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Decline In Macau Market Deepens… Again

Oct 27, 2014

Since June Macau has faced a monthly fall in revenue figures

Since June Macau has faced a monthly fall in revenue figures


 

 

 

 

 

 

 

 

 

 
Since June Macau has faced a monthly fall in revenue figures as compared to last year and there are several reasons behind this decline in gambling’s Mecca.

For those of us that like actually handling blackjack cards rather than merely clicking our mice, there is no destination more attractive than a big shiny gambling hub. We are drawn to Atlantic City, Vegas and, of course, the gambling capital of the world, Macau. The impressively rapid rise of this island of wagering has seen huge glass and steel casinos spring up like weeds (some 28 of them so far) but are there some hairline cracks appearing in the miraculous Macau?

With annual revenues from gambling in excess of $45 billion Macau dwarfs all competition in terms of volume but as one of China’s “Special Administrative Regions” it’s position is both politically and economically tenuous. Nine out of every ten dollars in Macau is spent on gambling so whatever effects that effects everything else, and this year is seeing several rather negative effects compound themselves atop each other to give Macau some issues.

Macau Government Smokes Itself

• Last minute decision on smoking ban adds to city’s woes
• Revenues down on last year for 4 straight months
• Mong Kok may be having an effect

Some of these were entirely predictable and indeed many of the corporate entities that run the casinos on Macau were all to well aware that this year was going to see a slight decline from the record breaking numbers brought out in January, but the degree to which other factors have made an impression might leave those projections looking far too optimistic. No one expects Macau to see shrinkage on the scale of Atlantic City, but the worry is still there however small.

At the mercy of Chinese political whim, the demonstrators in the Mong Kok district of Hong Kong, and indeed some rather draconian government regulations, Macau’s future is in no doubt, but the degree to which the initial free-for-all is over might just worry some of the more timid investors who may well be tempted to try their smart strategies for wealth creation elsewhere. Perhaps worryingly the Macau government seems unconcerned and just a tad inept.

Visitor Numbers Up But Revenues Down

With revenues in Macau down by 11.7% in September casino operators saw the fourth consecutive month in which year-on-year figures were down, a fact that left some investors jittery, despite assurances that revenues will bounce back after the new year. However the 25% decline in VIP revenue has got to be a serious alarm bell that will have more than one marketing team looking at how they can fine tune their tactics.

Macau visitor numbers up, but revenues down

Macau visitor numbers up, but revenues down


 

The fall in VIP play mostly stems from the Chinese President’s anti-corruption binge that has seen many of the high-rollers play further afield rather than answer a lot of pesky questions about where their money came from. Xi Jinping’s campaign might be well intentioned but the knock-on effects are becoming more and more manifest on the bottom line and with rumors of even harsher measures ahead there is more than a little concern over Chinese VIP numbers next year.

The reduction has of course had serious repercussions for the junket operators who are being squeezed at both ends as banks and casinos cut funding based on the falling spend. This means some Junket operators are going to the wall, with others merely requiring serious consolidation, but with the minimum monthly rolling requirement up again the casinos seem willing to follow market forces whatever the long term effects.

The Hong Kong protests are unlikely to be a long term issue, but in Golden Week, the holiday that surrounds the October 1st National Day in China proper, the rise in mainland visitor numbers was by no means as great as had been predicted. Given 20-25% of all mainland visitors would normally do so via Hong Kong the protests are certainly having some effect, although there are still those attempting to spin issues across the water as good for Macau as an alternative, but doesn’t seem born out by the numbers.

Government Makes Unforced Errors

Strangely, the biggest issue facing Macau in the future is Macau, particularly the government of Macau that has fumbled the ball a few times recently and not been winning friends or influencing people in a manner befitting such a well placed authority. But like a blind man trying blackjack tricks for the amusement of his friends they have been laughably inept at dealing rationally and sensibly with the holders of their future economic fortunes.

Macau government makes unforced errors

Macau government makes unforced errors


 

Prior to September 30th the Casinos had been reliably informed that smoking would be permitted in premium mass areas were they restricted in access and separated by walls from what one might term the main floor. Thus casinos began adjusting their premises to suit, only to discover that at the last moment the government decided to apply the ban to all non-VIP areas. The preparations made by casinos were unnecessary and proper planning for this new playing field hadn’t been made.

Now the change in the rules is almost certainly entirely sue to the recent industrial activity by casino workers who want better pay and conditions, and it is said they were instrumental in demanding the widening of the smoking ban in their workplaces, but the manner in which it was handled was ghastly, and makes one wonder whether regulations only Macau residents can work as dealers was really a good idea if they’re going to impose their wish on one and all.

Perhaps worse still is the idea that Macau’s government can so quickly and easily change it’s mind on situations that require long term thought and planning. With casino licenses due to start expiring in 2020 (not that far off now) a fickle and changeable regulator (the government) has to alarm casino strategy managers who had believed all they were told and only discovered it to be untrue when it was far too late to do anything about it. If Macau wants to secure its future then its government might just have to grow up a little to ensure there is one.


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