Macau casino revenue can recover, with some careful changes

Macau can recover, provided they leave Chinese VIP players alone.

Macau VIP casinosThis is what the credit-debt watcher Standard & Poor (S&P) Global Ratings says in the report “Macau Gaming: The cards look right for a recovery”.

The report states a shift from high rollers to the mass player market could lead the way in Macau’s gaming industry recovery. It also warned against targeting Chinese junket players due to the risk it infers.

S&P Global Ratings credit analyst, Sophie Lin, said targeting this audience with new facilities could counteract the recent drop in gaming revenue.

“The opening and ramping up of new casinos, better infrastructure connecting Macau with mainland China, and stabilising regulations are the major factors that will fuel a rebound in the gaming industry,” she said.

Gaming revenue in Macau took the biggest hit in 2015, with a sharp 34 per cent drop, declining a further three to six percent this year. The predicted revenue outcome of moving away from VIP gamblers to the mass market is estimated by S&P to remain stable and perhaps increase by 10 per cent in 2017.

However, this comes after Melco Crown opened its fourth Macau casino in 2015 and while the gaming establishment was pitched to the mass market it wasn’t as profitable as originally intended, and a VIP sector was added.

As a result, Australian casinos have profited from targeting these high rollers. Unfortunately they have also been the target of mainland China’s gambling crackdown with 18 staff from James Packer’s Crown Resorts arrested last month.

S&P commented on the incident stating the the aggressive growth of VIP gaming revenue may be reduced in other markets around the world.

“This lack of serious competition from Asia-Pacific gaming rivals is just another reason we believe Macau’s industry is embarking on a rebound that might only add to its reputation as the biggest game in town,” S&P said.

S&P also noted in the report while Australian casinos may be benefiting from Macau’s decline it may not be for much longer.

“We see rising downside risks for emerging gaming markets targeting VIP gamers from China,” the report stated.

“These operators may see potentially higher provisions for doubtful accounts receivable from VIP customers and declining gaming revenues from the Chinese government’s tightening control on casino-related marketing activities in China.”

The ratings agency added it could manage any emerging competition, too.

“That’s because of Macau’s high brand awareness as the region’s top gaming destination, better connections with mainland China, and the cluster effect of close to 40 casinos.”

Author's comments on Macau casino scene

While a shift may be advised from the S&P from high limit to mid to low limit players, their 2015 Melco Casino endeavour proved it may not be as profitable as expected. If they take on paradigm shift and implement the correct strategies with realistic profit margins the Macau gaming industry could just recover against emerging competition.

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