Vegas Big 3 Continue to Battle for Macau Market Share

After more than two years of doldrums, the Macau gaming market is seeing a significant rise in both demand and supply. But while the pie is still large enough for all of the big hitters to get their slice, things are getting a bit crowded on both the Macau and Cotai peninsulas.

As the junket business continues to wane and players become more responsive to quality and experience, the arms race rages on among Las Vegas Sands, Wynn, MGM, and their local competitors like Melco Resorts and Neptune. Each casino is seeking to attract both highly sought-after VIPs and premium mass Chinese gamblers.

The 2016 openings of Wynn Palace and The Parisian have proven to be well-timed for Wynn and Sands, providing them with fresh product at the same time that the market began its resurgence. These Cotai properties have helped their operators to continue to capitalize on their targeted customers in the second quarter – drawing in the high-end VIP players and successfully leveraging the mass and premium mass segments, respectively. “The high end continues to show up at the Wynn properties, with Wynn Macau/ Encore taking share on the peninsula and Wynn Palace still ramping on Cotai,” wrote Grant Govertsen, an analyst with Union Gaming.

Despite ongoing logistical and property access issues due to nearby construction, Wynn Palace still generated $414.7 million in revenue for the second quarter. Wynn Macau picked up the extra slack with a $682.7 million haul, up nearly 7 percent year-over-year.

“Wynn Macau/ Encore continues to perform very well, with notable growth in VIP and slots, and only a modest decline in mass tables,” said Govertsen. “Ultimately, we believe the buzz of activity on the peninsula, with Wynn in the middle and capturing above its fair share, continues to drive results. This is what needs to be replicated on the east side of Cotai over time.”

Sands is not capturing VIP guests with the same flair as Wynn, but it has found a way to drive revenue and EBITDA growth by leveraging the mass and premium mass markets. “Despite new supply in the market and despite certain competitors gaining significant traction in the mass market segment, [Sands] continues to capture above-market mass growth,” wrote Govertsen, noting that Sands’ premium mass revenues were up 39 percent while the overall market grew just 11 percent. It was the fourth consecutive quarter that Sands has outpaced the market in premium mass.

John DeCree, also of Union Gaming, reckons that mass tables comprise roughly 50 percent of the company’s Macau’s profitability, slots make up 8 percent, and malls and hotels check in at 30 percent – leaving the VIP segment at around 12 percent.

This premium mass-heavy positioning affords Sands a strong buffer against another VIP slowdown, the potential for which can never be discounted in a Chinese operating environment. “At the end of the day, several truths remain undeniable. Notably, Las Vegas Sands possesses unrivaled scale within the world’s most attractive gaming market,” wrote Steven M. Wieczynski, an analyst with Stifel. “Furthermore, the company is best positioned to capture a disproportionate share of Macau’s growing mass market, the segment of the business that presents a superior long range growth trajectory, in our view.”

MGM, whose Cotai property is supposed to come online later this year, still remains somewhat squeezed in the middle of Wynn and Sands – in search of an identity while its competitors continue to scale up. MGM Macau lost both mass and VIP share during the quarter to both the Cotai Peninsula and nearby competitors like Wynn and Melco Resorts.

“Simply put, MGM China needs new hardware in order to compete with a much more discerning customer set that, more than ever, are calling their own shots,” wrote Govertsen. “As a result, we’re seeing VIP customers generally flocking to either the newest product or newly built spaces within existing properties – hence some of MGM’s neighbors’ outperformance on the peninsula.”

This means that for MGM, all hands are on deck when it comes to rolling out MGM Cotai with enough bang to not only thrust it ahead of the competition but make up for the time lost to due various delays in the property’s launch. “MGM Cotai will be a game-changer for the company, but until then we don’t expect the company’s peninsula property to notably participate in the ongoing market recovery,” wrote Govertsen.

The kicker, as it always is in Macau, is the extent to which the Chinese government tightens or loosens the dials of its anti-graft campaign. That campaign throttles VIP visits to casinos; it led to the aforementioned two-plus years of plummeting gross gaming revenue. “[H]aving lived through this type of resurgence in VIP play before, we expect to see a high degree of skepticism and questioning with regard to the sustainability of the recent acceleration in VIP gaming volumes,” wrote Wieczynski.

“Using history as an indicator, we would not be surprised to see some type of “cooling off” initiated by the Mainland government in the not too distant future, as it looks to remind everyone who is boss and reign in VIP growth metrics,” Wieczynski concluded.