Opinion | The republican billionaire winning from Macau’s shift

Here’s a wager you can’t lose: No matter what, a U.S. Republican billionaire is going to win the Macau jackpot.

It’s a battle between Sheldon Adelson, chairman of Sands China Ltd., and Steve Wynn, the head of Wynn Macau Ltd. Odds are beginning to favor the former.

Macau shone again in 2017, after two years of revenue declines sparked by Chinese President Xi Jinping’s 2014 anti-corruption campaign. VIP gross gaming revenue climbed 26 percent year-on-year to USD16.1 billion, while mass increased to more than $17 billion, up a smaller 13 percent from 2016, according to Bernstein Research.

The return of the mega-rich was good news for Wynn. Wynn Macau’s Hong Kong-traded shares doubled in 2017 while Sands China’s stock increased 20 percent, weighed down by the company’s weak growth in leisure gambling.

But Adelson needn’t worry. His niche in catering to the masses is a lot more sustainable than a strategy that hinges on the wealthy.

Macau is pushing to offer experiences beyond gambling that appeal to the leisure crowd as China becomes more integrated with the territory and Hong Kong via a swath of infrastructure projects around the Greater Bay Area. The Hong Kong-Zhuhai-Macau bridge, which is scheduled to start operating in the second quarter, and rail links between Macau and Guangdong province in southern China should increase visitor numbers.

More than half of last year’s 20 million Chinese visitors to Macau were from second- or third-tier cities, where disposable incomes are rising. Visitors from tier-one cities such as Beijing or Shanghai only increased 3 percent last year, Morgan Stanley estimates.

Catering to VIPs also isn’t cheap. High-end casinos like Wynn have a greater reliance on credit-offering middlemen, or junket operators, to keep business rolling in. The segment is less profitable, too. In its 2016 annual report, Sands said mass-market tables generated four times the gross margin of VIP tables, with lower-end players, who don’t get freebies, more likely to fork out for extras such as meals and hotel rooms.

Then there are the constant political headwinds from Beijing. Authorities could decide at any time there’s too much money flowing out of the country via high-rollers, while real-estate-cooling measures may also eat into VIP budgets.

Sands China already distributes a healthy dividend, paying out close to 170 percent of earnings versus Wynn Macau’s 152 percent, so investors expecting more giveaways may be disappointed.

But the make-up of Macau’s punters is shifting, and that puts Adelson’s Sands in pole position. Nisha Gopalan, Bloomberg