The global economic downturn has spilt over to Asia where credit tightening and liquidity concerns are affecting Macau’s VIP sector. Casino and junket operators are facing their toughest time since the 2008 collapse of Lehman Brothers, as China’s growth rate continues to slow.
High-rollers, otherwise known as VIPs, account for more than 70 percent of gross gaming revenue in the world’s largest gambling market. Grant Govertsen, Managing Partner at Union Gaming Research in Macau, said that wealthy Asian players, especially from China, are reducing their spend in Macau’s 35 casinos.
“Simply put, VIP players have the resources (human and monetary) to essentially enter Macau at will,” commented Govertsen, “With a global economic recession and leadership changes in China, VIPs are cutting back.”
China’s GDP in this year’s second quarter was at its lowest rate since the 2008-2009 global recession. The effects of the eurozone crisis have caused a weakening to foreign trade for China and the IMF this week cut growth forecasts in the country.
A reliance on VIP play in Macau is becoming more strained and new casino resorts are including a wider variety of amenities to attract the mass market. Growth rates in Macau this year have been the slowest since 2009 and analysts are concerned that a slowing demand in China will further weaken the gaming industry.
Wynn Resorts, operator of the Wynn Macau Resort and Encore at Wynn Macau, reported a 7.1 percent drop in its second-quarter revenue, in its filing on Wednesday. The company indicated that its results missed analyst’s estimates because of lower winnings in Macau and Las Vegas. The company’s table games turnover in the VIP sector was down 7.2 percent year-on-year to $30.3bn.
The health of the junket industry is critical for Macau’s casinos. Junket operators entice wealthy players to spend large sums of money in the enclave’s casinos. Recent disappointing growth rates in Macau have caused serious harm to junkets, especially to smaller operators who are not as adept at collecting debts.
Macau’s casinos have strong balance sheets and ample cash reserves, but they don’t extend credit to gamblers from mainland China, where gambling debts are not enforceable and there are few ways to assess a gambler’s credit profile.
Gaming revenue in Macau now stands at six times that of Las Vegas and has supported the global gaming industry during the economic downturn. Whilst developments are still on the horizon, a weakening pool of capital in Macau could prevent innovations and progression in the industry.