Analysts: Don’t count on VIP gamblers for post COVID-19 recovery

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The writing has actually been on the wall for the past couple of years, but is now highlighted more than ever. VIP gambling is no longer going to be the cash cow for casinos that it may have once been, and casino operators should start preparing now for a different gambling environment. Those that don’t will be left behind, struggling to figure out why their wells are drying up.

Especially for Macau, VIP gambling is rapidly tapering off and this will extend to other parts of the world, as well. Industry analysts almost unanimously assert that Macau’s VIP activity will stay weaker this year than it was two years ago and that it might be as long as five years before any type of turnaround is seen. Vitaly Umansky, Tianjiao Yu and Kelsey Zhu, analysts with Sanford C. Bernstein, assert that gross gaming revenue (GGR) from the VIP sector will “be below 2019 levels by 2025.”

In the summer of 2019, Macau’s VIP gaming sector showed signs of being weaker than that of the mass gaming sector. Last year, in the third quarter, mass market activity continued to outperform VIP gambling. For all of 2020, VIP gambling in Macau saw its lowest revenue share on record. In addition to the ongoing COVID-19 battle, this drop is also fueled by pressure being exerted in China, which is clamping down on money transfers, junkets and cross-border casino marketing. This has scared off some of the high rollers and, as the country continues to strengthen its anti-gambling position, things can only get worse for the VIP gambling segment. Bernstein’s analysts predict that VIP gambling will only reach 50% of the level it was in 2019 this year, while mass gambling will find recover of 75% of 2019’s numbers.

There is a silver lining, however, that should give casino operators a reason to be happy. The analysts believe that the drop in VIP action could lead to an increase in other segments, such as premium direct and premium mass, and explain, “In the early stage of recovery, we expect operators who have outsized relative positions in premium mass to fundamentally outperform (Melco and Wynn Macau top picks) over the next 6+ months, as premium customers are less affected by the economic impact related to COVID-19 and fewer numbers of customers are necessary to drive GGR growth.”

Still, cautious optimism is needed until a clearer picture emerges. China is about to implement its new and strict anti-gambling laws, coming on March 1, which is going to impact the gambling scene immediately. As a result, Credit Suisse analysts believe that this will have a direct impact on premium mass, which will lead to slower recovery for the segment. They also don’t support the notion that a COVID-19 vaccine is going to be distributed quickly and have lowered their Macau GGR forecast for this year by 14% and next year by 12%.

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