Player reinvestment costs as Macau casino operators compete for mass-market gambling clients, are in likelihood one reason why industry margins have eroded, even as mass play – on paper a higher-margin business than VIP – has taken up a bigger share of the city’s gross gaming revenue (GGR).
That is one suggestion of gaming sector analyst Praveen Choudhary (pictured), managing director at Morgan Stanley Asia Ltd.
He was speaking on Wednesday at a conference session on the opening day of the Global Gaming Expo (G2E) Asia 2025 casino trade event held at the Venetian Macao.
One reason “is called promotions,” Mr Choudhary told the session audience. “Basically, because the business was premium mass and casinos had to throw money for promotions to bring that and fight for market share, it eroded the margin.”
Market GGR rose year-on-year in the first four months of this year, to MOP76.51 billion (US$9.57 billion) albeit at a sluggish 0.8 percent rate, show government data. Last year, Macau’s market-wide GGR grew by 23.9 percent year-on-year to MOP226.78 billion.
Mr Choudhary observed in terms of the evolving structure of the market: “The [GGR] contribution of mass has gone from 27 percent in 2011 to 75 percent now [first quarter this year],” which should have translated into mass business contributing circa “four times higher margin than VIP”, and hence a stronger driver to the gaming sector’s earnings. This had not happened.
He cited historical margins of “30 percent or 35 percent” on mass play, versus “5 percent to 10 percent” on VIP.
He noted: “This is a significant problem with our financial modelling, and this is one of the reasons why [Macau gaming] stocks have not done as well as people thought after Covid.”
Property EBITDA trends
Another metric, market-wide property earnings before interest, taxation, appreciation and amortisation (EBITDA) margin had gone down 0.5 percentage points year-on-year in 2024, to 23.7 percent, he observed.
The Macau gaming industry’s property EBITDA had grown steadily between 2011 and 2019, noted the Morgan Stanley analyst.
“Currently we are running at 1 percent,” annual GGR growth, “and I’m predicting that [sector] EBITDA will be down by maybe 5 to 10 percent,” stated Mr Choudhary.
The analyst stated, referring to the Individual Visit Scheme (IVS) a mainland China exit visa system for independent travellers, thought by commentators usually to bring higher-spending Chinese tourists to Macau: “The IVS [individual visit scheme] visa scheme improved, and a lot of people could come to Macau, but [gaming] revenue did not,” improve greatly.
He added that while Macau was “getting a lot of people…a lot of day trippers…. the quality of the customers is not great.
“It has to do with China’s economy and [U.S.] tariffs… and [China’s] GDP, and deflation: all those macro situations,” remarked the Morgan Stanley analyst.
“You can see many [hotel] rooms were added to the Macau market “post-Covid [19], and they have not had as much impact on their [respective operators’] revenue and profitability,” the Morgan Stanley analyst stated.
“That’s definitely hurting the market. Obviously, there’s a little bit of a demand issue as well.”
The Macau gaming sector’s post-pandemic return on invested capital (ROIC) had been trending downward, said Mr Choudhary: from 22.2 percent in 2018 and 21.5 percent in 2019, to 12.1 percent in 2023 and 12.9 percent in 2024.
Though he suggested non-gaming capital expenditure – an element in the six operators’ pledges to the Macau government under their 10-year concessions that started in 2023 – had produced only marginal impact on the sector’s ROIC.
He also noted that while most Macau casino firms had a lower staff count compared to 2019, they were now all bearing higher reinvestment costs.
Among all these factors, the Macau industry’s “earnings revision has been negative across the board, for the last 15 months,” said Mr Choudhary.
