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Mass Gaming Continues to Replace VIP Revenue in Macau

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In a departure from the previous scope of gaming revenue catalysts in Macau, Morgan Stanley has issued a bullish forecast for Macau's mass market gross gaming revenue (GGR). It predicts a resurgence that will exceed 120% of pre-COVID-19 pandemic levels by the end of this year.

Mass Gaming the New Target

This positive outlook stands in stark contrast to expectations of a slowdown or decline in revenues amidst shifting consumer trends in China. Morgan Stanley analysts attribute the anticipated GGR surge to the strength of the premium mass segment, driven by a smaller yet affluent group of Chinese high-rollers.

This segment has demonstrated resilient spending habits, demonstrating a willingness to spend more per head than before the pandemic. Companies and junket contacts in Macau have corroborated this observation, noting higher visit frequency and higher spend per head from premium mass gamblers.

Macau's hotel room inventory has expanded by 16% since 2019, providing a more accommodating environment for overnight visitors and high-end gamblers. This expansion has expanded Macau's capacity to cater to the growing demand from these lucrative segments.

The Macau government's recent revision of junket regulations has further incentivized the shift towards the premium mass segment. Under the new regulations, junkets are limited to working with a single casino concessionaire and are prohibited from operating their own VIP rooms within casinos.

They're also barred from revenue-sharing arrangements with operators. These changes have forced junkets to concentrate on the premium mass segment, which offers higher margins compared to the traditional junket model.

VIP Gaming Drops in 2023

The latest data from the Gaming Inspection and Coordination Bureau (DICJ, for its Portuguese acronym) confirms the resilience of the mass market segment. In the fourth quarter of 2023, mass market baccarat revenue accounted for 61.8% of Macau's total gaming revenue, outpacing VIP baccarat revenue, which accounted for just 23.4%. This trend aligns with the forecast for continued mass market GGR growth.

Mass market baccarat was worth MOP33.5 billion (US$4.15 billion) in revenue in the last quarter of 2023. This represents 61.8% of total MOP54.3 billion (US$6.73 billion) in revenue generated by Macau's gaming operators for the quarter. This was again up from its 58.9% share in the third quarter of the year.

VIP baccarat revenue, however, was MOP12.7 billion (US$1.57 billion) for the quarter. This represented just 23.4% of the GGR total for Macau, a year-on-year decline of 24% in the quarter and a 44.7% drop against the fourth quarter of 2019.

Morgan Stanley's optimism extends to Macau's EBITDA (earnings before interest, taxes, depreciation and amortization) figures, projecting a potential return to or slight exceedance of pre-pandemic levels by the end of 2024. EBITDA, a measure of a company's profitability, serves as a strong indicator of the gaming industry's overall health.

Morgan Stanley's forecast paints a compelling picture of Macau's gaming industry. The mass market segment seems poised for explosive growth fueled by strong premium mass business, increased hotel room supply and a regulatory framework that favors this lucrative segment.

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