Macau junkets and Macau VIP room operators will face a tougher business environment in 2016, predicts Spectrum Gaming Group LLC, a research and consulting firm covering the casino gaming industry.
On Monday, Spectrum published a list of what it considers to be the top 10 casino industry trends for 2016. The firm has been compiling the annual list since 2005, although previously it included a total of 21 items.
“Junkets and VIP room operators in Macau will be under increased revenue pressure until they change their business model and comply with [mainland China] laws and procedures for high-value patron play,” said the consulting firm in a release.
Union Gaming Securities Asia Ltd analyst Grant Govertsen wrote in a Friday note he believed that VIP gaming in Macau – a segment heavily reliant on junket operators – would face “an even tougher 2016 than 2015”. The brokerage forecast Macau’s annual VIP gross gaming revenue (GGR) would decline by 12 percent this year.
China’s central government would in 2016 be likely to “continue with its anti-corruption campaign – in order to fight illegal movement of funds, underground banking and illegal currency exchange,” negatively impacting junket operations in Macau, Tony Tong, director and co-founder of Pacific Financial Services Ltd, a Hong Kong-based firm whose services include debt collection and risk management, told GGRAsia last week.
GGR from VIP baccarat fell by 38.0 percent year-on-year across the whole Macau market during the third quarter of 2015, according to official data. VIP baccarat revenue accounted for 53.32 percent of casino GGR in the three months to September 30, down from 55.51 percent in the previous quarter and from 56.45 percent in the prior-year period.
The Macau government in October introduced new guidelines to improve transparency in the junket sector. The city’s Gaming and Inspection Coordination Bureau said all junket operators would have to compile monthly accounting reports starting in 2016.
Investment analysts covering the gaming sector have said that the revision of junket regulation is likely to intensify industry consolidation among junket operators. Several have added that while it could weigh on the industry, the move might also help restore general confidence within the sector.
Built it and will they come?
Spectrum also included in its list of top trends for 2016 the impact of new supply scheduled for Macau this year.
It said: “With four new [Macau casino] properties expected to open in 2016… all eyes will be focused on whether this new supply can grow the Macau market – with revenues expected to stabilise at [annual] US$26 billion – or be another factor contributing to its constraint.”
Monthly GGR in Macau has been decreasing since June 2014 as measured in year-on-year terms. GGR for full-year 2015 stood at MOP230.84 billion, down by 34.3 percent compared to 2014.
The decline has been linked by analysts in part to China’s anti-graft drive. Other Asian jurisdictions have also experienced a downturn in business from Chinese gamblers – especially high rollers –, a number of equities brokerages have reported.
One of the properties to open its doors in Macau this year will be Wynn Palace, developed by casino firm Wynn Macau Ltd and with a price ticket of US$4.1 billion. The parent Wynn Resorts Ltd said in a filing on November 18 that it was putting back the opening date by three months, to June 25, citing construction delays.
The HKD24-billion (US$3.1 billion) MGM Cotai, from MGM China Holdings Ltd, is due to open in the fourth quarter of 2016. The quoted budget excludes land costs and capitalised interest.
The US$2.7-billion Parisian Macao, from Sands China Ltd, is scheduled to welcome its first visitors “in the second half of 2016”, according to the firm.
The fourth casino expected to open in Macau this year is Louis XIII boutique casino hotel. It is scheduled to open in the summer and will be Macau’s 20th third-party casino. The project’s promoter, Hong Kong-listed Louis XIII Holdings Ltd, has not publicly named a gaming concessionaire partner so far.
Third-party managed casinos in Macau – also known as satellite casinos – have to piggyback on the licence of one of the city’s official casino concessionaires.
More growth in Asia
Growth of gaming in Asia at large was also featured in Spectrum’s top 10 trends for 2016. It stated: “Gaming expansion will continue throughout Australia and Southeast Asia, but it remains unlikely that Japan will legalise casino gaming in 2016.”
Casino legalisation in Japan is expected to be a two-statute process. After an enabling bill legalising casino resorts at the conceptual level – yet to be discussed by the country’s parliament –, a second piece of legislation should detail the specifics, including the number of casino licences, locations, tax rates and whether locals would be allowed to gamble in them.
There are currently several large-scale casino projects or extensions underway in Asia outside of Macau, including in the Philippines, Cambodia and Russia. South Korea’s government is poised to issue later this year up to two new licences for integrated resorts featuring foreigners-only casinos.
The number of casinos in Asia is expected to increase by 30 to 230 over the next five years but the region “can comfortably absorb this capacity increase,” brokerage CLSA Ltd suggested in a report published in mid-September.
The year 2016 could see the coming of age of “destination resorts” for the Asia Pacific casino industry, Joe Pisano, founder and chief executive of Jade Entertainment and Gaming Technologies Inc, a Manila-based distributor and operator of casino gaming machines, has told GGRAsia.
Other trends for 2016 highlighted by Spectrum in its report included an increasing focus by gaming operators on millennials as an emerging generation of consumers. The firm had already included this trend in its 2015 report.
Millennials is a term used to describe people who came to young adulthood around the year 2000. Now in their 20s and early 30s, they typically have more disposable income than did their predecessors. Millennials are said to have different consumption patterns from their elders – including a greater desire for interacting via social media –, which creates a challenge for casino operators keen to attract this new generation of consumers as the marrying of social media-type technology with approved casino game products is not yet universally accepted by regulators.
Spectrum also expected “financial institutions will continue to monitor their casino clients [in 2016] to ensure full compliance with agreements made with banking regulators in the United States and Europe.”
It added: “The U.S. Treasury Financial Crimes Enforcement Network, financial intelligence units and international law enforcement will continue to aggressively combat money laundering in casinos.”
New Jersey-based Spectrum operates in Asia through Bangkok-based Spectrum Oso Asia Ltd. Spectrum Asia also has offices in Japan, Hong Kong and Guangzhou.
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"If the [Macau casino] concessions are put up for bid, there will also be a lot of giant Chinese companies, some having nothing to do with gaming, which would like to take over these enormously successful casinos”
Professor emeritus at Whittier Law School in California, in the United States, and a visiting professor at University of Macau