Macau Casino Revenue Up 12% to $3.16BN in May

In May, Macau’s casino market generated US$3.16 billion in revenue, which despite marking a 12.1% year-on-year gain was actually significantly lower than the 16-20% growth initially forecast by analysts. After the latest financial results were released last week, shares in the major casino firms operating in the Chinese gambling hub saw their prices fall, including MGM China Holdings (-4%), Wynn Resorts (-3.3%), Melco Resorts & Entertainment (-2.42%), and Las Vegas Sands (-0.71%).

22 Months of Gains

On the positive side, Macau has now returned 22 months of year-on-year revenue growth dating back to March 2016. The island resort’s gambling market had been rocketing along until the Chinese government decided to implement a widespread anti-corruption drive which scared off many of the resort’s high-roller gamblers.

Three years of falling revenues then ensued, but after the campaign eased off, Macau posted its first annual gain in 2017, with revenue rising by 19% to $33 billion, although that figure was still well below the $43.7 billion collected in 2013.

Nevertheless, casino revenues are currently higher by 20% for the first five months of 2018, and according to forecasts the market is expected to return to its pre-anti corruption levels by 2022. Commenting upon the disruptive policies that have affected the industry over the past few years, Melco International CEO Lawrence Ho said that the crackdown was primarily focused on anti-corruption and anti-extravagance, with gaming just collateral damage in the process. Now that the campaign has since softened, Ho explains:

“The middle class and wealthy individuals in China, who didn’t do anything wrong, have realized they’re in the clear, and can now go back to living upscale [lives] and having fun.”

May’s Result

Macau’s gross gaming revenue (GGR) gain of 12.1% in May follows a 27.6% year-on-year increase posted during the previous month. According to JPMorgan Securities (Asia) Ltd analysts DS Kim and Sean Zhuang:

“VIP volumes have fallen modestly month-on-month, which is within the typical volatility; and major junkets have had fairly normal luck factor month-to-date, having recovered from poor luck in May.”

Furthermore, the investment company has said mass demand remains strong, and that it is showing no sign of easing up despite the recent crackdown on UnionPay cards ordered by Macau monetary chiefs. While it is not entirely clear why the machines were removed from shops situated inside many of Macau’s casinos, with some shop employees calling it an “upgrade,” Japanese brokerage firm Nomura said that their removal has “had little near-term impact on overall demand.”

Looking ahead, Nomura stated that June’s final GGR is forecast to reach between $2.7-$2.9 billion, which would give it a growth rate of between 10-20% year-on-year.

Growing Beyond Gambling

Emulating the Las Vegas model, the Chinese government is keen to see Macau develop beyond a gambling resort into a world class tourist destination. This has subsequently led to the island’s casinos extending their non-gambling products, services and amenities in order to attract family holidaymakers and tourists to their facilities.

The move seems to be paying dividends, too, and during the first quarter of 2018 visitor spending, not including gaming, soared by 12% to $2 billion. While non-gaming spending currently represents just 17.6% of overall casino revenues, compared to say 65% for Las Vegas, that figure is still well above the 9% target requested by the Chinese government. In other words, the world’s biggest casino hub is now solidly on its way to also becoming a “world center for tourism and leisure.”

Such a development will help Macau’s gambling industry cope further with increasing competition from nearby countries such as Singapore, the Philippines and Japan. Macau will also have some home spun competition to deal with in the future after the southern province of Hainan becomes a Chinese cabinet approved place for sports lotteries, but as Clement Chan Kam-wing from accountancy firm BDO told the South China Morning Post recently:

“Even if they open up to gambling, it would not have a big impact on Macau. The city is on its way to becoming a diversified convention center, with entertainment shows, exhibitions and expos. It aims to become the next Las Vegas.”