GGRAsia – Macau Gaming Shielded in Global Recession: Brokerage

Macau Gaming Shielded in Global Recession: Brokerage

Macau Gaming Shielded in Global Recession: Brokerage

A potential global recession would have “some impact” on the United States casino industry, but limited impact on Macau’s casino industry, a Wednesday report from brokerage Sanford C. Bernstein Ltd. suggests.

The institution said it used its own “regression model”, taking into account further recovery after Covid, to measure the potential effect a global recession could have on the game industry in the US and in Macau.

“We would expect that the overall impact of the next recession could result in national gross gaming revenue in the U.S. [GGR] drop between 3 and 11 percent,” analysts Vitaly Umansky, Louis Li and Shirley Yang wrote. They said the latter part of the range was indicative of a severe recession, “which seems less likely at this stage.”

“The recovery of US non-gaming revenues from Covid could further support revenues in a recession that could unfold in the next 12 months,” the Sanford Bernstein team said. “With the cost restructuring that took place during Covid, US casinos are now much leaner with better cost structures than they had been in previous recessions.”

The brokerage said it believes global gambling operators with exposure to Macau “could be better positioned to hedge recession risk,” despite the recent downward trend seen in Macau casino GGR.

Macau’s revenues have been about as low as it gets due to travel restrictions due to Covid, and any impact on Macau from an economic slowdown in China would be minimal in light of the recovery to be boosted by opening the borders,” the report suggested, citing the easing of travel between Macau and the mainland, and between Macau and Hong Kong.

Mainland China was the only place with a largely quarantine-free travel arrangement with Macau. But restrictions have been imposed since mid-June due to the worst Covid-19 outbreak in Macau to date.

Macau’s infection count in the current outbreak — the first since October and which began on June 19 — had reached 941 by midnight Monday, with 89 new cases in 24 hours.

In Wednesday’s report, Sanford Bernstein also said Macau’s gaming industry was “better positioned for future economic cycles”, following the “disappearance” of junket operators from the market and with GGR “largely driven by mass/premium mass”.

In December, a number of casino operators in Macau announced that many junkets had ceased its activities at their properties. The bosses of the two largest junket operators in Macau have been arrested and are currently being held on suspicion of illegal gambling and organized crime.

Sanford Bernstein said in his report that a “recovery from Covid disruptions in Macau will mitigate much of the potential negative demand impact of an economic slowdown in China.”

The Casino Industry in Macau generated GGR from nearly MOP26.27 billion (US$3.25 billion) in the first half of 2022, the lowest since the MOP25.75 billion recorded for the first six months of 2006, according to official data.

The analysts said they expected any potential impact of a “pure economic recession” on Macau would be offset by the city’s eventual recovery from the pandemic.

They added: “There is limited room for VIP revenue to fall further. Meanwhile, as Macau’s revenue structure now leans heavily toward mass business…once the border fully reopens, the mass recovery should prompt the sector to bounce faster.”

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