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[email protected] Is Mass Headed South Too? M acau made the record books in October. The market’s fifth straight month of declining year-on-year revenue was the worst on a percentage basis since they began keeping track in 2005. VIP was the main culprit, but that was expected. It’s been down against 2013 every month since May. Investors, however, weren’t looking for the mass market to come up short. But it did. For the first time this year. Why? No one knows really. How share prices will react was an unknown as well as this went to press. Certainly the comps are getting tougher, and the consensus among analysts is that things will continue to look bad heading into 2015. Last spring was one of the market’s best ever. February, fueled by Chinese New Year, produced a record $4.8 billion, a 40% increase over the same month in 2012. Last month, the 35 casinos took in MOP28 billion (US$3.5 billion), down 23.7% against a $4.6 billion month in October 2013 that was up 31.7% over 2012. In absolute terms the month was “broadly in line” with the revenue range from June to August, as brokerage Union Gaming Research Macau duly noted. And revenue was almost 10% higher sequentially compared with September, which represented a low in absolute dollar terms at MOP25.2 billion. Likewise, rolling chip volume, which measures the amount of junket-backed VIP play, was higher than September’s by 16%. Revenue year-on-year fell by more than 30%, but so it’s been for the last six months, and it wasn’t helped either by last October’s outsized performance, which remains the industry’s second-best monthly haul on record. What we know is that the Communist Party’s nationwide crackdown on corruption and capital flight is wreaking havoc with the high end—historically the lion’s share of Macau’s world-leading revenues—and this is being aggravated by declining property prices in mainland China, where economic growth is slowing generally and making credit harder for the junkets to come by. What’s surprising is how cash play also appears to be feeling the effects. Mass-market growth has been slowing since mid-summer compared with the spring’s triple-digit beats. It fell into the red in October by 8%, and who remembers the last time that’s happened? Yes, the tough 2013 comp was a factor. The crackdown launched earlier this year on abuses in China’s third-country visa system is taking a toll as well, cutting the frequency of visits. It’s also become harder to exploit the popular state-run UnionPay debit card system to evade the government’s tight daily limits on yuan exports. But there are a few wild cards to consider. Some casinos have responded to the floor- wide smoking ban that took effect last month by moving their “premium mass” players, as the sector’s high rollers are known, into makeshift “VIP” rooms. (VIP is exempt from the ban.) Hong Kong’s Occupy Central protests have to be taken into account too. It’s been well- documented that visits to the city from the mainland were firewalled to limit public exposure to the pro-democracy demonstrations. Many mainlanders bundle their travel to include both Hong Kong and Macau. It may be interesting finally to speculate whether the capacity constraints decreed by the government’s annual cap on new table games isn’t nudging the market toward that tipping point where price begins to deflect demand. After all, it’s not like people haven’t been coming. Through September, total visitation for the year is up 7%. Visits under China’s Individual Visit Scheme are up more than 18%. October’s numbers weren’t out as of this writing, so the full impact of Occupy Central isn’t known, but given that visitor spend is also up across major categories such as shopping and hotel rooms, could it be that people simply are not gambling, or they’re gambling less? Or maybe it’s just the big spenders staying away? And big spenders they must be, too, because minimum bets now exceed HK$2,000 on average, according to research by investment bank CLSA. That’s more than US$250 a pop. CLSA says the number of tables accepting minimums under HK$500 has dwindled to practically zero, and fewer than 15% are accepting less than $1,000. “Trees do not grow in the sky and going forward it should be very difficult to increase minimum bet further,” the bank said. Credit Suisse analysts Kenneth Fong and Isis Wong raise the possibility that the mass market drop could trigger a further sell-off in the shares of the six operators, which have taken a beating in the second half, as we’re all aware. “As the mass revenue starts dipping into the negative growth territory,” they said, “we may see more earnings downgrades.”