_edited.png)
Macao Business
By Tony Lai
11 May 2023
Macau’s gaming industry is making a triumphant return after its low ebb in 2022. The SAR arrived late to the post-pandemic game, but it is on course to retake its crown this year, having already surpassed Nevada’s gross gaming revenue in the first quarter of this year alone. The main difference between the delayed recovery of Macau’s gaming industry and other markets in the Asian region is that the former is being driven by an influx of Mainland Chinese patrons, who have yet to return en masse to the latter.
In the wake of three years of COVID-linked hardship, which saw the loss of the crown of the world’s gambling capital to Las Vegas, the Macau gaming industry has mounted a comeback so far this year. The resurgence is due to a robust influx of visitors from Mainland China, who, however, have yet to make an impact in other markets in the region.
Following the end of the zero-COVID policy in Mainland China earlier this year — including the relevant travel restrictions — the Macau gaming revenue surged by 94.9 percent year-on-year to over MOP34.64 billion (US$4.29 billion) in the first quarter of 2023, including a 246.9 per cent year-on-year hike in March. But the tally was still only 45.5 percent of the pre-COVID level.
With this pace of recovery, Macau’s gaming revenue is set to reach the government’s annual target of MOP130 billion for 2023. Since the long-awaited reopening of Mainland China, “there has been a surge in visitor arrivals and a significant acceleration in Macau’s gross gaming revenue” as Macau gaming operators “have historically been heavily dependent on tourist arrivals from the mainland and Hong Kong”, Moody’s Investors Service explained in a recent report.
Despite the late start of the recovery in the region, compared with other major markets like Singapore and the Philippines, the rating agency added in another report that the city would help drive the growth of the global gaming industry this year. “The expected recovery of Macau and continued recovery of Singapore and other Southeast Asian locations are expected to show outsized growth, given the depressed levels seen since 2020,” it added.
Mass growth
“We estimate that the mass-market GGR [gross gaming revenue in Macau] will improve to 75 percent and 100 percent of 2019 levels in 2023 and 2024, respectively,” Moody’s said. The mass market, including both baccarat games and slot machines, accounted for 75.3 percent of the total gaming revenue in the January-March period in Macau, whereas the VIP segment represented a share of only 24.7 percent, the Macau official data said.
Addressing the Macau market, Goldman Sachs also said in a recent note that mainlanders’ pent-up demand for tourism and gaming offerings in the city might last for “several quarters” based on the experiences of recovery in other markets, and the brokerage expected the Macau mass market would achieve the pre-pandemic level even by the end of this year and surpass the 2019 volume by 10 percent next year.
The latest official figures show the number of visitors to Macau jumped over 160 percent year-on-year to 4.95 million in the first quarter of 2023. Given the performance in the first three months, mainland visitor arrivals to Macau have already recovered to 50 percent of the pre-pandemic level, while the recovery for Hong Kong arrivals has even been higher at 70–80 per cent.
Recovery in other source markets
The resurgence of mainland Chinese patrons has so far not been significantly reflected in other regional gaming markets aside from Macau. Concerning Singapore, the first jurisdiction to open up for international visitation in the region last year, a 76-per cent growth was recorded in land-based gaming revenue to S$3.56 billion (US$2.66 billion) in 2022.
In the first quarter of this year, Marina Bay Sands (MBS), one of the two gaming resorts in the island state, reported US$394 million in its adjusted property earnings before interest, taxation, depreciation and amortisation (EBITDA), about 93 percent of the pre-pandemic level, whereas its mass gaming revenue even hit an all-time record of US$549 million. “The relaxation of travel restrictions and increases in flight capacity has enabled an ongoing recovery in market visitation,” said Las Vegas Sands (LVS), which operates the complex.
But this outstanding result has been due to the comeback of visitors from other source markets. LVS executives have recently remarked in earning calls with analysts that MBS has not seen a huge influx of mainlanders so far this year, despite the easing of COVID restrictions in the mainland.
Brokerage Nomura Group also observed that visitors from Greater China to Singapore were only circa 22-23 percent of 2019 averages in the first two months of 2019, while tourism from other regions had “recovered substantially”. Another gaming operator in the island state, Genting Singapore, also cast a cautious note. “Looking ahead, while we expect [a] continued recovery of travel and tourism, [the] recovery pace may be inconsistent due to international flight capacities and unexpected border measures,” said the operator of Resorts World Sentosa in Singapore.
Macau, ok! Others, no?”
“The number of mainland Chinese coming to Macau has recovered significantly, and yet, we don’t see the same year-on-year recovery for a lot of the overseas destinations that the Mainland Chinese used to go to,” says Ben Lee, a Macau-based gaming expert.
“If we look at the numbers of mainland Chinese travelling overseas, they have freed up group tours for a lot of the ASEAN countries, but the numbers are still nowhere near what they were pre-pandemic. Unlike in Macau, where there seems to be a much faster recovery and loosening of travel controls for the mainland Chinese,” the managing partner of gaming consultancy IGamiX Management and Consulting continues.
According to the information from the mainland authorities, there are outbound group tour packages to 60 destinations available for mainland Chinese at the moment, including to and from Macau and Hong Kong. Aside from package tours, mainland visitors can still travel to any outbound destinations, provided they obtain an individual visit visa and successfully book a flight.
“It seems to be a two-tier approach: Macau is still part of China, so there’s no problem letting them [mainland visitors] go there and gamble a little bit, whereas there seems to be greater restraint in the other countries,” Mr. Lee reasons. Asked whether this trend will continue in the future, he said, “It’s too early to tell… but the trajectory indicates that it is a possible trend.”
