Analyst: Macau mass market “healthy”

September 11, 2023 2:22 PM
Photo: Shutterstock
  • David McKee, CDC Gaming Reports
September 11, 2023 2:22 PM
  • David McKee, CDC Gaming Reports

While the decline of Macau’s high-roller customers, customarily referred to as VIPs, has been the subject of considerable media coverage, arguably less has been written about the mass-market players coming to the fore in China. Deutsche Bank analyst Carlo Santarelli turned his gaze to that mass market in an investor note published on Friday morning.

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Santarelli painted a picture of a resurgent mass market, one that’s only 14 percent off of its pre-COVID volume (12 percent when the comparison is narrowed to table-game play). “3Q23 to date mass trends are down mid-single digits,” he added. “Broadly speaking, we believe some of these tweaks are likely to prove short lived, while we expect others to have a more lasting impact.

“In short, we believe underlying trends in the market are healthy, with … spend per visitor well above 2019 levels, though declining, and likely to continue to decline as group and package-tour visitor volumes grow,” Santarelli continued. As for the amount of money these players are wagering, Santarelli sees upward mobility in table winnings for Wynn Resorts, SJM Holdings, and to a lesser extent Las Vegas Sands.

Scrutinizing Macanese casino data, Santarelli found a slowdown in mass-market gambling, a trend he expects to continue as the emaciated group and package-tour segments (80 percent below pre-pandemic volumes) experience a resurgence. “This trend is similar to the U.S. recovery experience, in which the most ardent gaming patrons were the first to return, followed by the broader mass customers,” Santarelli added.

Visitation to Macau is viewed as closing the post-pandemic gap, with July providing the best such numbers to date, albeit 22 percent below July 2019. August visitor data hasn’t been reported so far, but is expected, per Santarelli, “to show more limited declines, relative to August 2019.”

The change of emphasis from VIP play to the mass market has manifested in a great importance laid on hold percentages, a.k.a. “luck,” as Santarelli put it. These “have become a hotter topic of discussion, especially when considering the high incremental flow through to EBITDA associated with this revenue stream.”

Although Santarelli confessed some concern that casinos were upping their allotment of free play and other promotional credits to players, he wrote, “We do not see compelling evidence that this is taking place.” Even so, table holds of just under 23 percent are still trailing 2019 amplitudes. The analyst identified two contributors to this softness.

The first is the ascendancy of the premium-mass customer, one who “is not necessarily a more sophisticated customer, and can often times be a less sophisticated gaming patron.” This creates greater volatility in the results. Still, Santarelli added, “Given management commentary, as well as mass-gaming performance relative to visitation, we know that premium mass has led the recovery within the mass table-game segment.”

He also discerned “a more nuanced reason” for the market’s softness: an increase in baccarat tables. “Given that the house edge in baccarat is smaller than that of other table games, a higher mix of baccarat drop would skew hold percentages lower.”

Market share in table-game play, meanwhile, has shifted in favor of MGM Resorts International, Wynn, and SJM, although the latter’s relative success has been diluted by the slow start of Grand Lisboa Palace. MGM, wrote Santarelli, is “showing the most significant strides.” Sands and Galaxy Entertainment have been losing market share, despite the latter’s increase in hotel capacity (1,150 new rooms).

Still, “We expect [Sands] to maintain, if not grow, mass share from current levels, as visitor volumes continue to migrate higher, thereby driving incremental base-mass play.” Santarelli estimated that Sands’ share of table hold would sort itself out somewhere between the 34 percent it enjoyed before COVID and the 30 percent it has today.