Bizcuits | Mass confusion

Leanda Lee

Las Vegas Sands Ltd released their first quarter results after share markets closed in the US Wednesday. Industry media writers and analysts offer us interesting insight and some entertainment with their variations on spin and approach, all depending upon their interests and what message they want/are required to convey.

GGR Asia commenced their write up with the low-lights: “VIP business remains important to the overall Macau casino market”, immediately revealing a softening in that sector but pointing to Sands being keen to play the game both ways, even though the company has been talking up the mass market as their focal point –  this week’s release of results being no exception. GGR Asia continued downplaying the company by shifting to the overall profitability of Las Vegas Sands: “a 60-percent decrease compared to nearly US$1.46 billion recorded in the same period last year”. Only after these downers did GGR Asia allow for some energised news with direct quotes from Robert Goldstein, president and chief operating officer of Las Vegas Sands offering the corporate good news line: “We had an outstanding quarter, especially in Macau,” noted Mr Goldstein. “Our growth in base mass and premium mass… the numbers are just extraordinary”.

A more hyped approach was offered elsewhere: Investorplace.com headlines: “LVS Stock Surges on Earnings”; AGBrief, “Record mass table revenues helped to boost total net revenue”; IAG, “Sands China’s Cotai Strip properties all up in 1Q19 on good luck, rising mass”. The sell-side analysts will likely add to these messages – they were not particularly penetrating in questions during the investor conference.

The message of the mass market being more profitable than the VIP market was started by the US operators and predominately spruiked by US sell-side analysts. It has been obfuscated by classifications which shift to suit circumstances. The truth is not clear. A range of profit margins on mass, premium mass and VIP may be reported. For example, Sands China states a departmental profit margin of 35-45% grind mass and 25-40% on premium mass (presumably before overheads and tax). Margins will vary across casinos based also on the levels of comps, reimbursements and return commissions on Average Daily Theoretical (ADT) win.  What revenue falls into those categories is also confusing: rolling chip volume is not exclusive to VIP play as rolling chips are used at mass and premium mass tables, just as cash and rolling chips are used by direct VIP players. So, rolling does not equal VIP and non-rolling does not equal mass. DICJ classifications are based upon the rooms, not what goes on there, and these classifications are not necessarily used by casinos beyond communications with the authority. 

Then different casinos will categorize Premium Mass based upon their own ADT win; some start at around HKD3,000 and others at around HKD50,000. Whether premium mass is included in mass is also dependent on circumstance: when describing profits, mass could mean grind mass only, whereas financial reports may include other categories in the volume statistics.

On the hype of Sands this week, their mass revenue growth for the quarter over 2018 of 13% comes in below the industry average. DICJ reported that mass revenue increased by 16.1%, so Sands actually underperformed the market. Given their grind mass grew at 10.2%, it was premium mass with growth at 15.9% where the better news is.

The narrative of a focus on and growth in mass gaming is problematic, regardless of the obtuse justification of profitability and current political correctness. For mass to make up any loss in nominal VIP revenue and profit, an exponential increase in visitor numbers will be needed. Macau residents have long become wearied of the hoards of mainland tourists on local streets, but if mass gaming is to grow, then we must see a concurrent growth in Chinese visitation. Will the Macau population buy into this mass market narrative, tolerate what is to come and give social license to those casinos to operate?