Inside Asian Gaming

October 2014 inside asian gaming 9 that drop was around $31 billion. Not all of this could have come at Macau’s expense, of course. But if we assume 50% was play out of China—which is probably conservative, approximately in line, however, with Wynn’s information noted above—that’s $15.5 billion that wasn’t gambled in Macau, or anywhere else for that matter. There are, after all, only so many whales in the sea when it comes to committing to the Hong Kong dollar equivalent of the 5 million or 10 million yuan buy-in needed to qualify for a flutter at a private table in Macau. (If Calvin Ayre ’s Rafi Farber has it right, and he’s an insightful observer of the Asian gaming scene, 22% of Melco Crown’s first-half revenue was derived from all of five players.) ‘FAMILY’ MEN Macau has seen VIP slowdowns before. Revenue even fell once year on year, in 2005, when it dipped 3%. Growth plummeted from 32% in 2008 to 8% in 2009 when the financial crisis hit. In 2012, it grew only 7.5% (it was up 44.6% the year before) at a time when China’s leadership was changing hands, a once-in-a-decade event, and the fallout from the Bo Xilai scandal was still fresh. In each of these cases the broad assumption was that if China’s high rollers weren’t coming to Macau they weren’t gambling. This time might be different. The VIPs and their bankers, the junkets, are fixed in the sights of a central government wrestling with endemic corruption in high places and a shaky financial system that’s feeling the heat from falling property prices—they’ve dropped more than 10% this year; they fell in August in 68 of the country’s 79 most-watched cities, the highest number on record—and an expected softening of GDP this year and next. The government isn’t resorting to the printing press either, preferring to keep a rein on money supply to allow the economy to adjust moderately downward; and so credit is tightening, which directly impacts access to capital for the junkets at a time when players are feeling less wealthy and moving slower to repay their markers. The plague of capital flight, estimates of which have ranged in excess of US$200 billion a year, has spilled onto the junkets as well. It’s a lot of money, $45 billion, not counting all the off-the-books side-betting going on, which some observers believe to be at least equal to that, and the junkets and their agents and associates and investors are under greater scrutiny than ever, according to some reports. They’re being squeezed at the other end too. Casinos in some instances are exploiting the situation to reduce their influence, ratcheting up terms and demanding greater levels of disclosure while simultaneously moving more tables out of VIP to cater to their higher- margin cash players, a far more profitable business for them in an operating environment where the supply of new tables is capped by law at 3% a year. The impacts are being felt in the mass market, where growth has slowed by half since the first quarter. Indications are that higher-limit cash players are becoming more cautious. The transit visa system has ChinA – Property Sales Growth Source: CEIC, DICJ, Morgan Stanley Research Tony Fung is confident his A$8 billion Aquis at the Great Barrier Reef will be “an easy sell”. “You see, if you go to Macau your colleagues think you are a gambler. If you go to Singapore they think you are a gambler. But if you say you are going to Cairns and the Great Barrier Reef, then you are still a family man.” Asian VIP Markets 1H14 Growth – Macau is Lagging Note: Junket VIP roll for Macau Source: Company Data, Morgan Stanley Research Cover Story