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Slot Machines in VIP Rooms Show Desperation of Macau Casinos

The desperation at Macau casinos is evident these days: At the recent opening of a VIP gambling room for high rollers, Chinese lions are dipping and arching to the clang of cymbals. There’s roast pig, a red carpet - and banks of slot machines adorned with Chinese money gods and dragons.

Wait, slot machines? Usually a VIP room is filled with baccarat tables, with those downscale slots relegated to the entrances. But this first-of-its kind VIP slots room, with only a few high-betting tables at all, shows how much those who run such operations need to drain every dollar from their busiest season, Lunar New Year.

A week after the opening in mid-January, the room was already ready to forgo the HK$100, 000 ($13, 000) membership fee required to play.

"Come and play! We even accept HK$1, ” invites an employee of the VIP room at the Jimei Casino, one of 20 in Macau owned by SJM Holdings Ltd. That’s about 13 cents. Zhang Zheng, the operator of the room, was the only one in sight playing.

Back in 2014, before a crackdown on corruption in China and the so-called junket operators such as Zhang who shuttle Chinese big spenders to Macau and finance their bets, casino revenue reached a record $4.8 billion in a single month. This year won’t see nearly those numbers. Revenue has been falling for 20 straight months to less than half its peak, or 18.7 billion Macau patacas ($2.3 billion) in January.

Slot machines only contributed 5 percent of the city’s total gambling revenue last year. Yet they have "die-hard fans, ” said Zhang, who has been aggressively promoting his business ahead of the Year of Monkey to pull in customers and offering higher-than-average commissions to agents who bring patrons in. If big spenders get credit to play slots, he reckons he can get revenues three to five times higher than the average of the machines on the mass gambling floors.

“Operating a traditional baccarat VIP room can barely make profit these days, ” said Zhang, who is counting on VIP-room slots’ novelty to draw customers even though he doesn’t think the peak season can help the overall situation. “I am confident the VIP slots room can perform well because it faces less competition.”

“Junkets are still in economic distress, as they are willing to try anything to increase revenue, ” said Grant Govertsen, a Macau-based analyst at boutique investment bank Union Gaming Group, which specializes in the industry.

The BI Macau China Gaming Market Competitive Peers Index climbed 2.2 percent Tuesday after falling 46 percent in 2015.

Alleged thefts by employees at junket operators in recent months have worried investors who have withdrawn their money and caused some operators, who also found it increasing difficult to collect debts, to be more wary about lending. A lack of funds also tightened the amount they can lend. The number of junket operators has dropped 23 percent in a year, to 141, government statistics show.

Last year, more than 30 VIP rooms closed in four months alone and more closures might come after the Lunar New Year, depending on their performance and their cash flow, said Kwok Chi-chung, president of Macau’s Association of Gaming & Entertainment Promoters.

“Junkets have not enough capital or they dare not take the risk to lend in the weakening economy, ” said financial controller Derrick Wong of junket operator Iao Kun Group Holding Co., which is listed on Nasdaq.

Vacationing, cash-paying patrons might be some cause for optimism, as they are expected to outnumber high-end players in the April-June period, when revenue during Chinese New Year will maintain at last year’s level in February, said Billy Ng, a Hong Kong-based analyst at Bank of America Merrill Lynch. Casino companies, such as Sands China Ltd. and Galaxy Entertainment Group Ltd., are building more non-gaming amenities to woo more tourists as mandated by the Macau government.

The pace of decline in the mass market has been slowing to 1.9 percent in December from a 21 percent drop in October, narrowing the gap with VIP customers, according to data compiled by Bloomberg Intelligence. DS Kim, a Hong Kong-based gaming analyst at JPMorgan Chase & Co., predicts a year-on-year growth in the mass market in the second quarter.

Signs point to the increasing dominance of mass bettors. VIP gamblers once occupied more than 75 percent of Macau hotel rooms and now account for less than 40 percent, Ng said. Still, it takes five mass gamblers to make up the lost revenue from one VIP, according to Aaron Fischer, a gaming analyst at CLSA Ltd. in Hong Kong.

As Macau transitions into a destination that caters to tourists as well as gamblers, seasonal factors such as Lunar New Year will become even more important, Ng said.

“In the past, we relied a lot on VIPs, ” he said. "Those guys usually don’t need to work. They come anytime they want. They take up a lot of weekday traffic. Without them, we have to rely on holiday seasons more.”

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