For the first time in many years, the most popular gambling destination in the world may see a decline in its annual revenues. VIP high-rollers have been the major source of income for Wynn Macau, Galaxy Entertainment, and a multitude of other casinos in the Chinese territory since they were established. However, if these high-spending players stop gambling, the casinos would have to have a very hard hit, experts say.
Reasons for the drop in revenue
Revenues from slots and other games in the mass market can account for very few high spending players in some casinos. Although the number of VIP players for these games is less, the profit obtained from them is very high. The EBITDA margin on high-rollers, according to Kim Eng Securities, is over 10 percent, while the margin on general gamers is set at 35 percent.
According to the calculations of Breakingviews, suppose that by 2015, the revenue from VIP gamers falls by 20 percent, then the EBITDA margin for operators that rely heavily on high-rollers (such as Galaxy Entertainment) is bound to decline by 3 percent. Other operators, like Wynn Macau, could see a revenue decline by 1 percent. However, casinos that cater to mass gamers (Such as Sands Casino) are likely to see a 4.5 percent growth in revenues.
In third quarter of 2014, the revenue from VIP gaming plunged 19 percent. By the end of the year, the numbers could fall by another one percent, as estimated by Barclays. Further, the new ban on smoking put forth by Macau casino regulations could make the revenues fall further, the estimate says.
What is estimated in the long run?
Further, Sheldon Adelson, the Chief Executive Officer of Las Vegas Sands casino, warned investors on the 16th of October that there might be a plunge in Macau’s gambling arena in the long run. The revenue forecasts for 2015 for Macau are overoptimistic too, according to recent reports. The short term investment in the Macau casino industry seems too worrisome too.