Deutsche Bank: Gaming industry will shrink 8 per cent in 2015

Gross gaming revenue is going to drop 8 per cent this year, which is expected to be a turning point in the Macau gaming industry, according to the latest report, released yesterday, by Deutsche Bank. In 2015, supply is expected to outstrip demand and drag down betting price.
‘Overall, we cut 2015 gross gaming revenue growth assumption from 0 per cent year-on-year to -8 per cent year-on-year. While the market already expects new casinos will drive visitor demand in 2015-17, we think they have ignored the negative impact of supply on pricing’, the report, written by research analyst Karen Tang, posits.
This will result in a gross gaming revenue drop from MOP352 billion in 2014 to MOP322 this year, which means that the industry will lose around MOP30 billion in the course of a year.
Galaxy Phase II and Studio City are slated to begin operating this year, kicking off the second wave of casino openings in Cotai. However, the report questions the capacity of supply necessary to increase demand due to the ongoing anti-graft campaign gathering momentum in Mainland China.
‘We are concerned that in the current anti-corruption environment, next year’s supply may not be able to stimulate enough demand to see a positive GGR growth’, it is explained.
However, the current environment fanned by the Central Government is not the only factor negatively affecting the industry. The Macau Government has tightened its regulations in relation to VIP gaming promoters, UnionPay devices and transit visas, which according to the German bank are also affecting the gaming sector.
The report’s prediction for the VIP segment during 2015 foresees a fall of 11 per cent, despite an increase in the number of VIP players.
‘We believe [that] while the number of VIP players may still grow the average bet size of these VIP players will be significantly lower than in the last five years’, it says.
According to the German bank this segment is reflecting a change in the nature of VIP gamblers, whose wealth tends to be more based on industries related to the Internet and consumer services than to coal mining and property, as has been the case in the last five years. These new riches are expected to be spent less in gambling than by previous generations.
The trend in the mass market is also expected to be negative. As the second wave of casinos starts to open during the second quarter, the results are expected to increase 2 per cent year-on-year. However, overall the segment is expected to shrink 4 per cent during the whole year due to a 10 per cent decline in the first half of the year.
One of the most important factors that explains the decline of the mass market is table yield. According to the report on the mass market, table yield peaked in the first quarter of last year with an average of MOP103,000 per day. However, by 4Q2014 it was reduced to MOP89,000 per day. For 2015, mass market table yield is expected to drop 16 per cent to an average of MOP75,000 per day.
Deutsche Bank also expects that gaming operators will have to deal during 2015 with rising costs on staff salaries and in the promotion of the premium mass market, which means providing non-gaming complementary offers, such as free rooms, free transport and discounts.