May 5, 2017 / 6:46 AM / 5 months ago

Macau keeps gambling on gambling

Fireworks explode over Parisian Macao as part of the Las Vegas Sands development during its opening ceremony in Macau, China September 13, 2016. REUTERS/Bobby Yip

HONG KONG (Reuters Breakingviews) - The Chinese gambling enclave of Macau has been going gangbusters of late, with gambling revenue rising for a ninth straight month in April. Shares in casino firms have rallied strongly alongside. The top three Hong Kong-listed stocks, Sands China, Wynn Macau and Galaxy Entertainment, have added $20 billion in market value. But the sector still lacks a family-friendly hedge against political and economic risk. Resort operators better hope their new luck holds.

The picture emerging from the first quarter shows most Macanese casinos rebalancing toward mass-market “grind” gambling. At Galaxy, revenue hit HK$14.1 billion ($1.8 billion), up 5 percent year-on-year, thanks mostly to a 15 percent rise from mass game tables. VIP revenue fell 5 percent. That’s healthy: it was overdependence on corrupt officials betting embezzled money on baccarat that left Macau so exposed to China’s massive anti-corruption crackdown.

Graphic: Rebound in Macau: reut.rs/2pFKQ7c

However, VIP gambling is neither dead nor dying. Wynn Resorts, for example, saw explosive growth thanks to its new Wynn Palace - a $4.2 billion VIP honey trap that Steve Wynn opened last year and which was built, as the magnate said, “for adults”.

What hasn’t changed much is the mild contribution of non-gaming “family-friendly” entertainment to the top line in Macau. At Wynn’s Las Vegas operations, for example, non-gaming businesses make up 70 percent of net revenue. The same proportion at the company’s Macau properties was just 14 percent, according to Breakingviews calculations; at the Wynn Macau, non-gaming revenue fell 16 percent year-on-year.

It might be that visitors don’t really want Macau to be family-friendly. Galaxy’s Broadway Macau, which is explicitly billed as such, has no VIP gaming; it saw revenue fall 25 percent on an annual basis.

There are upsides to being a pure gambling play, of course: no booking musical acts, fixing roller coasters or training dolphins. However, that leaves a thin cushion against the risk of a relaunched corruption campaign. As for Chinese retail gamblers, their enthusiasm for betting is closely linked to the availability of easy credit - and monetary policy is tightening. At some point even the house’s luck can run out. But for now the business is in the best shape it’s been in for years.

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