About 10 percent to 20 percent of Macau’s premium mass business has relationships with junkets and some may potentially be lost in the fallout from Alvin Chau’s arrest and the closure of Suncity VIP rooms, J.P. Morgan said.
The firm said it’s probably reasonable to assume that junket VIP revenue will fall to near zero, but the picture gets less clear when it comes to the overlap between premium mass and VIP, as many high rollers have relations with multiple junkets and premium mass hosts.
It says its rough “guestimate” is for an overlap of between 10 percent and 20 percent.
“On the positive side, direct VIP and premium mass could see benefits from an expanded addressable market, as casinos can directly cater to previous junket players, particularly those that don’t need credit – by offering high-quality experiences,” it said.
J.P. Morgan notes that margins from direct VIP were between 15 and 25 percent in 2019, higher than the 10 percent from junkets. Premium mass margins stand at about 30 to 35 percent and it’s the segment most operators have been courting in recent years.
Suncity, which accounted for 24 percent of VIP gross gambling revenue, closed all of its VIP rooms on Wednesday following the weekend arrest of CEO Chau on allegations of illegal gambling and money laundering.
The key question is whether this is an isolated incident related to Suncity, or whether there will be a spillover to the rest of the junket sector, the note said.
“We think the message from the government is clear, in that junkets’ proactive gambling promotion (such as credit extension, FX transfer among others) for mainlanders will not be tolerated,” it wrote. “This will not only cripple junkets’ ability to bring VIP players (to any jurisdictions, including Macau), but will also prompt casino operators to reconsider their relationships with junkets.”
This is particularly likely to be the case given the upcoming concession renewals in June next year.
The loss of the VIP segment should not be a major blow for Macau as it is only likely to account for between 1 and 4 percent of operators’ EBITDA in 2023 and onwards, or 2 percent of sector profits.