VIP gaming rebounding after two-year slump

Chinese high-rollers are finally returning to Macau, two years after an anti-corruption crackdown by China’s government scared many of them away from the world’s largest gambling hub.

VIP gaming, measured by revenue from the baccarat card games favored by high-stakes gamblers from China, rose 13 percent in the last three months of 2016, marking a turnaround since the first quarter of 2014, data from Macau’s Gaming Inspection and Coordination Bureau show. Mass- market games improved 7.3 percent, the second-straight quarter of gains.

“While we are very happy to finally see VIP turn positive, we remain cautious on the outlook for this segment, which is driven by increasing concerns on Beijing’s stance on capital flight,” said Union Gaming Group analyst Grant Govertsen. 

Shares of Galaxy Entertainment Group Ltd. reversed an earlier drop in Hong Kong trading to rise as much as 1 percent, while Sands China Ltd. rose as much as 0.3 percent. MGM China Holdings Ltd. fell as much as 2 percent. The benchmark Hang Seng Index rose 0.4 percent.

Macau is increasing its oversight of gambling after China’s anti-corruption campaign scared off high-stakes VIP bettors, causing a steep casino downturn since mid-2014. Operators such as Las Vegas Sands Corp. and Wynn Resorts Ltd. have shifted focus to casual gamblers and tourists by opening resorts with more tourist-friendly features.

“The strength seen in the fourth quarter was not primarily driven by VIP. It was driven by mass,” said Govertsen. “This is very important in the context of what we see as a sustainable mass market led recovery.” The growth rate of VIP revenue could be overstated, as some casinos had reclassified higher-end mass market tables as VIP to skirt smoking restrictions in late 2014, Govertsen said by phone yesterday.

The likely gain for VIPs during the period may be closer to 7 percent and at 13 percent for the mass market, he said.

The importance of VIPs to Macau has been declining, with the high-stakes market contributing about 53 percent to gaming revenue in 2016, data from the gaming regulator showed, down the peak of 73 percent in 2011.

Macau’s casino market continues to face challenges, amid growing concerns that China’s increased scrutiny on capital outflows will curtail spending at the gambling tables.

Average daily gaming revenue fell 4 percent last week compared with December, likely due to weakness among VIP players and a seasonal slowdown before the Lunar New Year holiday which begins end-January, analysts led by Vitaly Umansky at Sanford C. Bernstein & Co. wrote in a note Monday. Daniela Wei, Bloomberg