Macau VIP Cash Flows at 20% of Pre-Pandemic Levels
Author:
Scott Lawson
Accounting metrics outlining the financial performance of Macau during the second quarter show VIP cash flows are at just 20% of pre-pandemic levels. The worrying COVID fatigue that has plagued the financial recovery of the Macau gaming sector continues to linger. VIP gamblers represent a core pillar of the city’s revenue model, and for the current cash-flows to be at just one-fifth of pre-pandemic levels is worrying, to say the least.
The largest casino resorts from Macau are suffering from a major shortfall in VIP clients. Gross Gaming Revenues are at just 23% of pre-pandemic levels, hopes are being placed on an upcoming plan to allow freedom of travel between Hong Kong and Macau. ?falco/Pixabay
In terms of the total revenues and net profits being generated across the industry, this amount can only be described as negligible. The figures were released just this week by the publicly traded entities operating in the region. It was JP Morgan Securities Ltd that delivered the note for public viewing following the publication of the Gross Gaming Revenue figures for the second quarter.
Also included in the financial performance publications was an overview of the broader revenue streams in Macau’s gambling sector. It showed that mass-market & VIP gaming revenues were trending downwards. With a 37.4% reduction month-on-month since the start of the year. Fixing this downtrend and implementing solutions to combat the so-called COVID fatigue affecting the market will be a major priority looking forward.
The vulnerability of the Macau casino business when it comes to an over-reliance on one particular stream of revenue couldn’t be more apparent when looking at these latest numbers. It goes to show that diversification of the business and integrating separate entities into the value chain would pay dividends for the long-term view of this industry.
VIP GGR Showing No Immediate Recovery Signals
The lack of recovery signals when it comes to the downward trend of VIP GGR is both concerning, and perhaps elusive of a change in the market conditions that will unlikely be reversed. What we’re seeing with 20% of pre-pandemic GGR from VIP clients across the Macau gaming sector may not be a brief stint, after all, there is a very real possibility that these figures will never return to their previous levels and a major rift is taking place in the behavior of casino customers in Asia.
JP Morgan has dived into these figures in more detail and has revealed that over 77% of GGR for Q2 came from the mass market and slot games, making VIP clients a negligible part of the overall cash-flows. Compared to two years ago this represents a major switch in economic direction for the industry, which before the pandemic was doubling down on its efforts in attracting more wealthy clients from around the world.
Despite the lag behind in the GGR generated from VIP clients, the second quarter was still able to print the highest amount of revenue for the sector since the pandemic. This strong short-term performance was in part due to a massive May for the sector. A combination of high delivery marketing strategies and an enormous influx of online gambling users meant that the industry was able to pull through quite effectively.
Mass market gambling continues to play a fundamental role in delivering the best financial return for the industry. That means appealing to the regular customers and designing a gaming experience that meets their unique requirements remain core fundamentals that will need to be fostered going forward into the third quarter.
Hopes Pinned on Proposed Hong Kong-Macau Travel Corridor
There is certainly an undercurrent of optimism swirling in the executive meeting rooms of Macau’s largest casinos. Expected to be announced this month is a move from the Chinese government to establish a travel corridor between Hong Kong and Macau. This would allow travelers to freely travel between the two cities without the need to adhere to special COVID restriction measures. Moreover, the Chinese mainland will extend its travel corridors to Macau from the status that is already initiated.
Bankers keeping a close eye on these developments remain unperturbed as there is certainly a high degree of unpredictability when it comes to the implementations of public policy. JP Morgan has subsequently modeled GGR within the VIP category to be at levels just 35% of pre-COVID levels going in the third quarter.
