Asia's Casinos In 2017 Won't Just Be About China Anymore

Happy new year. After largely successful forecasts for 2016, let’s highlight what won’t happen in Asia’s casino business this year. Macau won’t return to the breakneck growth of early this decade or provide any further clarity what happens when casino licenses expire (tenures begin to end in 2020). A failed casino executive in the White House won’t spark an industry boom in Asia. Japan won’t pick the locations or operators for the integrated resorts it approved in concept in December. China won’t relent on President Xi Jinping’s anti-corruption drive, which has morphed into a crackdown on illegal money transfers that continues to reshape Asia’s casino business. With that in mind, let’s look at what is likely to happen in 2017.


Long way back for Macau

Praveen Choudhary, Asia equity analyst at Morgan Stanley, makes a convincing argument for 10% gaming revenue growth in Macau this year. Reasoning in his report, written with colleagues Alex Poon and Thomas Allen, includes more guest rooms at casinos – thanks to the opening of MGM Cotai and Melco Crown’s City of Dreams’ fifth hotel tower – and continuing cyclical upturns in key mainland China economic factors. The report’s real takeaway is about Ebitda. Morgan Stanley estimates gaming licensees’ property Ebitda grew 5% in 2016 and will grow 13% this year then 8% next year. That compares with average growth of 36% annually for the seven years to 2014. Industry-wide Ebitda in 2015 was 35% below the peak of 2014, and the 2018 projection remains 18% below 2014. Macau fell into a very deep hole, and it will be a long climb just to reach where it was.


China continues to crack down on money transfer beyond the mainland. Expect more signals, such as the arrests of Crown employees in the mainland on gambling promotion charges and last month’s nuisance cut in UnionPay ATM transaction limits, but not daily withdrawal limits, so travelers can get the same amount of money with twice the inconvenience. Macau’s gaming revenue growth will struggle to exceed mainland China’s GDP growth rate. In the long run, though, China would rather that its citizen gamble in Macau than anywhere else in world, ensuring Macau’s future within the constraints the mainland leadership sets. Call it the iron baccarat shoe.