Macau VIP revenue is “performing worse than the DICJ data suggests,” says a report from brokerage Union Gaming Securities Asia Ltd, referring to the casino gross gaming revenue (GGR) numbers issued by the Gaming Inspection and Coordination Bureau, also known as DICJ. On the other hand, the revenue growth of the mass table games segment has been underestimated, states the institution.
“In second quarter 2016, the real decline in Macau’s VIP market was in excess of 21 percent versus a decline of less than 16 percent per the DICJ,” said analyst Grant Govertsen in his Wednesday report.
But he added: “On the flip side, mass table GGR grew nicely in second quarter 2016, at +4.4 percent, versus the DICJ number that suggested mass was flat.”
The gaming bureau had reported mass market table baccarat GGR as having grown by 0.1 percent in the second quarter.
Mr Govertsen suggested the discrepancy between the regulator’s numbers and those of the market was because some operators reported their casino revenue in a different way to the gaming bureau than they did to their investors. He indicated this is likely to be a function of the intersection between the bureau’s definition of VIP gaming and the Macau government’s rules on smoking in casinos.
According to industry sources spoken to by GGRAsia, the gaming bureau classifies VIP gaming not by the presence or absence of a rolling chip programme (i.e., whether there is credit-based play, typically the industry’s way of classifying that product) but by whether the play takes place in an area physically separate from the main gaming floor; and by the minimum bets and maximum payouts allowed at the tables.
The government currently allows tableside smoking in VIP rooms, but not on casino main floors. As many Chinese gamblers like to smoke at the table, it can be in an operator’s interest to ensure an area that would otherwise be “premium mass” (i.e., cash-based play in multiples of thousands of Hong Kong dollars) is dubbed “VIP”.
Mr Govertsen wrote: “For the seventh consecutive quarter following the implementation of the mass market smoking ban, we’ve seen a significant divergence in DICJ reported gaming metrics and the metrics reported by the ‘Big Six’ casino operators. This is a function of some operators reclassifying certain premium mass tables as VIP. Hence, the DICJ reports these revenues in the VIP bucket, while operators reverse the reclassification for reporting purposes and report these revenues as mass.”
His report added: “While we expect the declines in VIP to continue to get less worse through the end of the year, we are still forecasting a decline of 4 percent in VIP GGR for the whole of 2017 and are biased to the downside.”
Union Gaming added that ongoing consolidation in the junket sector – as the better capitalised junkets attract more and more player agents by offering commissions that can’t be matched by the smaller junkets – was likely to have a number of effects on the market.
They include: the ‘Big Three’ junkets – that the report identifies as Suncity Group, “Neptune/Guangdong” and Tak Chun Group – getting even bigger; the profit margins of those three being squeezed as they opt for wide market coverage rather than necessarily the most creditworthy and valuable players; and the ‘Big Three’ nonetheless getting more bargaining power with Macau’s casino operators.
Referring to the recently-opened Cotai property of Wynn Macau Ltd, Mr Govertsen wrote: “Not coincidentally, the only junkets at Wynn Palace are the Big Three and we think the same line-up will be seen at [the] Parisian.” The Parisian Macao, developed by casino operator Sands China Ltd, is due to open on September 13.
Union Gaming added that – more worryingly for Macau – concentration of the junket sector could make it easier for the junkets still standing not only to send players outside Macau without the risk of the gamblers being poached by a rival VIP promoter, but also to give the surviving junkets the heft to become casino operators in their own right outside Macau.
Mr Govertsen stated: “Every conversation we’ve had with junkets eventually turns to regional greenfield or merger and acquisition opportunities. Without exception, junkets big and small are trying to transition to principals and owning/operating their own casinos.”
Imperial Pacific International Holdings Ltd – the promoter of a casino project on the Pacific island of Saipan, and which once had a profit share agreement with Macau junket Hengsheng Group – reported in the first half of 2016 VIP gambling volume “equivalent of 5.4 percent of Macau over the same period,” said Mr Govertsen.
“Suncity is embarking on a large-scale IR [integrated resort] project in central Vietnam and listed junket operator Iao Kun Group Holdings Ltd is acquiring the Jeju Sun casino in [South] Korea. This dynamic continues to represent a real and significant risk to Macau’s VIP story over the near, medium and longer terms,” said Union Gaming.
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"VIP growth [in Macau] is roaring back on the heels of last year’s economic stimulus – but we think this could stall once the effect of the stimulus and the Chinese housing bubble wears off – as it did in 2013-14"
Cameron McKnight and Robert Shore
Analysts at Wells Fargo Securities