Gross gaming revenue continues to decline

After witnessing a decade of exceptional growth in revenues, the Macao casino industry is going through its worst fall with July marking 14 straight months of declining gaming revenues in the region. The gross revenues fell by 38.8%, 37.2%, 36.2%, and 34.5% in the months of April, May, June, and July, respectively.

Gross Gaming Revenue and Revenue per Visitor Continue to Decline

Macao’s six biggest casino operators, which include casino giants such as Sands China (LVS), Galaxy Entertainment, Melco Crown Entertainment (MPEL), MGM Resorts (MGM), and Wynn Macao (WYNN), have been the hub for high rolling gamblers in the city and have seen their earnings fall by about 40% in the first half of the year. The companies face further pressure as $20 billion worth of new casinos and entertainment facilities are in line to be opened by next year amid the gloomy market conditions.

A good way to gain access to these companies is to invest in funds like the VanEck Vectors Gaming ETF (BJK). For a broader exposure, investors can invest in the Consumer Discretionary Select Sector SPDR Fund (XLY). BJK has ~25% exposure to these companies, while XLY has ~1% exposure.

Revenue per visitor also declines

Revenue per visitor had risen by 6% in May 2015 as compared to April 2015. However, it slid down to 967 Macanese patacas in June 2015. However, month-over-month comparisons can be deceptive. On a year-over-year basis, revenue per visitor continues to fall. It fell by 31% in June 2015, 38% in May 2015, 37% in April 2015, and 30% in March 2015.

Tighter regulations dampen performance

The Chinese President, Xi Jinping, has undertaken strict measures to tighten the regulation and supervision measures for Macao’s gambling industry, which accounts for about 80% of its revenues. The crackdown has led to a fall in the number of wealthy visitors to the area, leading to a decline in the number of junket operators in the region. The area also saw a fall in employment numbers with the total number of gaming and junket jobs shrinking by 800 in the second quarter of the year.

Declining VIP visitors are the main reason for the fall in Macao casino revenues. Most casinos are therefore trying to shift their focus to mass market gambling.

Weak currency woes

Apart from the crackdown on illegal gambling, devaluation of the Hong Kong dollar also adds to the challenges the industry faces. This is because bets are placed in Hong Kong dollars and not Chinese yuan, and the Hong Kong dollar’s value has dropped by 3% since the surprise devaluation announced by the central bank recently. The move in the currency value is expected to have quite a substantial effect on the revenues on both the mass gross gaming and VIP segments.

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