If there were two key takeaways from the recent Q2 earnings season in Macau, they were that margins in 2023 are fundamentally higher than pre-COVID, and that the premium gaming market – including VIP – is far from dead.
While those two elements may, in some ways at least, seem counterintuitive, the reality is that the collapse of the Macau junket industry has created opportunities for concessionaires that they may have been reluctant to fully commit to in years past. Whether that was due to a legacy reliance on junkets, which at their peak contributed close to 80% of Macau’s gaming revenues, is difficult to say.
But what was almost universally confirmed by concessionaires during their 2Q23 earnings calls was the strong rebound in the lucrative premium mass market and the growth of premium (VIP) direct – best described as rolling chip play without the use of junkets.
Notably, Wynn Resorts CEO Craig Billings revealed during his company’s call that premium direct volumes were now considerably higher than pre-COVID levels, albeit with the caveat that VIP revenues overall are considerably lower now, without the contribution of junkets, than they were before.
Still, there are positives to be taken from this shift to a direct VIP model, given that the margins this segment generates for operators are roughly double that of junket play. And given that there will always be some high-rollers who want the rebates that typically come with rolling chip play, it pays to have a strong direct VIP program.
At the heart of the Macau recovery story, however, has been premium mass. An oft-misunderstood segment, premium mass players are beloved by operators because they bet (fairly) big and don’t ask for a whole lot in return, other than to feel a bit special by way of gifts such as a free hotel room or a nice meal at a fine dining restaurant. Needless to say, that’s a whole lot cheaper than rewarding their play in cold, hard cash!
In 2Q23, concessionaires universally described volumes in the mass gaming segment that were only marginally down on 2019 levels, and in most cases revealed that volumes through the first weeks of Q3 were substantially above 2019 levels, some by as much as 20%.
Given that overall tourist or base mass visitor numbers to Macau are still lagging pre-COVID times, it is the premium mass segment that is driving these impressive volumes within the broader mass segment.
As Grant Chum, Sands China’s Chief Operating Officer, said when revealing a 240-basis point improvement in Q2 margins quarter-on-quarter, “We do have a more profitable business mix than in 2019, as does the whole industry, because we have a greater proportion of mass relative to VIP. [This is] positive for margins.”
The real bonus for operators, however, one that is yet to come in this strong recovery – with GGR back to around 62% of pre-COVID levels but profit (EBITDA) closer to 75% – is that base or grind mass is a segment still lagging behind but bound to catch up in the near-term.
Given the fascination our industry tends to demonstrate with VIP and premium mass play, it’s easy to overlook the importance of the everyday, main gaming floor player, yet they are in many ways an operator’s best friend. Sure, spend per customer is lower, but the fact is there are a lot more of them than in any other segment and, most importantly, they ask for nothing in return.
As of July, Macau’s monthly visitor arrivals are back to around 78% of 2019 levels, and with labor issues easing and hotel room supply increasing, that means plenty more upside to come in the months and years ahead.
