Macau posts first revenue decline
Dire warnings of declining gaming revenues in Macau started to come true in September when the former Portuguese colony posted lower numbers compared to the previous September. Macau gaming revenues declined 3.4 percent in September to 6.9 billion pacatas (US3 million). Analysts blamed the decline on increasingly tight restrictions on visitation to Macau from the Chinese mainland.
Residents of mainland China can now only visit Macau once every three months. Just last year, visitors could arrive in Macau twice a month. Also holding down revenues is a current freeze on construction of new casinos and expansion of existing ones. And, there are fears of even greater travel restrictions.
“There are concerns that more visa restrictions that are more severe than the previous ones will be implemented,” said Gabriel Chan, an analyst at Credit Suisse. “The restrictions are damaging the sector.”
The bad revenue figures caused a steep decline in the share prices of Macau operators, including Las Vegas Sands, Galaxy, Wynn Resorts and others.
Chan was concerned about the ability of these and other companies involved in Macau to obtain funding for already-approved casinos and expansions.
“Because of the financial crisis, companies may face financing gap problems,” he said. “And even if these companies are able to complete these projects, there are concerns about whether there will also be demand for them.”
Also a problem for Macau operators has been the volatile VIP market, which accounts for up to 70 percent of gaming revenues. Now that payments to VIP operators have been capped at 1.25 percent by government decree and industry cooperation, the market has changed dramatically.
Melco Crown, which had achieved an 18 percent market share prior to the cap, has seen its share dip to 8 percent at Crown Macau. Wynn Macau has asserted its dominance over Crown, growing to control 19 percent of the market. Even second-tier operator Galaxy has moved ahead of Crown at 10 percent.
Crown’s $2.5 billion City of Dreams is scheduled to open next year, and the disappointing VIP results will put more pressure on that property to expand its appeal both to VIPs and to tourists.
Despite the fall in September revenue, total 2008 revenue is up more than 45 percent, and on a pace to exceed the $10 billion posted last year.
The Macau government isn’t alarmed about the revenue decline. Tam Pak Yuen, the Special Administrative Region’s secretary for economy and finance, says the industry is entering a “stable period.”
“The SAR government understands that local civilians concern about the development of the gaming sector,” he says, “and any insignificant trifle will bring up sensitive reactions, but the adjustment of staff by individual gaming operators can happen at any time.”
Davis Fong, director of Institute for the Study of Commercial Gaming at the University of Macao, disagrees, and says the government has a choice to make.
“The society must reach a common consensus on whether to maintain Macau’s gaming-led economy or extend vertically diversified development,” he said.