Gaming |- VIP vs. mass-market | Analysts quarrel over source of Macau recovery

Gross gaming revenue (GGR) growth is being driven by a surge in VIP revenue rather than the mass-market, say some analysts, indicating that despite government efforts to promote the mass-market sector, the gambling industry remains reliant on big players from mainland China. Others contend that mass-market growth is behind the recovery.

According to information published on the website of the Gaming Inspection and Coordination Bureau (DICJ), gaming revenues from VIP baccarat – by far the most popular game of fortune in Macau – accounted for more than MOP33 billion in the fourth quarter of 2016. This represents about 55 percent of total GGR for the quarter.

However, due to discrepancies between how gaming operators and the DICJ classify the two segments, many analysts argue that VIP gamers are responsible for just 46 percent of gaming revenue.

The change recorded over the fourth quarter of the previous year, 2015, saw VIP revenues (+13 percent) surpass mass- market revenue (+7 percent) and overall gaming revenue (+10 percent).

If the theory that VIP growth is driving Macau’s recovery is correct, observers would expect resorts more closely tied to the VIP sector to outperform their rivals. According to industry analysts Well Fargo Securities and Buckingham Research Group Gaming and Lodging, this is exactly what is happening.

While two large-scale integrated resorts opened in Cotai last year in time for the fourth quarter, the VIP-focused Wynn Palace has outperformed expectations in its fourth quarter earnings, while “family-friendly” The Parisian Macao has fallen short of them.

“We’ve consistently noted over the past two months that Wynn is highly leveraged to VIP and that the VIP segment has been accelerating and driving Macau market growth,” commented Cameron McKnight of Well Fargo Securities.

Buckingham Research Group Gaming and Lodging Analyst Christopher Jones concurred, adding that Wynn’s approach in its first Cotai foray has brought the operator’s market share in Macau to 13.7 percent; its highest in around five years.

Other analysts, such as Macau-based Grant Govertsen, argue that the discrepancy in the classification of VIP and mass-market sectors between the DICJ and the gaming operators obscures the true respective weightings.

“It cannot be stressed enough that the headline growth rates in 4Q16, which showed VIP […] growing significantly faster than mass tables […] are, simply put, backwards,” he wrote, arguing that casino operators classify some mass- market tables as VIP to circumvent the smoking ban.

“In other words, and contrary to misconstrued weekly data points, the strength seen in the fourth quarter of 2016 was not primarily driven by VIP. It was driven by mass,” added Govertsen. “This is very important in the context of what we see as a sustainable mass market led recovery.”