GGRAsia – VIP growth a bubble and not coming back: Ho

VIP growth a bubble and not coming back: Ho

Nov 06, 2015 Newsdesk Latest News, Macau, Top of the deck

VIP casino gambling in Macau is in likelihood never going back to its “heydays” – but in any case its expansion had been a “bubble”, said Lawrence Ho Yau Lung (pictured), co-chairman and chief executive of Melco Crown Entertainment Ltd.

“The whole VIP sector in our opinion – and we’ve been saying this probably for some time now – has been permanently and structurally changed. So it will never go back to the heydays where it was bubble like,” Mr Ho said in comments to investment analysts on Thursday. His remarks came during the company’s third quarter earnings conference call.

Melco Crown set a new industry milestone on October 27 when it opened a multibillion U.S. dollar casino resort on Cotai in Macau – Studio City – without a single operational junket room.

A note from Daiwa Securities Group Inc the same day stated however that the operator was keeping a VIP room in mothballs on the second floor for future high roller play, although it didn’t mention whether that would be for house-managed VIPs or junket-promoted ones.

VIP gross gaming revenue (GGR) across the entire Macau market fell by 38.0 percent year-on-year during the third quarter of 2015 to approximately MOP28.99 billion (US$3.63 billion), according to official Macau government data published in October.

In the Macau market “VIP gambling” is a term that can mean different things to different people. Most VIP players have traditionally been brought in by middlemen agents that issue the credit for play and collect on losses, as mainland China’s courts do not recognise gambling debts as being legally enforceable.

Gambling via junkets in Macau has recently diminished in popularity. But there are still players dropping large amounts of money on mass market tables in the city’s casinos. Investment analysts have told GGRAsia that the local gaming regulator defines VIP by the size of table bets and table payouts, and whether the play area is physically separate from the main gaming floor – not by whether there is a junket agent or rolling chip programme involved.

Melco Crown’s Mr Ho indicated in his Thursday comments that the public policy climate in Macau was growing more favourable for the industry.

“I guess the Macau government has realised that the market is actually very, very weak and it’s not in the shape that they’ve ever seen before. At the same time, we have heard that China or China [the central government’s] Liaison Office is becoming more supportive and all of this is positive in the long run,” he stated.

“I think it’s really the sentiment that it conveys to our potential customer base in China and Macau is not such a bad place to go anymore, and the fact that China is not against people going to Macau,” added the Melco Crown CEO.

Political dimension

A number of analysts have pointed to a political element in the decline in demand for gambling – especially in the high roller segment. Macau gets most of its gamblers from mainland China.

The analysts note that China’s central government has been seeking to reduce graft in the public sector, moderate the country’s economic growth – which had been averaging above 7 percent per year – and to moderate the volume and velocity of money held by Chinese citizens that crosses the border into Macau and beyond.

According to data from Macau’s gaming regulator, the Gaming Inspection and Coordination Bureau, in 2010, casino GGR in Macau grew nearly 58 percent year-on-year to MOP188.3 billion – mainly driven by the VIP segment. In 2011 total GGR grew 42 percent year-on-year from an already strong base, before settling back in 2012 – the year President Xi Jinping was appointed and China’s current anti-graft campaign began – to a more modest 14 percent annual expansion.

The following year Macau GGR bounced back to a near 19-percent expansion, before crashing to earth with a near 3-percent contraction in 2014. This year the accumulated year-on-year decline in the market to October 31 was nearly 36 percent.

“I think we’ve seen the worst in Macau but it’s really a matter of when does the real recovery starts,” Mr Ho said on Thursday.

He added: “I think it’s a bit early to really speculate but I would say at this point in time, next year VIP will have some challenges … looking at the high base of the beginning part of this year. I think mass has stabilised and should see some reasonable growth hopefully.”