Home Economy “Growth ‘Strangled’ and Capped ‘Deliberately,’ Yet ‘Viable'”

“Growth ‘Strangled’ and Capped ‘Deliberately,’ Yet ‘Viable'”

Gaming industry analysts highlight that casino revenues in 2023 surpassed the most optimistic forecasts. They believe that growth will continue in 2024 but without support from the VIP sector, which will face even more challenges in asserting itself. The mass market allows for greater revenue retention and may even surpass 2019 numbers this year. However, they warn that the potential of the new model is being "strangled" by the lack of infrastructure.

Nelson Moura

Casinos in the Macau SAR collected MOP 183.1 billion in 2023, approximately 62.5 percent of what was recorded in 2019, according to data released this week by the Gaming Inspection and Coordination Bureau (DICJ).

The results, better than expected, bring both good and bad news for the city’s gaming concessionaires. On one hand, they signal a return to levels close to the pre-pandemic period, but on the other, they imply that more money will have to be disbursed for non-gaming sector development.

As per the investment commitments in non-gaming elements between the concessionaires and the Government, if Macau casinos billed more than MOP 180 billion in any of the first five years of the new concessions, operators would have to increase their investments by 20 percent.

“No one expected a year ago that gaming results would reach 62.5 percent of pre-pandemic values in 2023. It was predicted at 40 percent, and even then, we thought it was an optimistic prediction,” said Alidad Tash, general director of the consultancy firm 2NT8, in an interview with Bloomberg.

“It’s still a story of two segments. The VIP segment that Macau relied on so much 10 years ago now represents between 10 and 12 percent of the total, when it used to be 75 percent.”

For the analyst, the performance of the mass market has been an “incredible story,” with a recovery of 90 percent compared to the pre-pandemic period, and the fourth quarter of 2023 recording values even 5 percent higher than 2019.

Ryan Ho Hong Wai, from the Institute for the Study of Gambling and Tourism at the University of Macau, tells PLATAFORMA that considering last year’s recovery and global instability, he is “optimistic” for 2024, but “cautious.”

“The previous exclusive VIP gaming model is now unsustainable, while the mass market-oriented model is a more viable and enduring solution for Macau’s casinos,” he points out.

For the researcher, the strategic shift to a mass model is positive news for operators as it allows them to protect their profits from the commissions charged by gaming promoters.

“Profit margins in the VIP sector are much smaller compared to the mass market, where casinos can achieve a table retention of approximately 20 percent or more,” he indicates.

At the same time, Ho highlights that this change generates optimism regarding the industry’s long-term outlook, with a solid indication of growth in mass market performance expected for the coming years.

For instance, brokerage firm Morgan Stanley predicts that Macau’s gross gaming revenue will grow by 28 percent annually in 2024 and reach 80 percent of pre-Covid levels.

“I believe that with the new hotel rooms available and the focus on the non-gaming sector, the mass segment will perform better than in the pre-pandemic period. I believe that gaming gross results will reach values close to 80 percent of 2019, or 29 billion dollars. The party will continue,” predicts Tash.

The number of hotel rooms available in Macau increased by almost 25 percent from 2022 to 2023, with approximately 45,700 rooms available in the city’s 137 existing hotels.

Infrastructure Issues

On the other hand, gaming consultancy firm Igamix’s analyst, Ben Lee, believes that the lack of hotel and transportation infrastructure and the disappearance of high rollers will keep gaming revenues in Macau below pre-pandemic levels.

“It’s probably more than people would have expected at the beginning of the year,” admitted Lee to Lusa, adding that the lifting, in early January 2023, of most restrictions imposed on tourists, including foreigners, due to the pandemic.

In early January 2023, the Chinese region opened its borders to all foreigners, including tourists, lifting a ban that lasted nearly three years.

With the end of restrictions, Macau received 25.3 million visitors in the first 11 months of 2023, four times more than in the same period of 2022, yet still 69.6 percent of the figure recorded between January and November 2019.

Macau welcomed almost 175 thousand visitors on Sunday, the highest daily figure on record, according to official data released today by the Public Security Police of the Chinese region.
The Tourism Services Department (DST) revealed that hotel occupancy reached 90.8 percent during the Christmas period, between December 23 and 26.

“Most of the recovery,” said Lee, “was generated by the so-called mass market, made up of small bettors who do not use credit from casino operators. A segment that is very close to 2019 values,” added the analyst.

Gaming revenues in Macau will remain below pre-pandemic peaks in 2024, predicted Lee, who argued that this “would not be politically acceptable” for China’s Central Government, from which the vast majority of gamblers originate.

“There is a deliberate strategy to limit both exposure [of Chinese tourists] to casino gambling abroad and potentially the outflow of capital from China,” says the analyst.

Lee admits that the mass market “can grow by another 10 or 15 percent annually,” but lamented that “the potential growth is strangled by Macau’s infrastructure.”

“We are seeing today the same thing as in 2013 and 2019: very high hotel occupancy, followed by very high accommodation costs and, more importantly, a lack of public or private transportation for tourists to move around in Macau,” says Lee.

On the other hand, the analyst mentions that the city may give up on hoping for the return of high rollers to VIP baccarat tables, which before the pandemic represented almost half of all gaming revenues but was reduced to a share of 24.1 percent in the third quarter of 2023.

Lee recalls that the Legislative Assembly is considering a government bill that will prevent VIP betting promoters from granting credit to players.

Without that, “which is basically the reason why ‘junkets’ exist,” Lee says that Macau will end up following Singapore’s model, where this type of company disappeared.

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