MASS TO TAKE THE LEAD IN MACAU

2014/10/22

From：Macau Business Daily

It’s just a matter of months. For the first time, mass market revenues are set to overtake those of VIP in Macau. In six months, the mass share in total revenues has jumped from 35 to 44 percent. The high rollers market may be permanently becalmed, analysts tell Business Daily

For years it’s been like this: The mass market is three to four times more profitable than VIP but it’s the high rollers who move the real money in Macau, given they account for three quarters of all gaming revenues. If the former is still true, the latter is past.
The Macau gaming industry is becoming a mass market destination faster than expected and the new flow of casino openings starting in 2015 will boost this trend even further, analysts told Business Daily. In some areas like Cotai, mass is already a whisker away from being the dominant segment.
In the third quarter of this year, the share of mass market of total gaming revenues in Macau reached an all-time high of 44 percent versus 56 percent from VIP. For the first time, revenues generated on the mass floors are nudging the 50 percent mark, with Macau weaning itself off its dependence upon high rollers. In the first quarter of the year, the mass market share of total gaming revenues in Macau was only 35 percent. In six months, the segment has grown by 10 percentage points, an historic growth rate. It will only be a matter of time before the mass segment takes the lead in the Macau gaming sector.
“Over the next several months, it’s certainly going to continue to drift towards the 50 percent mark and we see the flip occurring with the opening of capacity over the next two years”, analyst Christopher Jones of the Telsey Advisory Group told Business Daily.
In reality, in Cotai the mix of VIP and mass is currently already a 50/50 business. In September, the mass share in total revenues there was 47.5 percent and in the third quarter 46 percent, Jones said.

The Big Boost

The opening of six new mega casinos in Cotai between 2015 and 2018 will double the capacity of tables and accommodation in Macau. But it will also benefit the growth of the mass segment. “We think Cotai is a large boost for the long-term growth of mass market”, Grant Govertson, an analyst with Union Gaming told this paper.
The current and future growth of the mass market in Macau is driven by a host of reasons. Telsey, for example, notes that “the rise of Cotai has not been at the hand of VIPs.  Rather it’s been at the hand of premium mass and mass market customers, looking for variety in their experiences beyond gaming”. In addition, says Grant Govertson, the trend is even viewed with some satisfaction by Beijing: “Ultimately, we believe Beijing wants Macau to have a great deal of mass market appeal and wants Macau to become the entertainment destination for all Chinese people – not just VIPs”
The fast rise of the mass segment in recent months has also been boosted because casino operators are starting to move high-roller tables to mass premium in search of more profitability. But it’s uncertain if this is a winning strategy. As Mr. Jones of Telsey puts it: “The greatest uncertainty around gaming in Macau is likely the structure of premium mass”. The brokerage believes that if margins in mass premium continue to be pressured and profitability declines then this table shifting between VIP and mass could be reversed. And if mass core becomes the area of big profits, then “maybe the trend over the coming years will be the shift to just mass market tables”, the analysts added.

Never-ending fall

The big question now dividing investors is when – or if – the VIP market will recover in Macau. Telsey tells Business Daily that high-rollers will continue under pressure well into 2015. But it could me a more structural change. “VIP won’t have a resurgence but will continue to consolidate. We don’t believe that VIP will ever fully leave Macau but question if the VIP market will every really grow again”.
For Union Gaming, a VIP recovery is a likely scenario. The brokerage predicts that if high-roller segment recover quickly then the mass share in total revenues in Macau could drag again to 35 percent, like a year ago. If this happens, then it’s time do the maths again: “We think it could take until the time of licence expirations in 2022 before mass market accounts for 50 percent of total gaming revenue”.
For both analysts, with Macau gaming industry turning to mass, Sands China is the operator best placed to profit as it has the largest exposure to the segment. Galaxy and Melco Crown (with its upcoming Studio City) are also likely to be winners in this new race.

Copyright@Macau Business Daily