Getty Images
Comments
Huang Shan made off with some HK$10 billion (US$1.3 billion) in
investor funds in 2014 and cage employees pocketed some HK$285
million (US$36.8 million) from Dore Group’s Wynn Macau room in
2015. But those insider thefts, plus shrinking VIP demand, spurred
three years of official junket closures and consolidation.
Leading junkets Suncity, Guangdong/Neptune and Tak Chun now
control an estimated 80% of Macau’s VIP business, roughly double
their share before the crash. Some junkets that slashed operations
during lean times, such as David Group and Hengsheng, have staged
comebacks this year, reopening VIP rooms as top-end demand and
liquidity return.
“The authorities aren’t targeting any segment. What the Chinese
government is against is hot money flows,” David Bonnet of Delta State
Holdings, a gaming and property investment advisory, contends.
“Macau doesn’t want its casino industry to be known as a conduit for
hot money. If junkets are doing that, they’ll crack down. If it moves to
ATMs, then they’ll crack down on that.”
Muhammad Cohen is editor at large of Inside Asian Gaming and wrote
Hong Kong On Air, a novel set during the 1997 handover about TV news,
love, betrayal, high finance and cheap lingerie
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