Almost exactly a year ago in WiC133 we talked about gaming revenues in Macau as a warning signal for the Chinese economy at large. The premise was that casinos in the territory offer an escape route for ‘smart money’ to leave China. The lion’s share of the cash arriving in Macau flows through the junket operators, who host the wealthier, high roller gamblers. Some is then wagered at the tables. But the suspicion is that plenty of those chips (denominated in Hong Kong dollars) simply flow into banks offshore. That means that Macau’s revenues hint at how some of China’s wealthiest citizens (as well as more than a few of its corrupt bureaucrats) view the prospects for their own economy.
If so, December’s numbers sent a mixed message. Last month turned out to be Macau’s best ever, with revenues totalling $3.54 billion. That was a huge figure. Nevada recorded a gaming take of $980 million in October, the latest month for which figures are available. Macau’s December performance also took revenues to a new yearly high of $38 billion.
Is that enough to suggest a pick up in capital outflow? A contrary view is that Macau shows signs of a maturing market. For a start, revenue growth for the year slowed to 13.5%, compared to the 42% year-on-year surge in 2011. Of course, growth rates will inevitably slow on an increasingly large base. But some of the slackening seems due to less frenetic activity among VIP punters. It was mass market spend (i.e. wagers from more ordinary gamblers) that drove most of the overall increase.
How is the sector likely to do in the coming year? Analysts are generally cautious, talking about single digit revenue growth, with no new tables scheduled for introduction, and expectations of tighter financial controls on the VIP junkets.
Another wildcard for the forecasters was the introduction of new smoking restrictions on January 1, which ban cigarettes in half of Macau casinos’ floor area.
When casinos in America and Australia brought in similar bans, gaming revenues fell by an average of 12% in the following year and there are fears that the impact could be worse in Macau, where a much higher percentage of the punters like their nicotine fix.
But the anxiety looks a little overblown. Bosses are unlikely to apply the ban to the high rollers in the VIP rooms, which still provide a disproportionate share of business. This should translate into less dramatic revenue declines than those experienced in other markets.
That does mean that the public (or mass market) sections of the casinos are now much more likely to be smoke-free zones. Quite how Chinese gamblers will respond to the smoking ban remains to be seen, although WiC’s prediction is to expect incredulity, followed by wilful disobedience. Macau Business, a magazine, was soon reporting that 42 visitors had been fined for smoking in non-designated areas in the first 19 hours of the new regime (each paid the equivalent of $50). They won’t be the last…
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