Within the borders
Speaking at a recent summit about the Asian gaming industry, a veteran casino executive, Andy Choy, also addressed the issue, saying: “Gaming is a privilege licence, and it is granted to a set number of operators, and in exchange for that, the operators bring a lot of direct foreign investments and jobs. That’s a really key component to this whole thing.”
“Most governments understand that a certain sub-segment of adults enjoy the activity of gambling, and it’s better to provide them with a safe and legal place to do so, and in exchange for that, the operators help provide jobs and skills building in an environmentally-friendly and sustainable manner,” he continued. “So for China, I can definitely understand that they want to keep that economic [gambling] activity within their borders so they can reap the benefits of it as well.”
Aside from Singapore, another major Asian gaming market—the Philippines—reported PHP 214.33 billion (US$3.86 billion) in gross gaming revenue across casinos in the country in 2022, up by 90.6 percent from the previous year, because of the reopening of tourism. The Philippines’ gaming regulator, the Philippine Amusement and Gaming Corp. (Pagcor), forecasted earlier this year that the casino gross gaming revenue for this year could expand by 14.2 percent year-on-year to PHP244.84 billion (US$4.41 billion) in 2023.
Flights and worries
In addition to policy directives, another reason why there has yet to be a significant return of Mainland Chinese gamblers in other regional markets might be due to the lagging recuperation of flights. Albeit a year-on-year jump of 68.9 percent in air passenger numbers from China in the first quarter of 2023, the frequency of international flights in the first three months only translated to just 12.4 percent of the pre-pandemic times. The Association of Asia Pacific Airlines has estimated it might take at least a year for the full restoration of air traffic capacity out of China.
Another rating agency, Fitch, also acknowledged the low recovery in international flights out of China. “Daily international flights only recovered to 28 percent of pre-pandemic levels as of early April, hobbled by the slow recovery in routes to North America, Japan, South Korea, and Europe, due to travel restrictions and extended reviews and negotiations of traffic,” Fitch said in a recent report.
“The recovery in outbound travel remains muted despite strong demand, as international flights were still about 70 percent below pre-pandemic levels in early April and airfares were expensive,” the rating agency continued. Meanwhile, domestic flights within the mainland have already fully recovered, while the restoration of flights to Macau, Hong Kong, and Taiwan has returned 60 percent of the pre-pandemic volume.
Moreover, the lack of mainland patrons in other markets might also be related to their mentality, as they are not ready to travel overseas yet. A survey conducted by marketing solutions firm Dragon Trail International in April found that half of mainland Chinese have not set plans to travel abroad this year yet, whereas only 10 percent of the 1,012 subjects polled said they have done so. In addition, the survey also indicated that 31 percent said they did not want to go abroad for the moment, citing fears about safety outside of China, financial concerns, and having no free time as their top concerns about travelling overseas.
Competition
“What’s happening is that some of the other Asian destinations are starting to get used to no longer having the flood of mainland Chinese tourists, and they are trying to, in their own ways, diversify away from the mainland Chinese market,” said Mr. Lee of iGamiX.
This is indeed also what the Macau gaming operators have been committed to following the start of their new 10-year gaming concessions since 2023 — the authorities have requested the operators to emphasise the development of non-gaming offerings and the diversification of tourist source markets for Macau in the upcoming decade. The Macau government has recently mentioned that a total of 12 gaming zones dedicated to non-Chinese foreigners have so far been set up by the six concessionaires in the city, which have attempted to bring in foreign tourists and gamblers via charter flights.
In the first quarter of 2023, visitors from non-Greater China regions (excluding Mainland China, Hong Kong and Taiwan) only accounted for less than 2.9 percent of visitor arrivals to Macau. Before the pandemic, the proportion of international visitation was also at a low level of less than 10 percent compared with other regional gaming markets.
“Though Macau has been committed to attracting more international patrons, it will be a daunting challenge [for both operators and authorities],” says Zeng Zhonglu, a professor from the Centre for Gaming and Tourism Studies of the Macau Polytechnic University. “The competition for patrons with other Asian rivals will be fierce because there are many jurisdictions in Asia that could provide casino gaming offerings.”
The only way forward for the territory in this aspect is to continue improving its tourism, cultural offerings, and amenities. “But it will take time for Macau [to attract more international visitation],” Professor Zeng says.
Nonetheless, the academic acknowledges an advantage the city has over other gaming markets in the region. “Macau is the top short-haul destination for Mainland Chinese and Hong Kong patrons,” he adds.
Outstripping Vegas
Macau’s gaming industry bounced back in the first quarter of the year to the extent that it swiftly not only outshone the Las Vegas Strip but also the whole gaming revenue of the state of Nevada in the first quarter.
The SAR’s combined GGR for the first three months of 2023 reached US$4.32 billion (MOP34.64 billion), accounting for twice the revenue generated by the Las Vegas Strip and even surpassing the whole first quarter Nevada state revenue (US$3.83 billion) by about US$500 million.
“If the current trends continue, Macau will easily double and has an outside chance to triple the Las Vegas Strip’s gross gaming revenues for the full year 2023,” predicts gaming expert Alidad Tash, managing director of 2NT8 Ltd consultancy. This is likely to be the case, “despite the Las Vegas Strip experiencing all-time highs since the pandemic and Macau performing below its 2019 totals, when the SAR made 5.5 times the Las Vegas Strip’s GGR.
Meanwhile, Macau’s April GGR reached MOP14.72 billion (US$1.83 billion), accounting for 60 per cent of its 2019 monthly average and “far exceeds anyone’s predictions at the end of 2022,” Mr. Tash notes, adding that “as such the six gaming operators and the government are looking forward to the unanticipated excess revenue.”