In this regular feature in IAG to celebrate 20 years covering the Asian gaming and leisure industry, we look back at our cover story from exactly 10 years ago, “A Rough Ride on the Silk Road”, to rediscover what was making the news in October 2015!
It seems like only yesterday that Macau was basking in the glory of its newly minted billions, gleaned from the rampant VIP junket industry that had bankrolled development of the expansive integrated resorts that today populate the famous Cotai Strip.
And yet, as IAG ’s cover story from our October 2015 edition – titled “A Rough Ride on the Silk Road” – reveals, it is now 10 years since we started talking about the decline in Asia’s VIP-centric business model and the shift towards a mass-driven model centered around tourism as much as gambling itself.
Of course, today we have come to accept this as not only being the reality but also a more sustainable long-term model – no longer reliant on the shady dealings of the junket industry or beholden to the hefty commissions they once charged.
But back then there were legitimate concerns around what the absence of these substantial high-roller revenues would mean and whether a looming surge in new supply would therefore outstrip future demand.
IAG cited at the time a report issued by Macquarie Securities which forecast that China’s percentage impact on Asian gaming revenue growth near-to mid-term would slow to the low single digits at best.
“That’s more bad news for Macau and Singapore and quite possibly for the Philippines, South Korea and Australia,” our cover story stated.
“All are counting on wealthy gamblers from the PRC to sustain returns on billions of dollars in new and proposed investment in resort-scale casinos.
“The crux of Macquarie’s research is that Asian gaming is evolving away from a VIP-centric business model to a mass-market model driven less by gambling and more by tourism.”
Although the then substantial boom in Chinese outbound travel was seen as a positive – representing a “much broader demographic than the tycoons and provincial satraps from southern China, who transformed Macau in the space of a decade into the largest casino market in the world” – we also noted that “they won’t be stuffing drop boxes at baccarat tables at anything near those levels.”
Macquarie’s take was that, with a 50% increase in gaming capacity region-wide planned to come online between 2015 and 2019, returns would inevitably deteriorate. CLSA agreed, estimating that such returns would likely decline from an average 34% on existing casinos in Macau to 21% for new resorts under construction in Cotai, but also noted that 21% still comfortably exceeded the average cost of capital as well as the global average ROIC for major projects in the US and Australia.
More broadly speaking, IAG observed that the impact of China on gaming revenues worldwide was falling “because the Chinese economy is slowing down, and it’s harder to move large sums of money out of the country in the wake of a government crackdown on corruption, graft and capital flight that has wealthy gamblers anxious to avoid behavior that might attract official scrutiny – the same factors that have hit Macau so hard and are changing the game across Asia.”
Sound familiar?
The decline in Chinese VIPs in the decade since has been notable, and it would be remiss not to mention two properties that have perhaps been hardest hit by this reimagining of the Asian gaming scene: Australia’s Crown Sydney and Vietnam’s Hoiana. Both were envisioned and built specifically to capitalize on the Chinese VIP boom of a decade ago but have been forced to rethink their entire strategy since opening into the teeth of the COVID-19 pandemic and right around the time that Macau’s junket industry was obliterated following the arrest of Suncity Group chairman Alvin Chau.
In fact, Hoiana once counted Suncity as one of its three core stakeholders, only recently undergoing an ownership shakeup that now sees Hong Kong jewelry giant Chow Tai Fook in control.
As for Macau, VIP has now been replaced by premium mass as the segment of choice, and although it has taken a while, there is no doubt that premium mass is leading the SAR’s operators towards another golden era.
Even without the elevated revenues previously provided by junkets, Macau GGR reached 91% of pre-COVID levels in August which, coupled with a higher margin business, has already seen the profitability of Macau’s concessionaires just about match 2019 – or in the case of MGM China, comfortably exceed it.
Broadly speaking, analysts see Macau’s gaming sector making significant strides toward full EBITDA recovery in 2025, paving the way for a more resilient business model over the decade ahead.
