Macau casinos need to operate more efficiently to stay ahead, but VIP sector is in decline

Macau Casinos

Macau casinos have been hit too by the global pandemic. Companies such as Las Vegas Sands have focused their efforts on the Macau market, with their casinos Sands Macao, Sands Cotai Central, The Venetian Macao, The Plaza Macao, Four Seasons Hotel Macao and The Parisian Macao to keep the company afloat during tough times in the US market struck by pandemic restrictions, but they too need to operate more efficiently in order to still be profitable.

Morgan Stanley has pointed out that operating expenses across Macau (all industries) have dropped by 39 per cent this year, but so have the profits. This has changed the landscape, and now the casinos operating in Macau have to have more efficient management, as opposed to being involved in a race who can grow the fastest.

This isn’t necessarily a bad thing, as companies now have to work hard in order to ensure a healthy balance sheet, which will then mean the world when the market opens up again. In the last quarter of 2020, local gambling operators in Macau generated combined revenue of $2.75 billion, which is far less than the revenue generated in the same quarter the year before, $9 billion. Total revenue in 2020 is less than one-fifth of 2019 revenue.

The true problem here is the decline of the VIP gambling sector. Baccarat’s contribution to total revenue is staggering 54%, but VIP baccarat contributed 34.5%, which is the first time VIP has slipped below a 40% share.

The answer for this drop is the decline of junket operators who ferry VIP players from China to Macau. The biggest one, Suncity Group, is operating at only 20% of levels recorded in 2019. The recovery of the VIP sector will be further influenced by China’s recent amendments to the criminal law that imposes prison sentences up to 10 years for individuals or entities who solicit mainland residents to travel abroad – which includes Macau.

VIP gamblers are also at risk themselves, due to the social credit scoring system. If their activities are detected as gambling, China residents could see their social credit score reduced, which could limit – among other things – their future right to travel abroad at all.

Recently, Macau also tightened its entry requirements. The mandatory quarantine period was increased from 14 days to 21 days for anyone arriving from somewhere other than China or Taiwan, although a 14 day quarantine still applies to individuals arriving from those two countries.

Put together, all these new events have stymied the VIP gambling sector in Macau, forcing the operators to find new ways to maintain healthy profits and, perhaps most importantly, keep the shareholders happy with each quarterly report.

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