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By Muhammad Cohen
Bet on the future
Bad news about growth in VIP gaming revenue may really be good
news for casinos, investors and the government
Observers unnerved by slowing
growth in gaming revenue may be
missing the point - the biggest
shift in the market since the
opening of the Venetian Macao,
has begun.
These changes will almost certainly result in
greater profits for casinos and may ease the
concerns of the governments here and in
Beijing about overdependence on VIP gaming.
This year’s gross gaming revenue figures tell a
tale of two markets. While year-on-year monthly
growth in VIP gaming revenue has fallen to
single digits and even into negative territory at
times, growth in mass-market gaming revenue is
powering ahead at an annual rate of more than
20 percent. These trends are forecast to
continue until the first half of next year.
With VIP revenue accounting for more than
70 percent of gross gaming revenue, the
slowdown has eroded the confidence of
investors. The sluggish ramp-up of Sands China
Ltd’s Sands Cotai Central, which opened its
second phase last month, has added to the
worries. Amid the decelerating growth, all six
casino operators are embarking on new
multibillion-dollar casino projects or are
expecting to do so within the next 12 months,
giving investors further reason to be nervous.
But instead of being anxious about any
slowdown or drop in VIP revenue and gross
gaming revenue, investors should be cheering
the rise of the mass market. “Macau casinos
can continue to experience solid profit
growth on the strength of the mass-market
customer, even if VIP revenue remains soft,”
says Grant Govertsen of research firm Union
Gaming Group.
“The key is that for every dollar of massmarket
gaming revenue generated by a casino
in Macau, roughly 40
cents drops to the
bottom line as profit.
This compares to just
10 cents of every
dollar for VIP, meaning
that mass-market play
is four times as
profitable as VIP. With
this in mind, it can be
calculated that more
profits are already
generated from the
mass-market segment,
even though it has
typically accounted for
just 30 percent or fewer of the gaming
revenue dollars.”
Steady expansion
Skyrocketing VIP play has masked massmarket
growth in recent years. VIP revenue
grew by 70 percent in 2010 and by 45 percent
last year, pushing mass-market revenue below
30 percent of gross gaming revenue for the first
time since 2004.
But while VIP revenue exploded before
slowing this year, mass-market revenue kept
expanding steadily.
“In fact, mass-market revenues have grown 30
percent or better over the last 11 quarters,” Mr
Govertsen says. “So the growth rate has been
stable, even though the base of revenues has
become much larger. The VIP slowdown has
certainly made the strength in [the] mass
market more noticeable.”
As mass-market play comes to form a larger
piece of the gaming revenue pie, casino profits
can rise, even if gross gaming revenue falls.
Moreover, the shift to the mass market will
probably boost non-gaming revenue and
18 NOVEMBER 2012