Macau Junkets reduce High Roller Credits - Casino Revenue falls 19 Percent

Macau’s gross gaming revenue has fallen 19 percent to 493 million patacas ($62 million) a day, and there’s a very simple reason why: junket operators are extending far less credit to high rollers now.

Operating on mainland China, junkets recruit high rollers and loan them money, which is highly important because it’s illegal for Macau casinos to extend credit. Unfortunately, many junket investors are leery following a $258 million theft at one company by its former employees.

As Bloomberg reports, MGM China Holdings Ltd. stocks fell 7.7 percent in Hong Kong, Wynn Macau Ltd. fell 5.6 percent, Galaxy Entertainment Group Ltd. dropped 5 percent, SJM Holdings Ltd. fell to 5.8 percent and Sands China Ltd. lost 2.9 percent. Boomberg believes that this is the lowest point in three years for these casino stocks.

Aside from less junket investors and the massive theft at a junket operator inside of the Wynn, Macau has been hit hard by tighter restrictions coming from mainland China. The Chinese are bent on limiting corruption within local governments, including Macau. They are also seeking to minimize money laundering by imposing stricter controls on the Macau high-roller scene.

Another factor working against Macau casino revenue right now is the government’s mission to make this gambling haven a more all-around entertainment destination. Top Chinese officials see Las Vegas as the desired model for long-term growth and stability in Macau. But in the short term, all of these changes are combining to cripple gaming revenue and keep many high rollers away from the world’s largest gambling mecca.

High rollers make up two-thirds of the gaming action in Macau, so their economy takes a huge hit whenever big players aren’t visiting.

“If tighter junket regulations are adopted, we think the negative initial impact on VIP volumes would be inevitable, driven by the likely accelerating junket room closures,” wrote DS Kim, an analyst at JPMorgan Chase & Co.

Assuming there’s any silver lining here, it comes in the fact that Macau casino revenue may not have much further to fall. Kim added that any future stock drops should be “fairly limited” because VIP gamblers are becoming less of a factor in the market. But on the other hand, growth may be limited until Macau can finally start recruiting more visitors who are seeking all-encoming entertainment.