Macau’s casino industry has been in decline for the past 18 months with gambling revenue for Macau’s top six casinos falling 40% in the first half of 2015. Industry experts predict that decline to continue through the next two quarters.

One reason for the landslide is that VIP gamblers from Mainland China have decided to stop visiting Macau and have preferred to visit countries like Vietnam, Cambodia, South Korea and the Philippines where the gambling laws are friendlier. These VIP gamblers were responsible for generating more than 50% of gambling revenue and their absence makes it difficult for Macau’s casinos to post consistent profits under current marketing models.

A recent report released by Sanford C. Bernstein Co LLC states that Macau’s casino industry can revive its fortunes if it starts to focus on mass gamblers instead of continuing its old strategy of focusing on VIP gamblers. Specific strategies are difficult to craft, not because of a lack of general gaming data, rather for a lack of specific data under current reporting requirements.

The Bernstein report stated that “There are only something like two million ‘[U.S. dollar] millionaire households’ in China. It is possible that individuals from approximately 6 percent of China’s millionaire households (around 120,000 VIP players) lost up to 20 percent of their net worth to Macau casinos in 2014. However, that business model simply is not sustainable. That 120,000th richest VIP, by virtue of losing ~US$200,000 each year in Macau, is not going to be a millionaire for long.”

The report states that Macau’s casinos should start to focus on attracting new customers from the general gambling category and not worry too much about the VIP segment. Beijing has also issued similar instructions to Macau’s government instructing them to focus on changing Macau’s image of being the biggest gambling hub in the world, to being a place that is more tourist and family friendly.

The Bernstein report concluded by stating that current government policies stifling VIP action in Macau will likely continue into 2016 and as a result most of the VIP gamblers have already moved out of Macau and don’t intend to come back anytime soon. Casinos will have to change their strategy quickly if they are to begin a recovery process and the best way to start was to target mass gamblers and then look at converting them into regular customers.

 

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