Macau gaming stocks jumped 4 to 7 percent on Tuesday after Sands China (01928.HK) reported growth in its mass market revenue.
The Macau-based casino unit of Las Vegas Sands Corp. is expected to turn around its business model.
However, cost and competitiveness are also critical in the long run. The pick-up in mass market revenue may not guarantee a successful business.
Sands China posted a 16.4 percent drop in its second-quarter revenue to US$1.48 billion from the previous year. The result was in line with market expectations.
The good news is that the company said its mass market revenue posted growth in June, marking the first rebound since 2014.
VIP gaming used to represent nearly 70 percent of gaming revenues in Macau before 2014, while it only accounts for 10 percent of gaming revenue in Las Vegas.
Las Vegas generates over 60 percent of its revenue from non-gaming operations, which only represent 20 percent of Macau’s revenue.
Revenue from VIP rooms in Macau has been hit hard since 2014 as Beijing steps up its crackdown on corruption amid the country’s economic slowdown.
Both the Macau government and casino operators realized that they should not rely too much on VIP gaming revenue. That’s why they have been trying to expand mass-market and non-gaming revenue.
Sands China’s mass market gaming revenue has finally bottomed out, which indicates that the city’s gaming industry has managed to turn around its business model.
It is still too early to make any conclusion, although mass market gaming revenue is critical to the business transformation.
Unlike in VIP rooms, casino operators need to deploy a lot of fixed costs and external costs in their mass market operations.
For example, grand decorations and furniture, breathtaking entertainment shows and tasty cuisines are essential for attracting visitors.
Meanwhile, these customers may only spend few hundred or thousand dollars on the mass table.
Sands China’s net profit still slumped by 39 percent to US$237 million in the April to June period from the year before, compared with a 9.6 percent drop in the previous quarter.
The Venetian Macao reported an 11.8 percent decline in revenue to US$45 million during the period despite having more visitors.
The hotel’s marketing expenses rose 6.3 percent to US$37.1 million, indicating that it has offered discounts to attract more visitors. These are hidden costs of a recovering mass market revenue.
Melco International Development (00200.HK) is even more aggressive in finding new sources of growth.
It has spent more than HK$20 billion in Studio City, which is the first resort in Macau that focuses solely on the mass market. It has also built non-gaming entertainment facilities like Golden Reel and Studio 8.
Lawrence Ho Yau-lun, son of gaming tycoon Stanley Ho Hung-sun, said recently he was not satisfied with the operational performance of Studio City.
In fact, a senior official of Melco said the company is considering introducing VIP rooms at Studio City in order to attract high-spending customers.
Meanwhile, a number of new resorts will start operation in the next two years, including Parisian Macau, Wynn Palace and Lisboa Palace.
These new resorts are set to take customers from existing resorts.
It takes time for these casinos to see real progress in transforming their business model.
This article appeared in the Hong Kong Economic Journal on July 27.
Translation by Julie Zhu
[Chinese version 中文版]
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