Casinos counter Chinese VIP conundrum

There’s no doubt that the majority of the integrated resorts springing up across Asia were developed with the expectation of attracting China’s VIPs, but with that market in retreat there’s little sign of high rollers from other jurisdictions stepping up to take their place.

This conundrum has left some questioning whether the VIP segment of the market has become oversaturated and how quickly operators will be able to adjust their offering. 

The U.S./China trade war has taken its toll on the Mainland economy, which grew at its slowest pace in almost 30 years in the third quarter. That in turn is feeding through into gross gaming revenue across the region, with GGR in Macau down 4 percent in Q3, pulled down by a more than 22 percent drop in VIP trade. 

In forecasting flat to low single-digit growth in Macau’s gaming sector this year, Fitch Ratings warned of oversaturation in Asia’s broader casino market, noting that investment has continued throughout the region, even though the premium segment has already plateaued in markets like Singapore and Australia.

Fitch Ratings’ Vicky Melbourne says that although Singapore receives a “fair amount” of premium business from other emerging Southeast Asian countries, there is little sign that VIPs from markets other than China are becoming markedly more important in the broader landscape.

With no expansion in the overall market, jurisdictions are fighting for a slice of a shrinking pie.

Macau leaked $1.4 billion of VIP GGR last year to its four geographically closest rival markets of Cambodia, Korea, Philippines and Vietnam, according to Union Gaming. The trend was largely due to junkets seeking better returns outside of Macau, where commission is capped at 1.25 percent.

To counter the VIP headwinds, proactive casinos have taken preventative action to dilute risk. Melbourne explains that capital expenditure (capex) focused on high-roller offerings has “slowed down,” with operators becoming “a bit more careful with credit” following a well-documented VIP downturn between 2014 and 2016, when moving money between China and Macau came under greater scrutiny due to a corruption crackdown initiated by President Xi Jinping.

“Regular mass and premium mass have been the focus point for capex in the more recent past,” Melbourne says.

Stephen Karoul, president and CEO of Euro-Asia Consulting, agrees that reallocating greater portions of marketing budgets to target premium mass players, or even the mass market is a viable option for casinos contending with a worrying shortage of VIPs.

Digging into the best strategies to achieve this, Karoul adds that whilst poker has provided cross-marketing opportunities in new and developing markets such as India, Vietnam and Indonesia in recent years, the exponential growth of digital media across the continent provides opportunities to penetrate via sports betting offerings in the future.

“Sport betting may provide a catalyst to attract new players and build a viable database which may be used for future marketing efforts of more traditional casino gaming,” says Karoul, who highlights “easy and cost-effective” digital marketing platforms such as email and mobile apps for casinos.

“The younger generation is almost addicted to their smartphones, so digital marketing will be easy for them to accept and understand while saving casinos millions of dollars in marketing expense. However, the actual gaming, whether it be table games or slot machines, will need to evolve to become more social and interactive to keep the interest of the next generation.”

Casinos’ entertainment offerings, as well as their marketing techniques, will also need to evolve, according to Karoul.

Taking a step back to see what engages the less unpredictable mass market will be essential for the survival of casinos that had previously been overly reliant on the whims of VIPs.

Melbourne says: “We are coming towards the end of new supply wave targeting Chinese VIPs. Resorts specifically geared towards Chinese visitation with minimal local population to pull from, or visitation from other regions, could face pressure longer-term. Examples include foreigners-only resorts in Incheon, South Korea and Imperial Pacific in Saipan.

As yet, there is little sign that there will be a sufficient increase in VIPs from other markets to replace big-spending Chinese customers. 

For the coming years, at least, the onus will therefore still be on operators to maximise returns from Chinese high rollers, with the state of the country’s economy dictating the health of Asia’s VIP gaming sector.

“The VIP segment is a lot more sensitive to macroeconomic factors in China, including economic visibility and credit availability,” Melbourne says.

“Longer-term the overall regional premium segment will grow roughly at the rate of China's economy with some intermittent ups and downs based on economic and other factors. 

“With the segment being well penetrated at this point, we are reaching this steady growth pattern and there will be winners and losers among the ever-increasing markets catering to this segment.”