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Second Down Month for Macau in July

Newsdesk by Newsdesk
Mon 4 Aug 2014 at 01:30
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Macau gaming revenue fell in July for the second straight month as analysts are now focusing on China’s anti-corruption campaign as the culprit behind a chill in the VIP sector that usually generates well more than 60% of the casinos’ traditional haul.

Revenue in the world’s biggest casino market dropped to MOP28.42 billion (US$3.56 billion) in July, a 3.6% decline year on year, according to official results. It was a tough comparison against June 2013’s 20% increase, and analysts polled by Bloomberg News were expecting worse. But coupled with June’s 3.7% drop, which was the first year-on-year decline in five years, the perception is growing that the boom is headed into a period of uncertainty.

“We continue to believe 2014 will be choppy as VIP growth likely remains weak into fourth quarter and we haven’t seen a sustained improvement in revenues post World Cup,” Wells Fargo analyst Cameron McKnight said in a client note. China’s anti-corruption campaign “could impact player sentiment and spending,” he said.

“As we had expected there was no meaningful post-World Cup bounce and our view remains that the primary driver of VIP weakness is political in nature,” brokerage Union Gaming Research Macau said.

President Xi Jinping’s campaign against corruption, which recently snared its highest-ranking official yet in former Communist Party security chief Zhou Yongkang, appears to be affecting luxury spending across the board, from retail jewelry and Rolexes to the business in Macau’s private high-roller salons. Sales of luxury goods in Hong Kong fell by nearly one-third in the second quarter, including a 40% plunge in April.Junket-driven VIP play, which peaked in 2010 and 2011 at close to 70% of the market, fell by 14-18% in July, according to analysts at UBS.

“With Beijing keeping a closer eye on conspicuous consumption and capital flight, being seen buying 10 diamond-encrusted watches or throwing millions at a baccarat game is not recommended,” noted a report in The Wall Street Journal.

“All of a sudden the world is changing,” one casino executive told the Journal. “The central government is much more concerned about junkets getting out of line.” The situation is worrying both junket operators and their VIP customers, who “don’t want to be involved with people who could get them in trouble,” the person said.

Mass-market revenue, on the  other hand, continues to track at a rate approaching +30%, and that’s good news, given that mass play generates around 70% of casino operating profit. With no junket middlemen to cut in for upwards of 40% of the win, the sector is about four times more profitable than VIP. To capitalize, casinos have been shifting resources toward cash play. Sands China, for one, cut the number of its VIP tables by 28% in the quarter ended 30th June 30, reallocating them to the cash floor.

In all, forecasts now are that total gaming revenue will grow in the single digits this year after a 10% increase over the first seven months, which was good for MOP221.5 billion ($27.68 billion).

Revenue was up 18% last year to $45 billion, about seven times  the size of the Las Vegas Strip.

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