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Sanford C. Bernstein: VIP Gambling Won’t Be the Backbone of Post-COVID Recovery

Article by : Helen Feb 1, 2021

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Updated: Apr 2, 2022

It’s hardly a new trend, but the COVID pandemic – as well as China’s crackdown on overseas gambling – just made it clearer: VIP gambling is no longer likely to be the most profitable segment of the market, especially in Macau.

As 2020 has shown, the mass market was quicker to start bouncing back to pre-pandemic levels. While VIP baccarat kept outperforming mass baccarat every year before the pandemic, 2020 brought the gap between the two segments to its historical minimum. Furthermore, mass-market baccarat managed to outperform the VIP segment, which is an outstanding fit in on itself. In 2020, it brought in 26.94 billion patacas (roughly $3.37 billion) in revenues in 2020 – 656 million patacas ($82.17 million) more than VIP baccarat (26.28 billion patacas, or roughly $3.29 billion).

On the other hand, signs have been there all along: the gap between VIP baccarat and the mass-market one was closing in even several years before the pandemic. In 2019, the gap between the two segments shrank to just 14.455 billion patacas ($1.81 billion) – an impressive change considering that in 2018 the VIP baccarat brought in 63.7 billion more patacas ($7.98 billion) than its mass-market counterpart.

Analysts at Sanford C. Bernstein share the opinion that VIP gambling is unlikely to be the cash cow for the Macanese casino industry as it used to. Last November, they projected the VIP gross gaming revenue to bounce back to its 2019 levels only in 2023. Now their estimations are even worse for the VIP segment. According to the most recent report by Bernstein, the VIP segment revenues will remain under the 2019 levels even by 2025.

If Bernstein’s projections turn out to be right, VIP gross gaming revenues will reach only a half of the 2019 levels in 2021, while mass gambling will bounce back to 75% of its revenues in the pre-pandemic year.

Morgan Stanley analysts are even more pessimistic about the VIP segment’s recovery: they predict its revenues to reach 40% of its 2019 revenues, while mass gambling will recover to 80% of its pre-pandemic volume. The coronavirus pandemic isn’t the only one to blame for the segment’s stagnation, of course. It has a lot more to do with China’s crackdown on junket operators that facilitate mainland Chinese VIP gamblers’ trips to overseas territories where casinos are legal (Macau is among the closest territories for such an endeavor).

With fresh amendments to China’s Criminal Law entering into force on March 1, 2021, junket operators are scared off – and rightfully so. If found guilty, they might be facing from 5 to 10 years in prison. And, according to the amended laws, the number of VIP clients doesn’t matter anymore. (Before the amendments were, junket operations were outlawed only as long as the services were provided to a group of 10 or more mainland Chinese nationals.)

China’s move to tighten its grip on its citizens who might want to indulge in VIP gambling across the border is hardly an unforeseen one. It’s been the country’s policy for years now, all in an attempt to curb the outflow of cash that was harming the yuan and China’s economy. It went up a notch in June 2020, when China’s government declared cash outflow caused by overseas gambling “a national security risk,” which “put pressure on [the Macanese casino industry’s liquidity.”