Brokerage firm predicts diminishing VIP returns by 2022
G3 MARKET UPDATE - MACAU
The Macau VIP segment is likely to make a diminishing contribution in proportional terms to the enclave’s overall casino-related revenues in the next few years following a strenghtening trend according to brokerage firm Sanford C. Bernstein.
The firm’s analysts anticipate VIP gross gaming revenue (GGR) to account for just 34 per cent of overall annual revenue, including gaming and non-gaming, in Macau’s casino sector by 2022. Macau VIP baccarat GGR fell by 22.5 percent year-on-year in the third quarter of 2019 whilst VIP baccarat revenue as a proportion of all casino GGR stood at 43.9 percent. In the preceding quarter, this had been 47.2 per cent.
WILL ALL SIX BE RENEWED?
Despite this, Macau’s three US casino licence holders should expect a level playing field when it comes to the relicensing process in 2022 given the large amount of foreign investment, positive local sentiment towards concession holders and the adverse impact an effective nationalisation of gaming could have on broader foreign investment in China and its special administrative regions.
Te Chief Executive of Macau has the power to extend concessions for five years, although ratings agency Fitch has placed a low probability on this occurring. However, there does remain the possibility of a seventh concessionaire being granted. Te 2001 law, which ended Macau's gaming monopoly and the six concessions that were subsequently granted, stipulate that licences are the property of the government at all times, retaining vast powers over the licensees and their gaming- related assets in the territory.
Holdings Ltd, via MGM Resorts International.
Ho replaced Fernando Chui in December during Macau’s 20th anniversary celebration of being returned to China from Portugal. Ho, unlike his two predecessors, has no direct ties to the gaming industry. In Beijing, to formalise his selection as Macau’s chief executive, Ho warned against the dangers of foreign influence. Referring to ongoing protests in Hong Kong and the “one country, two systems” principle that guides relations between mainland China and the two restored ex- colonies, Ho declared: “We won’t allow foreign influences to have a hand in Macau’s affairs.”
Macau’s original commercial gaming law called for the enclave to have three full licensees and three subconcession operators, allowing six companies to enter the market and operate their own integrated resorts as well as gaming satellite venues at smaller hotels. Tere appears little appetite to lower the total of concessions and subconcessions from the current six. However, expanding could also displease Beijing, which has urged Macau to diversify its economy.
Galaxy Entertainment has a stake in Wynn Resorts, whilst MGM China co-chair, Pansy Ho, daughter of Stanley Ho, the founder and Chairman of SJM Holdings, has attained boardroom control of SJM. Macau authorities could consolidate the linked companies under one concession, creating space for a new concessionaire without increasing or decreasing the number of concessions.
“VIP as a percentage of revenues has declined considerably over the past decade,” Sanford Bernstein explained. “In 2011, VIP was approximately 70 per cent of gross revenues (including non-gaming). In 2018, that figure was around 41 per cent and by 2022, we forecast VIP GGR to be approximately 34 percent of gross revenues in Macau.” However, the brokerage firm expects Macau’s casino sector to continue to be driven “by relatively stronger mass growth over the longer run.”
Las Vegas Sands reassured by mass market growth
Las Vegas Sands saw its Macau revenues dip by two per cent for the three months that ended September 30 with increases in Las Vegas and Singapore seeing overall group revenue’s fall by 3.6 per cent to $3.25bn.With Macau accounting for 65 per cent of Sands’ overall total, the seven per cent gain in Las Vegas and the 3.5 per cent increase in Singapore could reverse the overall downturn.
Las Vegas Sands’ CEO and Chairman Sheldon Adelson said: “While overall Macau gross gaming revenues declined for the quarter, the mass market continues to experience robust growth. We grew our mass-gaming revenues by nine per cent over the prior year with strong growth in both mass tables and slots, and in both the premium mass and mass segments. Most importantly, our profitability continues to lead the industry, with adjusted property EBITDA margin at 35.7 per cent.”
Rob Goldstein, President and Chief Operating Officer, said: “The future of Macau is massive, and visitation continues to improve. The quarter for us was very, very positive except for the softness in the rolling segment. Our game plan remains the same. It’s more product. We’re spending $2 billion plus on a quality product at Londoner Four Seasons. The quality we’re doing at Four Seasons Londoner will surprise everybody, it surprised us actually. It’s pretty spectacular. And so, we don’t see a whole lot of changes in this quarter. It’s business as usual. It’s reinvest in the product, focus on the high margin mass business, grow our fundamental advantage, which is more retail, more restaurants, more entertainment and, most importantly, more lodging.”
NEWSWIRE / INTERACTIVE / MARKET DATA P87
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