Macau VIP Revenue Drags Down Global Q2 VIP Segment Performance

A report from the investment firm Morgan Stanley has shown that apart from Macau, global VIP revenue has finally started growing again. After two years of decline, the VIP casino global gambling revenue for this year’s second quarter has shot up by 27 percent year-on-year for all regions barring Macau.

The report states that VIP gambling revenue growth has been largely driven by casino performances in Saipan and Vladivostok and junkets shifting focus to newer gambling locations like the Philippines which offer the advantage of lower taxes.

Saipan hosts the Imperial Pacific Resort which is operated by Imperial Pacific International Holdings Ltd in the United States’ Commonwealth of the Northern Mariana Islands while Tigre de Cristal is a casino resort in Russia promoted by Summit Ascent Holdings Ltd. The Entertainment City in Manila, Philippines has also attracted the attention of international casino operators.

Commenting on Macau’s performance, Morgan Stanley said that there was no indication of a recovery for its VIP segment in the near future. According to the firm’s report, Macau’s VIP revenue in the second quarter of 2016 dropped by 13 percent on a sequential basis and by 21 percent on a yearly basis.There has been no new allocation of VIP tables to its casinos since 2015. The report also pointed out that a smoking ban was on the anvil, which industry experts believe will have another negative impact on revenues.

The decline in the Macau’s VIP market resulted in the worldwide VIP revenue dropping by 6 percent year-on- year, which however was a slower decline than the 19 percent observed in the first quarter of the year. The Morgan Stanley report has suggested that casinos as well as junkets are earning better margins in the VIP segment in gaming markets outside of Macau and has indicated that the shift to these markets will continue.

In a statement, analysts at Morgan Stanley said

We think outside of Macau will continue to gain share given lower effective tax rate, easing visa policy for Chinese outbound tourists, improving infrastructure and player anonymity, driving higher profitability for junkets/casinos.

Casinos currently pay an effective tax of 39 percent in Macau while Cambodia’s casinos pay a flat tax rate. The tax structure for gaming facilities in Philippines is presently under debate but previously casinos were required to pay 15 percent of their gross gaming revenues (GGR) from high roller and junket operations and 25 percent mass market tables and slots.