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Why Macau’s gambling revenue halved in February 2015

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Gaming slowdown

According to the Gaming Inspection and Coordination Bureau (or DICJ), Macau’s gambling revenues in February 2015 plummeted a record 48.6% year-over-year (or YoY) to 19.5 billion Macanese pataca, or MOP ($2.4 billion). This is the ninth consecutive monthly decline in Macau gambling revenues.

In 2014, gambling revenue in Macau fell 2.6% to 352 billion MOP ($44 billion). Macau casinos contributed over 80% of the government’s annual revenue last year.

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Government regulation

The Macau government’s restriction on the use of China UnionPay Co.’s debit cards at casinos to curb illegal money flow, as well as the tightening scrutiny of agents used by junket operators, could have triggered February’s severe drop in gambling revenues.

Moreover, China President Xi Jinping’s anti-corruption campaign has deterred VIP gamblers from visiting Macau casinos. Xi urged the city to diversify its economy and transform into a global tourism and leisure center.

Union Gaming Research analyst Grant Govertsen noted, “There were numerous contributing factors, although we believe the biggest culprit for the weak month was the already-troubled VIP segment.”

Revenue sources

Major US-based casino operators that derive a significant portion of their revenue from Macau include Las Vegas Sands (LVS), Wynn Resorts (WYNN), and MGM Resorts (MGM). Other Macau-based casino operators include Melco Crown Entertainment (MPEL), SJM Holdings, and Galaxy Entertainment. These casino operators are currently developing their new casino resorts in the Cotai region in Macau. Macau’s gambling revenue is expected to keep declining until mid-2015, when casino operators start opening new properties.

The Consumer Discretionary Select Sector SPDR Fund (XLY) ETF helps investors gain access to the leisure industry.

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Mass market could fuel growth

On a per-head basis, mass market customers spend much less when compared to VIPs. However, the mass market customers give rise to better margins for casino companies, while VIP customers help in generating significant revenues for the casino operators.

Due to the growth in the Chinese middle class, Macau’s mass market segment could drive growth for the casino resorts under development in Macau’s Cotai region.

Series overview

Representing a highly discretionary portion of consumer spending, the casino industry is exposed to changes in economic conditions and consumer confidence. In this series, we’ll discuss the primary and secondary indicators that influence the Macau casino gambling market.

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