Our Desk | The problem with year-on-year growth

Daniel Beitler

At the start of every month, the Gaming and Inspection Bureau (DICJ) releases the gross gaming revenue (GGR) results for the previous month and expresses the growth in terms of year-on-year change. That is, the revenue recorded last month when compared with the same month a year earlier.

The problem with using this particular metric is that it is not reflective of the reality of the health of the gaming sector in the city and it disguises larger trends in the economy.

Gross gaming revenue for the first four months of this year (see table) ranged between MOP19 billion and MOP23 billion, according to data from the DICJ website, with the best performing month being February, coinciding with most of the Chinese Lunar New Year holiday.

That particular month recorded year-on-year growth of 17.8 percent; a figure that would be astonishing to almost any other established sector anywhere else in the world, but in Macau is treated as normal. The problem is that it hides the reality of what is actually occurring in the sector.

Take for example the 21.4 percent year-on-year contraction measured in January 2016, or the 14.4 percent increase in November 2016. These considerable swings suggest that the revenue recorded in each month is highly sensitive to events within the month, such as the weather or another similar factor. However, upon closer inspection, we find that the revenue for both of these months is almost identical, at MOP18.67 billion and MOP18.78 billion respectively, according to the DICJ.

The discrepancy is caused partly by the fact that the gaming recovery in Macau began less than 12 months ago. Before July 2016 (or June, depending on how you measure) gaming revenue had been in an uninterrupted decline for around two and a half years.

When the recession ended, year-on-year GGR comparisons were essentially contrasting two different markets; one in a downward trend and the other in an upward one. Thus, each month the difference between the contrasted months increased (one getting larger, the other getting smaller), giving the impression that the growth was accelerating rapidly.

The month of March is a great example. The revenue recorded that month was 7.7 percent smaller than that in February, yet the year-on-year growth showed acceleration.

To report that March saw the fastest year-on-year growth in three years is technically correct, but it is also unrepresentative of the health of the gaming sector and thus slightly misleading.

No wonder that gaming analysts who forecast growth need to be so broad in their estimates and so frequently get it so wrong. Perhaps a one-month period is simply too short a timeframe to measure meaningful differences in Macau’s gaming sector.

A more useful metric, also adopted and published each month by the DICJ, is the accumulated GGR for the calendar year. As each month of the year passes, the “year-to-date year-on-year” becomes averaged and more reflective of the situation across the year so far.

If this were the widely adopted metric for reporting GGR gains, then the only unusual month each year might be the first – January – and that would largely depend on whether the Chinese Lunar New Year fell in that month.

Ultimately, however, no measure of percentage change will accurately reflect the health of Macau’s gaming sector. Only the actual revenue expressed in billions of patacas comes close to telling the whole story.