After the worst year in Macau’s history — in which gaming revenue contracted for the year, topping off that decline with a 30% slide in December — some Wall Street analysts still don’t want to believe the dream has ended.
Some say revenues finally hit bottom at the end of 2014 and that 2015 means it’s time for a rally. Bank of America Merrill Lynch wrote in a recent report that a 6% increase in gaming revenue during the week of January 25th from the week before “could further indicate stabilisation.”
Of course, that’s a 7% decline from the same time last year, but take what you can get.
In taking that, though, you have to also ignore the difficult transition phase Macau’s business model is still going through. High rollers who generated most of Macau’s gaming revenue are being squeezed by President Xi’s anti-corruption drive. In the last year 16% of gaming promoters that supported and financed high rollers, known as junkets, have shut down.
The majority of those junkets have not applied to renew their licenses, or canceled them. Macau’s casinos know that their new lease on life will be the retail Chinese gambler. However as China’s economy slows down, it appears it will take longer and longer for average Chinese baccarat players to fill the void left by players that put down millions of dollars in one go.
We’ll see all of this activity reflected in US casino company fourth quarter earnings. They kick off with Las Vegas Sands reporting on Wednesday. Companies like Sands, Wynn and MGM as much as tripled their earnings when they entered the Macau market, and it ultimately came to dwarf what they were making in Las Vegas. Macau’s slowdown will impact their bottom line in a huge way.