IAG March 2015 - page 7

Cover Story
as themassmarket supplants the once-dominant VIP segment and
Chinese tourists become more discerning in their choice of travel
In2014,Macauwitnessed its first year-on-year decline ingaming
revenue since the arrival of foreign-operated casinos a decade ago.
A dramatic fall-off in VIP play was the main cause. Historically the
source of two-thirds ofMacau’sworld-leading gaming take, the high
endwas pummeled by slowing growth in the Chinese economy and
an intensive crackdown by the central government on corruption,
graft and capital flight. Analysts expect an even greater percentage
decline this year.
As Mr Ho put it, “It’s time to rebalance” the market from its
relianceonVIP revenue.
“As a company, we love themass segment; the customer baseof
ours isamuchhighermarginbusiness,”hesaid. “With the riseof the
middle class inChina and their consumption, that’s really the future
ofMacau and all gamingmarkets.”
The market has actually been rebalancing gradually toward the
mass market since the end of 2011. VIP baccarat’s share of total
Macau gaming revenue peaked at 74% in the second and third
quarters of that year, and has been declining ever since, with its
growth consistently outstrippedby that of themassmarket.
Yet themassmarket also began to falter towards the end of last
year, with mass table revenue falling 16% year on year in the fourth
quarter. Mass revenue was up 16% in the third quarter of 2014, and
prior to thathadenjoyedanunbroken runofgrowth ranging from29%
to42% every quarter since the beginningof 2011. VIP’s decline began
earlier and ismuchmorepronounced, with the 29% fall in revenue in
the fourthquartermarking the third-straight quarterlydecline.
There were several well-documented causes for the decline in
massmarket revenue. A total smoking ban came into effect on all
of Macau’s main-floor gaming areas in October 2014, resulting in
a 10-15% reduction in mass revenue, estimates Deutsche Bank’s
Karen Tang. (The total ban superseded a 2013 requirement that
50% of the floor space at every casino be designated non-smoking
areas). In response to the ban, casinos have reclassified some
of their premiummass areas as VIP in order to allow players to
continue smoking. Consequently, some of the reported decline in
mass revenue is actually a result of the reclassification, adjusting
for which, Credit Suisse analyst Kenneth Fong calculates thatmass
revenue actually only fell 10% in the fourth quarter, while VIP was
actually down 32%.
The crackdown on illegal UnionPay card transactions that
began in May last year has also adversely impacted mass
revenue, particularly at the premiummass end. The China state-
backed debit card had been widely used to circumvent China’s
stringent currency controls—a role performed by junkets in
the VIP segment—by mainlanders making bogus purchases in
Macau, usually at jewelry or pawn shops, and in lieu of goods
receiving the equivalent sum in cash minus a small commission
to the vendor. Karen Tang wrote last May that illegal UnionPay
transactions amounted to US$6 billion annually, equivalent to
12% of Macau’s mass-market chip sales. According to
’s sources, thoughmonitoring has been stepped up
and illegal UnionPay transactions have been curtailed, they have
not yet been completely wiped out. Thus, the full impact of the
There’smore to thenon-gaming
mantra than tableallocations, though.
Theoperatorshaverecognized their
businesseswill increasinglydepend
on the strengthof theirnon-gaming
offerings, as themassmarket
supplants theonce-dominantVIP
segmentandChinese touristsbecome
morediscerning in their choiceof
travel destination.
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