Is the Mass-Market Shift Working in Macao’s Casinos’ Favor?
Shift to the mass market
The Macao government has been trying to remove its economy’s dependence on the casino industry and develop its tourism industry.
Thus, casinos have been encouraged to focus their attentions on building attractions that will attract the broader public. This segment is called the mass market segment.
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However, the recovery seen in the past six months has been led by VIP rollers returning to the table. According to Macao’s Gaming Inspection and Coordination Bureau (or DICJ), the VIP segment’s revenue has risen 13% year-over-year (or YoY), and the mass market segment’s revenue has risen 7% YoY, leading to total revenue growth of 10% YoY.
The data are backed by company results. Wynn Macao (WYNN), whose new casino depends more on the VIP segment, has seen higher profit growth than Las Vegas Sands (LVS), whose new casino depends more on the mass market segment.
However, companies’ financial reports tell different stories. Macao casinos have resorted to reclassifying some VIP tables as premium mass tables. Thus, Union Gaming expects the companies’ data to show VIP segment growth of 7% YoY and mass segment growth of 13% YoY.
VIP recovery is temporary
The VIP segment’s recovery has resulted from China’s worry about capital flight, which has led to a crackdown on illegal money transfers out of China, leading to loosening credit. China’s stimulus package has helped it to improve liquidity. The arrest of Australia’s Crown Resorts employees has also driven VIP businesses back to junket operators, as direct VIP gaming is perceived to carry higher risk, leading to gains in VIP segment revenue.
However, the government has been clear in its narrative of improving tourism and mass market–led recovery. In 4Q16, the mass market segment formed 54% of revenue, the majority of the region’s revenue share for the sixth consecutive quarter. Wynn Palace is also trying to shift to the mass market by adding casual tourist attractions. Sands China’s (LVS) 43% YoY growth in room nights sold also points toward the tourism industry’s gaining hold.
Analysts expect mass-market recovery to be the long-term story, and they expect revenue growth to double to ~13% in 2017.
Investors who want to avoid the risk of investing in a single casino company such as Sands China, Melco Crown (MPEL), Wynn Macao (WYNN), or MGM China (MGM) may want to invest in ETFs that focus on casino stocks. These include the VanEck Vectors Gaming ETF (BJK) and the Consumer Discretionary Select Sector SPDR ETF (XLY).
We’ll discuss the Cotai Strip’s recovery through its new integrated resorts in our next article.