Global ex-Macau VIP revenues on a growth path

Global ex-Macau VIP revenues on a growth path

Wednesday, September 14, 2016 Posted by Andy McCarron
No end in sight to Macau’s VIP declines says Morgan Stanley

Global VIP gaming revenue declined in the second quarter largely because of continued falls in Macau, according to a new report released on the same day that a junket operator announced the closure of two further VIPs rooms in the gambling enclave.

The Morgan Stanley analysis of global VIP gambling suggested that revenues fell 3% sequentially in the second quarter as Macau fell 21% year-on-year. In contrast, VIP revenues from elsewhere around the globe rose 27% compared to this time last year. This follows two years of negative revenue growth in the global VIP, ex-Macau segment.

Said the analyst team: “Part of that was driven by new casinos in Saipan/Vladivostok and part from junkets moving to low-tax jurisdiction like the Philippines.”

The report highlights how there was as yet no end in sight for VIP revenues in Macau. It said the figures showed the VIP total falling 13% quarter-on-quarter.

The M Stanley report was released on the same day as junket operator Iao Hun confirmed it was closing two further VIP rooms at the Galaxy Macau and the Starworld (also owned by Galaxy). This followed on from the news last week that the Hong Kong-listed company had closed a room at the Sands Cotai. Iao Kun said the two new closures would generate annual savings of around US$4m a year. The closures came after a comprehensive strategic review of Iao Kun’s operations in Macau.

Brighter news from Macau this week came with the opening of Sands China’s Parisian Casino in Cotai. It is the second new opening in less than a month following the Wynn Palace debut in late August.

The Morgan Stanley global VIP index – including revenues from 11 jurisdictions – fell 6% year-on-year to $4.89bn. Macau represents 58% half the global total at $2.86bn. The global total ex-Macau rose 15% to $2.04bn. Pre-2014 the global total constituted only 24% of the global VIP revenue amount.

The M Stanley team expect the ex-Macau VIP share to continue rising. “We think outside of Macau will continue to gain share given lower effective tax rate, easing visa policy for Chinese outbound tourists, improving infrastructure and player anonymity, driving higher profitability for junkets and casinos,” the analysts wrote. “Chinese VIP patrons plan to increase visits to regions outside Macau, especially Singapore, Korea and Australia, but fewer trips to Las Vegas.”

The team added that Macau VIP revenues have clearly not bottomed out, despite the signs of growth in the mass market and in non-gaming revenues. However, for VIP revenues there might be more pain to come, particularly due to further junket consolidation and with the smaller junket operators struggling to maintain profitability.

Totally Gaming says: The interesting statistic from the M Stanley global VIP revenue breakdown is the sheer scale of the Macau market compared with the rest of the world, even now after three years of revenue declines. But the collapse has been marked – Macau VIP revenues were reckoned to be worth $26.1bn in 2014 and are now estimated to come in at $12.1bn this year. The Chinese government’s anti-corruption drive has had a profound effect.

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