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Data on Macau's Chinese VIP market fuzzy says report

The VIP segment, which accounted for 60 percent of Macau’s gaming revenue in 2014, represented just around 100,000 to 120,000 players who on average lost $210,000 that year, data that seems to raise more questions than answers, according to a report by Bernstein Research. 

In listing possible explanations for this concentration of activity, the report says that there are only about two million "millionaire households" in China. And it is possible that individuals from 6 percent of China's millionaire households, or about 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 ~$200,000 each year in Macau, is not going to be a millionaire for long,” Bernstein analyst Vitaly Umansky wrote in the report.

Umansky says that even if you embrace the assumptions that the propensity to gamble in China across all cohorts is very high and that a small group of extraordinarily rich Chinese players - spending 2 percent of their net worth - drive Macau VIP revenues, “the math remains difficult to get your head around.”

The alternative explanation is that there is not only a tremendous skew in who gambles in Macau's VIP rooms, in the context of the entire Chinese population, but there is also a skew in who does most of the losing in absolute terms within those 120,000 VIP players. 

“Here too, the math gets fuzzy fast: there are only 112 billionaires in China according to Forbes. If all 112 billionaires are enthusiastic gamblers...and their average net worth is $2 billion...then assuming they lose 2% of their net worth each year, this cohort accounts for just short of $5 billion in VIP revenues… leaving $22 billion of 2014 Gross Gaming Revenues still unaccounted for.”

The report concludes that there is not enough data on Macau and the Chinese market.

“Our point is not that the Macau casinos are overstating revenues. Our point is that Macau may be the ultimate China data sufficiency problem. We have enough data ($44 billion in GGR) to know that Macau is systemically important. However, we do not have enough data to categorically dismiss many of the anecdotes that get thrown around about Macau.” 


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