Not surprisingly, monthly gross gaming revenues (GGR) from Macau once again experienced a decline – marking the thirteenth consecutive monthly decline and the tenth consecutive double-digit decline. Revenues for the month of June fell 36% to 17.4 billion patacas or $2.18 billion, per the Macau Gaming Inspection and Coordination Bureau. Though the decline was lower than analysts’ expectations, revenues reportedly hit a five-year low.
The Trend So Far
Macau has been sluggish since Jun 2014. The slowdown is due to the nationwide crackdown on corruption in China that compelled Macau officials to impose strict restrictions on VIP gamblers to stop billions of dollars from being siphoned off illegally from mainland China to Macau. Restrictions like limitation on the use of state-backed payment processor UnionPay made it harder for players to obtain cash to gamble.
Tighter restrictions on visas and the smoking ban in casinos worsened the situation further. Meanwhile, the government proposed a bill earlier this week that called for a total smoking ban inside gaming venues, including VIP rooms, and the elimination of existing airport-style smoking lounges on mass gaming floors. The bill is expected to be implemented in early 2016 and might further hurt revenues.
Moreover, high-stake gamblers are curtailing spending amid a cooling Chinese economy. As if the sluggish economic conditions and the anti-graft campaign were not enough, China further extended its crackdown on illicit funds transfers to Macau in Dec 2014. The new security drive enables the government to access information about transfers through the state-backed UnionPay credit card and therefore identify distrustful transactions in the process. This further lowered footfall and hit Macau casino revenues.
Share Price Effect
Share price of leading casino operators Melco Crown Entertainment Limited MPEL, Las Vegas Sands Corp. LVS, MGM Resorts International MGM and Wynn Resorts Ltd. WYNN rose on Wednesday despite the decline in monthly revenues from Macau.
This was possibly due to the fact that the decline was narrower than market expectations as well as well as due to easing of travel restrictions in Macau. Per the new system, if travelers holding mainland China passports use Macau as a transit to other destinations, they are eligible to stay for seven days in Macau, up from five days earlier. (Read: Casino Stocks Move Higher on Easing of Macau Visa Rules)
Investors appear to be encouraged by the news as reflected in the recent upside in shares.
Is the Glass Half Full or Half Empty?
Casino operators in Macau are making efforts to diversify their businesses beyond gaming. Despite the weakness in the Chinese economy and Beijing’s increasing crackdown on graft, which continue to weigh on gambling revenues, these operators foresee a revival in Macau’s fortunes with the opening of new projects.
However, some analysts are still skeptical about a recovery in 2016 in view of the full smoking ban. In fact, analysts at Wells Fargo stated that the recent visa rule changes are short term in nature and do not expect them to significantly mitigate the effects of the anti-corruption campaign. Moreover, they see the significant slowdown in China’s economy as a headwind for Macau’s gaming industry.
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