Macau facing first-ever annual gaming revenue dip

Macau is poised for its first-ever yearly gaming revenue decline following the market’s 19.6 percent nose dive in November.

The Macau casino industry recorded its sixth straight gaming revenue drop during the month, the longest downward stretch in more than five years.

Analysts are predicting another double-digit drop in December, sending gaming revenue down as much as 2 percent for all of 2014. As a market, Macau has never experienced an annual gaming revenue decrease.

“November has come in a little below our baseline and we would expect December to be roughly similar,” said Union Gaming Group Managing Director Grant Govertsen, who is based in Macau.

November’s results — $3.04 billion in gaming revenue — followed October’s 23.2 percent decline, the largest single-month drop since American-owned casinos began operating in the Chinese enclave in 2004.

The Macau Gaming Inspection and Coordination Bureau has been reporting revenue results since 2002 when the market had 11 casinos and collected $2.7 billion from gamblers.

Macau’s 35 casinos collected a record $45.2 billion in gaming revenue in 2013, a figure that analysts said will be hard to match this year.

November marked the third straight double-digit gaming revenue decline in Macau. The market also produced a single-month record $4.8 billion in February, fueled by the Chinese New Year holiday.

November’s $3 billion mark is almost half of the Strip’s $6.5 billion in gaming revenue collected in all of 2013.

Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski thought the bad news coming out of Macau would have little impact on the stock prices of MGM Resorts International, Las Vegas Sands Corp. and Wynn Resorts — the American companies operating in the market.

Las Vegas Sands is building the $2.7 billion Parisian development on Macau’s Cotai Strip. Wynn Resorts is building the $4 billion Wynn Palace on Cotai, while MGM Resorts is building the $2.9 billion MGM Cotai. All three projects are expected to open in 2016.

“At this point, we believe most investors are starting to look to 2015 and beyond when evaluating Macau operators’ shares,” Wieczynski said. “While we are not comfortable declaring shares have reached a near-term bottom, we remain confident on Macau as the calendar approaches 2015.”

Analysts are expecting Macau’s downward trend to continue into 2015 as high rollers ditch the market.

“Given the timing of Chinese New Year this year — February 19 versus January 31 — we would expect total gross gaming revenue in January 2015 to be much like the final months of 2014, down 13 percent to 17 percent,” Govertsen said.

The Chinese government has been cracking down on corruption which is hurting the junkets that bring high-end customers into the casinos. International law enforcement has long suspected the junkets are influenced by organized crime triads.

China President Xi Jinping is expected to visit Macau this month, which may also affect high-end visitation. The Chinese president will mark the inauguration ceremony for the re-elected Macau chief executive and other top officials. He will also participate in ceremonies marking the 15th anniversary of the handover of Macau from Portugal.

Sterne Agee gaming analyst David Bain thought the president’s visit would have positive long-term implications for Macau.

“We believe there will be a positive psychological impact to VIP and premium mass players,” Bain said. “They may see the president more or less endorsing Macau by his visit, calming certain fears connecting Macau to the anti-corruption campaign.”

The crackdown has been just one factor slowing Macau’s gaming growth. Other issues include political unrest and pro-democracy demonstrations in Hong Kong, economic concerns, and visa restrictions that curtailed visitation by mainland Chinese citizens.

Analysts said the effect of a smoking ban implemented on mass market gaming floors last month has been negligible.

“We believe a majority of this softness is related to tighter domestic liquidity as total credit growth in China has contracted significantly since its mid-2013 peak,” said Wells Fargo Securities gaming analyst Cameron McKnight.

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871. Find him on Twitter: @howardstutz.

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