Macau casino industry growth once seemed unstoppable, with high rollers flocking to its casinos on a weekly basis. These latest pictures show the past calendar year has been gloomier.
This week saw Macau announce the latest of six revenue drops in the last ten months which indicate that Macau’s allure as a gambling hub is fading.
Latest reports from Macau’s Gaming Inspection and Coordination Bureau state that casinos in Macau took $3.3 billion from gamblers in October this year. This is 3.2% lower than the numbers for October 2018, although it is an improvement on the $2.7 billion taken in September 2019.
Casino industry impacted by trade war and protests in Hong Kong
One of the recent events which has impacted negatively upon the casino industry in Macau is the trade war between China and the USA. President Trump began the trade war by imposing tariffs on Chinese goods earlier this year, with China responding with similar tariffs on American goods. The knock-on effect has been a slightly weakened Chinese economy and currency, which has translated into slowing profits in casinos.
The trade war and weakened economy could play some part in explaining this, but the large protests in Hong Kong which have at times been violent have also had an impact.
VIP gamblers staying away from Macau
One of the biggest structural factors in Macau’s declines has been the trend of VIP gamblers shunning Macau.
Rich Chinese customers used to be able to gamble in Macau without having to worry too much whether the amount of money risked in the casinos would raise suspicion in Mainland China.
With Xi Jinping campaigning against corruption, things have now changed and VIPs seem to have the feeling that playing in Macau is no longer ‘safe enough’ for them.
Junket operators may also be intrinsic to the issues facing the casino industry. High rollers usually use junket operators to facilitate the movement of large amounts of money in and out of Macau casinos. The junkets bring the VIPs to the casino and the casino pays them a cut as a result. This system is not financially optimal for the casino industry however and has already attracted a lot of attention from China.
The mass market future of Macau?
Macau’s future seems to be uncertain on the surface, but there is a highly viable strategy which could yet rejuvenate the numbers being posted by casinos. If Macau’s casinos seek to draw in larger numbers of players who gamble smaller, they should be able grow a stable customer base which would not require them to pay any cuts to junkets. This would involve a greater focus on entertainment, food and shows, which recreational gamblers enjoy. The model would essentially reflect the one in Las Vegas, where millions of tourists visit each year.
The mass market strategy is in fact, already being implemented in Macau, with mass market revenue up 12% in October compared to the 20% decline in high roller revenue. If this trend continues, it should equate to a higher overall profit margin for the casino. It will also provide a business model which is not dependent on the whims of a small number of customers.
Article by Craig Bradshaw