Morgan Stanley recently released a market report for Q2 of 2016 covering the global VIP gambling market and revealed that Macau, the biggest gambling hub in the world continued to see its VIP market segment decline, with a 21 percent drop year on year while international VIP gambling witnessed a 27 percent increase year on year.

The decline in Macau’s VIP gambling market comes as no surprise as the anti-corruption crackdown launched by Beijing in 2014 has continued and managed to successfully scare away VIP gamblers from Mainland China and hurt the majority of junket operators in Macau. Morgan Stanley released another report at the start of this year called “Global Gaming: VIP Gambling – Overseas Growth at the Expense of Macau” and predicted that Macau’s casinos would continue to struggle due to the collapse of the VIP gaming sector and reported that things were highly unlikely to change in 2016.

The report went on to say that Macau’s decline would benefit overseas markets as VIP gamblers from the Mainland were looking to take business elsewhere and were prepared to spend huge amounts of cash at other casinos were gambling laws were friendlier. Apart from the anti-corruption crackdown, the slowdown in China’s economy, a possible blanket smoking ban in Macau’s casinos and no approval for new VIP tables at Macau’s new casinos since 2015 are factors that have also contributed to the decline of Macau’s VIP gambling sector.

Morgan Stanley attributes the growth of the international VIP gambling sector to the strong performances of new casinos in Saipan and Russia. The report stated that Summit Ascent Holdings’ Tigre De Cristal casino in Vladivostok and Imperial Pacific’s Best Sunshine Live casino in Saipan island had reported significant growth in its VIP gambling and has helped boost international VIP gambling overall.

In a statement, Morgan Stanley said “We think casinos and junkets earn higher margins from VIP business outside of Macau. Comparing EBITDA margin net of income tax across major countries, we find that EBITDA margins (to casinos) in Australia, Philippines and Cambodia are higher than Macau. In addition, rebate/commissions as percentage of VIP revenue are higher outside of Macau, driving higher profitability. 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.”

Macau also imposes a high tax rate of 39 percent on gambling operators whereas other overseas markets such as Russia levy a tax payment of $116 per slot machine and $1,933 per gaming table each month; Philippines imposes a tax rate of 15 percent on gross gaming revenue (GGR) from VIP tables; Cambodia has a flat tax payment on slot machines and gambling tables while Australia imposes a tax rate based on each state’s policy but is still much lower than Macau’s tax rate.