Macau defied all expectations in 2017, with a spectacular comeback for VIP gaming despite China’s ongoing anti corruption campaign and a government push to develop the mass market.
Looking back over the year, the recovery in the sector was one of the biggest surprises in Asian gaming, with none of our experts predicting the extent of the rebound.
In 17Q3, the latest official figures available, VIP gross gaming revenue surged by 35 percent to about MOP38.69 billion ($4.55 billion), approaching 58 percent of all casino revenue. That’s up from 52.1 percent in the prior year. According to channel checks by analysts, the growth has continued into the fourth quarter.
The gains have far outstripped the mass market, which the government and operators have been trying to foster in their bid to transform the gambling hub into a diversified, family friendly tourism destination. The mass sector, which produces higher margins for operators, posted a respectable, but single digit gain of 7.4 percent.
After multiple analyses concluding the high rollers of latter year were a thing of the past, 2017’s recovery has left many scratching their head.
“Three developments surprised me in 2017. The biggest was the continuity and pace of revenue recovery in Macau,” said Sudhir Kale, founder of GamePlan Consultants. “President Xi Jinping’s anti-corruption campaign is still continuing, and the recovery within the VIP segment of the market is therefore all the more baffling.”
“The resilience shown by the Chinese junket business in all markets is indeed a surprise.”
Harmen Brenninkmeijer, managing partner of Dynamic Partners agreed: “We knew Macau would grow again but we did not predict this level of growth and definitely not within the VIP segment.”
Looking ahead to 2018, most analysts see continued VIP growth, albeit at a much slower pace as China’s economic growth moderates slightly and that’s not necessarily a good thing.
“Will it provoke a further crackdown by the PRC?”, asks David Green, CEO at Newpage Consulting. “Has anything changed materially in regard to the composition of casino revenues in Macau since 2014? I suspect the answer is no; what has changed is the influence of the junkets, and the VIP/Mass revenue mix, but we are nowhere near seeing revenue models that resemble those in markets such as Las Vegas.”
“Diversification remains elusive; bricks and mortar devoted to non-gaming won’t affect a change; the change must be driven by cultural adaptation and acceptance.”
Although the VIPs came flooding back to Macau’s glitzy IRs, there was another defining event this year, which highlighted the creaking state of infrastructure in one of the world’s richest places. Typhoon Hato, a category 10 storm, swept through in August, killing at least 10 and leaving much of Macau without power and water for days.
The operators swung into action, all donating funds and mounting major relief efforts, which are still ongoing. The storm left the government facing questions as to why Macau was so unprepared and why long-promised infrastructure improvements have still not been carried out.
Over in the Philippines, revenue growth was also strong as the properties in Entertainment City went from strength to strength, with Okada Manila ramping up operations throughout the course of the year. However, again here, the positive performance was overshadowed by a tragedy that raised questions over the level of preparedness of Asia’s casinos.
A gunman stormed into Resorts World Manila in June, setting light to casino tables, in an attack that left 38 dead, including the gunman. IRs both in the Philippines and in Macau have now stepped up their procedures, with Macau to require that metal detectors be installed at the entrance to properties.
In terms of new openings, 2017 has not been a stellar year. In Macau, MGM China pushed back the opening of its MGM Cotai to January after delays caused in part by Typhoon Hato. While the highly anticipated Imperial Pacific Resort, which has been under the spotlight for the staggering level of VIP revenue generated by a temporary facility with a handful of tables, in the end made its debut with very little fanfare.
The project has been beset by labour issues and typhoon-related delays and the company has now agreed a new timetable for completion with the government. As a result, in July only the new casino opened with ongoing construction work and protests from workers claiming unpaid wages.
Elsewhere, Silver Heritage Group is on the verge of opening the casino in its Tiger Palace resort in Nepal. The hotel had its soft opening in September and has received five-star accreditation. The company is planning on tapping into pent up demand from neighbouring India, where casino gambling is mostly illegal.
Silver Heritage was an early mover into the country, though other foreign investors also now seem to be catching onto the investment rationale. India’s Delta Corp announced plans to open a casino in the Marriott Hotel, Kathmandu, while Sri Lanka’s Bally Group is also moving ahead with the launch of the Casino Venus at Hotel Malla in Kathmandu.
With new casino regulations in place and the local economy enjoying a boom in foreign direct investment, the market may be one to watch in coming years.
Those to watch
Other emerging markets have also shown promise this year, providing an interesting base for further development in 2018. Vietnam finally passed new legislation setting out a legal framework for operators and enshrining a program that will allow locals to gamble for the first time in designated resorts.
“The year of the Rooster 2017 is nearing its end and is something to crow about,” said Augustine Ha Ton Vinh, who is a senior advisor to the Van Don Economic Zone and Integrated Resort. “The government of Vietnam started in January with the release of two key gaming decrees on casino and sports betting, followed by the release of two casino gaming and sports betting Circulars this past October.”
“The first decree on casino gaming opened the floodgate, allowing local Vietnamese to enter the two integrated resorts on the Phu Quoc and Van Don islands. Comes the Year of the Dog and more activities are expected.”
The legal framework appears to have unblocked stalled investments and prompted interest from international investors, with Macau’s junkets, such as Sun City Group, particularly active.
“The construction of the Hoiana IR project near the Hoi An World UNESCO site is moving ahead swiftly and the Ho Tram IR adding an upscale residential area. In addition to the above four IR’s, there are three additional sites vying for new licenses. They are the Nha Trang – Cam Ranh IR in Central Vietnam, Lang Son at the China-Vietnam Northern border, and the North Van Phong IR in the Special Economic Zone, also in Central Vietnam,” Vinh says.
Neighboring Cambodia has failed to produce long-awaited legislation, however there, the casino sector is also thriving and is expected to be one of the most interesting markets next year.
Elsewhere, 2017 has been marked by frustration and disappointments. Although all major international operators have been making a significant push for a license in Japan, the year has ended with less progress than most would have hoped for.
Prime Minister Shinzo Abe called another snap election in October to shore up his support, dealing a further blow to the enabling legislation that will set out the detailed framework for the operation of casinos. That is now expected to be passed early next year.
In Taiwan, the door to casino gambling effectively banged shut, when residents of the island of Kinmen, famous for its liquor, in October voted overwhelmingly in a referendum to reject the idea of hosting an IR. It joins Penghu island in saying no, leaving Matsu alone in backing gambling. The rejection by two of the outlying island groups, where casinos in theory could be located, makes it next to impossible for the central government to enact legislation in the foreseeable future.
India, which has been termed Asia’s sleeping giant, has also had a frustrating year of one step forward and two steps back, with ongoing challenges in the country’s courts as to what is legal and what is not. In theory, skilled-based games, even for stakes, should be permitted under the law, but some states have taken a different view.
“2017 has not been a great year for the Indian gaming industry with a key state, Telangana, banning online skill games for stakes and imposing stringent punishment on all kinds of games played for stakes,” said Jay Sayta, a lawyer and head of gambling news site glaws India. “At the same time there has been a positive decision recognising fantasy sports in another High Court and lot of initiatives in poker, e-sports and social gaming.”
As the year of the Rooster draws to a close, some are hoping the Year of the Dog may herald a more upbeat tone.
“In many areas 2017 was a negative year,” Brenninkmeijer said. “Despite the economic growth in most of the world and the improvement in living standards, we have been bombarded by negativity and news which kept on surprising us even if we couldn’t have been surprised more.”
“Let 2018 be a year in which we contemplate more on how to get a more positive message across. The world will keep on turning no matter our interpretation. So let us focus on entertainment and fun.”