It’s not just growing hostilities stemming from the trade war between the U.S. and China over tariffs that could further depress Macau’s gaming results. Competition from other Asian markets, including the expanding casino presence in Russia’s port city of Vladivostok on the Sea of Japan, are syphoning away high-end customers.
This is not good news for Las Vegas Sands Corp., MGM Resorts International, and Wynn Resorts, the three Nevada-based operators that count on Macau for a good portion of their monthly revenue stream.
Grant Govertsen, Union Gaming Group
Union Gaming Group analysts pointed out the increasingly dire concerns this week.
“The threat is real. Clearly, there is a growing realization that Macau VIP play is bleeding to regional markets,” said analyst Grant Govertsen, who has been based in Macau for more than a decade. He suggested history has shown that high-end Macau customers tend to give new regional casinos a whirl or two before ultimately heading back to familiar grounds.
“We think this time is different,” Govertsen warned.
A day later, Las Vegas-based Union Gaming Group analyst John DeCree lowered his estimates for both Wynn and Las Vegas Sands, which draw between 65 percent and 70 percent of their quarterly results from Macau.
DeCree said Macau’s 35 percent gaming tax rate “is simply not competitive” with other Asian markets, such as Cambodia, the Philippines and Vietnam.
“It should be no surprise that VIP junkets are chasing higher commissions in non-Macau jurisdictions, especially when properties in these markets have become increasingly competitive and higher quality,” DeCree wrote.
Analysts haven’t yet blamed any trade war fallout for the lowered expectations from Macau. The South China Morning Post, however, reported last week the International Monetary Fund was worried the trade war “has the potential to drag Macau growth below (the fund’s) medium-term projection of about 4 percent.” Earlier this month, the fund projected Macau’s economy would grow 4.3 percent this year, down from 4.7 percent growth last year.
So far, Macau’s gaming revenue is down 2.4 percent through the year’s first four months, including April’s 8.3 percent drop that was the largest single-month decline in almost three years.
Nonetheless, both Las Vegas Sands and Wynn remain bullish on Macau.
Venetian Macau
Las Vegas Sands will spend more than $2 billion in Macau over the next two years, primarily on the renovation, expansion, and rebranding of its Sands Cotai Central complex into The Londoner Macau, a $1.35 billion London-themed resort first announced in 2017. The company is also spending $400 million for the 370-suite St. Regis Tower Suites, and $450 million for the 290-suite Four Seasons Tower Suites. Both are expected to be completed by the first quarter of 2020.
On Wynn Resorts’ first quarter earnings call this month, CEO Matt Maddox said the “choppiness” of high-end play had been replaced by a 13 percent increase in mass market customers.
The company plans to spend an undisclosed amount to create two non-gaming hotels on a seven-acre site near Wynn Palace Cotai, as well as Crystal Pavilion, a large glass structure that currently calls for non-gaming facilities such as a “fully immersive” theater offering regular shows.
Still, the loss of high-end play concerns the investment community.
“Given that regional properties are significantly more attractive than ever before and that access to these markets is improving by the day, Macau is likely to bleed VIP market share until such time as the government brings the tax rate closer to parity,” Govertsen said.
On Monday, Govertsen estimated the pipeline of new gaming development in Asian markets, including Macau, exceeds $65 billion. However, roughly one-third of that total – $21 billion – is targeted for Japan.
“We think, for the first time in Asia, the amount of new supply is simply too much over too short a period of time,” Govertsen said. “We’d prefer to see this amount of capital spread out over 15 years rather than five-plus years.”
The gaming concessions granted by Macau to casino operators expire in 2022. Most analysts believe the six companies involved – including Las Vegas Sands, MGM and Wynn – will gain renewal once government officials put the concession process up for bid. However, without a formal procedure in place, the potential final outcome remains ambiguous.
Coupled with the trade tensions between Washington and Beijing and a general slowing of China’s economy, there is an uncertain future in Macau.
Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgamingreports.com. Follow @howardstutz on Twitter.
