Overview of Macao’s casino industry

The casino industry in Macao witnessed its 13th straight month of falling revenue in June 2015. For June, the revenue fell by about 36% YoY (year-over-year) to stand at $2.17 billion. This comes after an uninterrupted five years of growth in the gambling market in the Chinese territory. Since the tourism and gambling industry is the backbone of the of the Macao government, the continuous fall in the revenue is concerning.

Macao’s Gambling Revenue Continued to Fall in June 2015

Reason for the falling revenue

Macao is rated as one of the top tourism destinations. The popularity of the casinos there make it one of the highest-volume gambling centers in the world. However, last year the Chinese government put a restriction on the use of China UnionPay debit cards in all of the casinos across Macao. This was done to curb an illegal flow of money and to tighten the scrutiny of agents used by junket operators.

“Junkets” are trips arranged by casinos for VIP customers. Depending on the player, the casino pays for all or part of the VIP customer’s travel and accommodation costs in return for the player gambling at the casino during their stay. Junket operators act as facilitators for the casinos. They lure gamblers with the casinos’ perks. This ban led to a fall in the number of VIPs that had flooded the casinos in the past.

The recent news of the implementation of a stricter no smoking law in the coming quarters is also expected to hurt the industry since most casinos in Macao have smoking lounges on their main casino floors. The implementation of a full smoking ban in the VIP lounges would further hurt the VIP revenue.

Key players and revenue sources

Macao is home to the leading casino companies from the US like Las Vegas Sands (LVS), Wynn Resorts (WYNN), and MGM Resorts (MGM). It’s also home to many other local players like Melco Crown Entertainment (MPEL), Galaxy Entertainment, and SJM Holdings. For these companies, the prime revenue comes from the gambling games. The rest of the revenue comes from tourist accommodations and services.

Investors can gain exposure to casino stocks by investing in the VanEck Vectors Gaming ETF (BJK). It tracks casino companies’ performance. It has the highest holding in Las Vegas Sands. Las Vegas Sands forms ~8.6% of BJK. Investors can also invest in the Consumer Discretionary Select Sector SPDR Fund (XLY). It holds ~1% in casino stocks.

The casino industry is affected by economic conditions, consumer confidence, and spending. In this series, we’ll look at the various factors that influence the Macao casino gambling market.

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