Bet on the future O
By Muhammad Cohen
bservers unnerved by slowing growth in gaming revenue may be missing the point - the biggest shift in the market since the opening of the Venetian Macao,
has begun. These changes will almost certainly result in
greater profits for casinos and may ease the concerns of the governments here and in Beijing about overdependence on VIP gaming. This year’s gross gaming revenue figures tell a
tale of two markets. While year-on-year monthly growth in VIP gaming revenue has fallen to single digits and even into negative territory at times, growth in mass-market gaming revenue is powering ahead at an annual rate of more than 20 percent. These trends are forecast to continue until the first half of next year. With VIP revenue accounting for more than 70 percent of gross gaming revenue, the
slowdown has eroded the confidence of investors. The sluggish ramp-up of Sands China Ltd’s Sands Cotai Central, which opened its second phase last month, has added to the worries. Amid the decelerating growth, all six casino operators are embarking on new multibillion-dollar casino projects or are expecting to do so within the next 12 months, giving investors further reason to be nervous. But instead of being anxious about any
slowdown or drop in VIP revenue and gross gaming revenue, investors should be cheering the rise of the mass market. “Macau casinos can continue to experience solid profit growth on the strength of the mass-market customer, even if VIP revenue remains soft,” says Grant Govertsen of research firm Union Gaming Group. “The key is that for every dollar of mass-
market gaming revenue generated by a casino in Macau, roughly 40 cents drops to the bottom line as profit. This compares to just 10 cents of every dollar for VIP, meaning that mass-market play is four times as profitable as VIP. With this in mind, it can be calculated that more profits are already generated from the mass-market segment, even though it has typically accounted for
18 NOVEMBER 2012
just 30 percent or fewer of the gaming revenue dollars.”
Steady expansion Skyrocketing VIP play has masked mass-
market growth in recent years. VIP revenue grew by 70 percent in 2010 and by 45 percent last year, pushing mass-market revenue below 30 percent of gross gaming revenue for the first time since 2004. But while VIP revenue exploded before
slowing this year, mass-market revenue kept expanding steadily. “In fact, mass-market revenues have grown 30
percent or better over the last 11 quarters,” Mr Govertsen says. “So the growth rate has been stable, even though the base of revenues has become much larger. The VIP slowdown has certainly made the strength in [the] mass market more noticeable.” As mass-market play comes to form a larger piece of the gaming revenue pie, casino profits can rise, even if gross gaming revenue falls. Moreover, the shift to the mass market will probably boost non-gaming revenue and
Bad news about growth in VIP gaming revenue may really be good news for casinos, investors and the government
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