It is earnings season again and the casino reports from Macau are good. Wynn, Sands, MGM, SJM and Melco all reported double digit increases in revenues and profits for the first quarter. The total gaming win for the city was up 20.5 percent to $9.6 billion for the quarter; April was up 27.7 percent to $3.18 billion. The city is coming back from the disastrous and by now infamous crackdown on VIP gamblers. The dark hour in 2014 when Chinese President Xi began his crackdown on graft and corruption almost seems a dream as we near the fourth anniversary of that dire moment in June, 2014. However, there are still traces of its impact on the casino industry. While revenues have increased steadily for several years, the casinos generated $33 billion in 2017, 26.2 percent less than the $45 billion in 2013.
The casino industry in Macau may not be back to the all-time record revenue levels, but with monthly increases averaging over 20 percent this year, it would be difficult to find fault with the current state of affairs. Since 2014, Macau casino operators have invested over $15 billion dollars in building new resorts and updating the existing ones. Most of that investment was planned before the crackdown, but from today’s perspective one might think the resorts had been designed with Chinese President Xi Jinping’s long-term goals in mind. Besides ridding China of graft and corruption, Xi is intent on making China an economic world leader. As part of that plan, China is building a worldwide trade network Xi is calling the Belt and Road, sometimes called the New Silk Road; Macau has a role in that strategy. Xi does not want the city to be the gambling hub of Asia; he wants Macau to be a magnet for international tourism and foreign currency. The multi-billion-dollar resorts of Wynn, Sands, SJM and Melco built fit perfectly into that role. To demonstrate loyalty to Xi’s goal, casino operators are eager to re-spin the investment strategies as being designed for tourists traveling the New Silk Road.
Regardless of the original intent or the current narrative, the new mega-resorts are starting to have the impact Xi wants. SJM’s first quarter results illustrate a shift in revenue from VIP to mass-market gamblers. In the common definitions of the market, VIP gamblers are the hardcore, high rollers willing to bet millions of dollars on the turn of a card. The mass-market gamblers are causal players, tourists with a few bucks to spend gambling for entertainment. SJM reported $93.1 million in profits for the first quarter, a 25.8 increase. SJM’s revenue from VIP business decreased by 1.1 per cent amounting to $621.7 million and mass market gross gaming revenue grew 9.5 per cent to $731.3 million. The change in the amount of money being wagered is reflected in the game mix; in the first quarter, there were 284 VIP tables, 31 fewer than the previous quarter; while there were 1417 mass-market tables, an increase of 42 games.
SJM is not alone in the switch from VIP to more causal gamblers. The next casino to open is Melco’s Morpheus Tower, an addition to its City of Dreams. In another of those twists of irony in gambling circles in Macau, the CEO of Melco is Lawrence Ho, a son of Stanley Ho. SJM was founded by Stanley Ho and was the first legal casino operator in Macau. Ho and his partners invented the VIP and junket business in the city. Stanley Ho represents the history of Macau and Lawrence is its future. In Lawrence’s new tower there will not be any VIP table games. The Morpheus Tower instead will cater to tourists and casual gamblers. The main purpose of the new tower is not to add gaming, but to add rooms and other amenities, just the kind of thing to warm Xi’s heart. In general, quarterly earnings conference calls now focus much more on the other forms of revenue and the growing tourist segment of the business and downplay the VIP segment. Even though SJM reported more mass market than VIP for the entire market, VIP revenue is still the highest. It is and will remain very important to casino companies, but it will not get the attention in public it once did. The casino licenses in Macau are all coming up for review and renewal and pleasing the Chinese central government is going to be an important part of that process. The corporate narratives will certainly figure into the licensing equation.
The switch in revenue sources and narratives in Macau has been surprising, given the state of affairs just four years ago. China has a state-managed economy rather than a free market economy which means that what China wants, China gets. “Welcome to Macau your friendly stopover on the wondrous Silk Road.”
