There is no respite for Macau gaming operators as gross gaming revenues (GGR) for the month of March fell 39.4% on a yearly basis to approximately $2.69 billion or 21.49 billion patacas, per Macau Gaming Inspection and Coordination Bureau. The decline was more or less in line with analysts’ expectations. The rate of decline moderated from 49% decline recorded in February.
However, this marked the tenth month of consecutive decline and the seventh consecutive month of double-digit decline. As a result, share price of leading casino companies like MGM Resorts International MGM, Melco Crown Entertainment Limited MPEL, Las Vegas Sands Corp. LVS and Wynn Resorts Ltd. WYNN that operate in the region plunged over the last 10 months.
With the current decline, GGR in Macau for the first quarter plummeted 36.6% year over year. The consistent downside reflects the nationwide crackdown on corruption in China. This has compelled Macau officials to impose restrictions on high rollers to stop billions of dollars from being siphoned off illegally from mainland China to Macau. Consequently, it has lowered footfall at the local casinos. Meanwhile, a cooling Chinese economy, tighter visa policies, political unrest and a smoking ban on mass market gaming floors have compounded woes.
The Bad Just Got Worse for Macau
Amid the current spate of investigations and restrictions, analysts expect demand and traffic to worsen in the near term. Gamblers are traveling to other destinations such as Korea and the Philippines in order to try their fortunes. Therefore, analysts expect the spate of revenue declines to continue. An analyst at Wells Fargo expects gaming revenues for the month of April and May to fall more than 30%. Analysts do not expect a relief despite the Labor Day holiday in China on May 1. However, a few analysts expect to see easier year over year comparisons beginning second quarter of the year.
With China expected to launch another major crackdown to restrict illegal money transfers, the situation is not expected to improve in the near term. The crackdown comes at a time when casino operators are already feeling the heat of China’s anti-corruption campaign. This is expected to further reduce footfall and hit Macau casino revenues.
On the other hand, the Macau government is expected to submit a bill to ban smoking in the VIP rooms after implementing the same for mass gaming floors in Oct 2014. This would compound woes as the smoking ban, if implemented, would further hurt revenues.
In fact, Macau Chief Executive, Fernando Chui has reportedly stated that regulations would toughen on the gaming industry once casino license renewals start taking place in the next few years.
Is Diversification the Need of the Hour?
Just before the renewal of gaming licenses that will begin in 2020, the government is reportedly scrutinizing casino operators. Besides assessing casino operators’ contribution to the local economy and society, the government would focus on how effectively these companies have incorporated non-gaming facilities in their resorts.
Meanwhile, Macau’s tourism panel, under the guidance of Fernando Chui intends to prepare a five-year plan that would make the region less dependent on casino revenues and move to non-gaming sources.
With fewer resort openings in the pipeline by operators such as Wynn Resorts, MGM Resorts and Las Vegas Sands and the efforts undertaken by the local government, we need to see how long it takes for Macau to emerge out of the slump.
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