The island of Macau’s gaming revenues are again surging upward, and a big reason is the easing of the Chinese government’s anti-corruption campaign that began in 2014, said Grant Govertsen, managing director at Union Gaming Securities Asia.
Many of Macau’s high rollers or “whales” fled the island and its casinos because of the crack down. Yet Macau gaming revenue shot up 24 percent in May — out-performing Wall Street predictions — and has been on the rise since late in 2016.
Three major Las Vegas companies have huge casino properties in Macau — Wynn, Las Vegas Sands and MGM. Macau is the only place in China where gambling is legal.
“(Mainland China’s) anti-corruption campaign was probably the single largest factor in the downturn,” Govertsen said Tuesday on Nevada Newsmakers. “That has been going on, call it for three years now. We’ve finally reached a place where the average wealthy individual in China is feeling a little bit more comfortable about his situation. He is putting his toe back in the water and saying, ‘OK, I survived the last three years, I didn’t get in trouble. I think it is OK for me to start going back to my previous behavior, which includes going back to Macau.’
“Talking with the casino operators, they certainly are finally, seeing familiar faces after a multi-year absence,” Govertsen said.
Yet Macau’s biggest gamblers — or “whales” — have not yet returned.
“Now it is not the biggest fish or the biggest whales,” Govertsen said about the increases in Macau. “I think they are still on the sidelines. But a lot of the mid-level VIPs are finally coming back. And that is certainly an indication the anti-corruption campaign, while not over, is certainly lessening in its severity.”
One major factor is unchanged: Chinese gamblers remain “laser-focused” on gambling, Govertsen said.
While Macau resorts are moving to be more like Las Vegas by including entertainment, fine restaurants and shopping, the customers’ concentration is on the games.
“You are are seeing more familiar concepts that you would see on Las Vegas Strip,” he said of Macau’s offerings. “You’re seeing those pop up in Macau.”
Yet Govertsen added, “the primary customer to Macau is still laser-focused or hyper-focused on gambling and not so much on the non-gaming.
“For instance, nobody really cares about nightclubs in Macau,” Govertsen said. “Whereas in Las Vegas, that is one of the biggest reasons you come here. For a lot of people, that trumps gaming as a reason to come here. And (in Macau) that still isn’t the case.”
Revenues for restaurants, entertainment and other non-gaming amenities remain a small part of the overall profits in Macau.
“So what you are seeing in Macau, call it a single digit, maybe a 7 or 8 percent of the revenues are non gaming vs. 62 percent in Las Vegas,” Govertsen said. “So it (Macau) has a ways to go even though the physical plants (Macau casinos) are starting to look more and feel lot more like Las Vegas. The customer needs to change.”
Macau customers don’t want to take time away from the games to enjoy a long, relaxed meal, Govertsen said.
“While you do get patronage of the nicest restaurants, the busiest restaurant is invariably going to be the noodle shop that is right off the casino floor where you can get a bowl of noodles for the equivalent of a few dollars and the time span of 10 or 15 minutes,” Govertsen said. “That is what the customer wants.
“You get these gorgeous restaurants, you don’t even need a reservation half the time because you can just walk up and there you go,” Govertsen said. “Gamblers, they don’t want to take the time.”
The gaming stocks of the Las Vegas operators in Macau are also back on the rise, Govertsen said.
“They were in the dumps for a couple of years but finally, we are back in the growth mode for a couple of quarters now with the mass market segment actually growing, call it nine months now,” he said. “So we’re moving in the right direction and everybody is feeling a lot better about the future of Macau and the future of the stocks, in particular.”
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