An eventual global recession would have “some impact” on the United States casino industry, but limited impact on Macau’s casino sector, suggests a Wednesday report from brokerage Sanford C. Bernstein Ltd.
The institution said it used its own “regression model” and factored in further post-Covid recovery, to measure the potential effect that a global recession could have on the gaming industry in the U.S. and in Macau.
“We would expect that the overall impact of the next recession could result in a U.S. national-wide gross gaming revenue [GGR] decline between 3 percent and 11 percent,” wrote analysts Vitaly Umansky, Louis Li, and Shirley Yang. They said the latter part of the range was indicative of a severe recession, “which at this stage looks less likely.”
“U.S. gaming operators’ non-gaming revenue recovery from Covid could further support revenues in a recession that may occur in the next 12 months,” said the Sanford Bernstein team. “With cost restructuring that occurred during Covid, U.S. casinos are now much leaner with better cost structures than they were entering prior recessions.”
The brokerage said it believe that global gaming operators with Macau exposure “could be better positioned to hedge a recession risk,” despite the recent downward trend seen in Macau casino GGR.
“Macau revenue has been about as low as it can go as a result of travel restrictions stemming from Covid, and any impact on Macau from an economic slowdown in China would be minimal in light of the recovery to be driven by opening the borders,” suggested the report, referring to travel easing between Macau and the mainland, and between Macau and Hong Kong.
Mainland China was the only place to have a largely-quarantine free travel arrangement with Macau. But restrictions have been imposed since mid-June because of the most serious Covid-19 outbreak in Macau to date.
Macau’s tally of infections in the current outbreak – the first since October, and which began on June 19 – had reached 941 by midnight on Monday, with 89 new cases in 24 hours.
In Wednesday’s report, Sanford Bernstein said also that Macau’s gaming industry was “better positioned for future economic cycles,” following the “disappearance” of junket operators from the market and with GGR “driven largely by mass/premium mass.”
In December, a number of Macau casino operators announced that many junkets had ceased operations at their properties. The bosses of the two largest junket operators in Macau have been arrested and are currently being held in detention, on suspicion of illicit gambling activities and organised crime.
Sanford Bernstein said in its report that a “recovery from Covid disruptions in Macau will mitigate much of the potential negative demand impact from a China economic slowdown.”
The Macau casino industry generated GGR of nearly MOP26.27 billion (US$3.25 billion) in the first half of 2022, the lowest amount since the MOP25.75 billion recorded for the first six months of 2006, according to official data.
The analysts said they expected that any potential impact from a “pure economic recession” on Macau would be offset by the city’s eventual recovery from the pandemic.
They added: “There is limited room for VIP revenue to decline further. Meanwhile, as the Macau gaming revenue structure is now leaning heavily towards the mass business … once the border fully reopens, the recovery from mass should drive the sector to bounce more swiftly.”
