Macau government could run deficit if casino revenue doesn’t pick up

macau-government-deficitMacau’s struggling VIP market fell 42.1% in Q1, according to statistics released by the Gaming Inspection and Coordination Bureau (DICJ).

High-rollers lost MOP 37.7b (US $4.72b) at Macau’s baccarat tables in the first three months of 2015, while mass market revenue – including slots and electronic table games – fell 27% to MOP 27.1b ($3.4b). The VIP share of the overall revenue pie came to 58.2%, down significantly from 63% in Q1 2014, which was itself down from its traditional 70% range. The mass market share rose from 36.3% to 41.8%.

Looking closer at the mass category, slot machine revenue was down 26.3% to MOP 2.9b while ‘live multi-game’ products struck the month’s lone positive note, rising 6.3% to MOP 537m. The ‘hybrid’ tables, which combine live dealers with electronic wagering and settlement, are expected to continue to grow, especially with Macau taking a hard line on its live gaming table cap.

Everyone expected the VIP market to be in the dumps but the mass market figure was being closely watched to gauge its ability to mitigate the VIP slide. There is a caveat regarding the mass numbers, as some casino operators reclassified some premium mass tables as VIP midway through 2014 in order to skirt the smoking ban on the mass market floor that took effect in October.

Despite Q1 featuring the Lunar New Year celebrations, the VIP business was down 18% from Q4 2014, while mass market revenue was down a more modest 8.1%. The number of gaming tables in operation at the end of Q1 was 5,630, down 81 tables from Q4, no doubt aided by the closure of many VIP gambling rooms. The number of slot machines fell by 330 to 12,688.

Meanwhile, Macau is expected to post its 11th straight month of revenue declines once April’s figures are released next week. Earlier this month, Citibank analysts projected revenue would decline 43% to MOP 18b ($2.25b), which would be the lowest monthly tally since November 2010.

Citi’s April estimate is below what Macau’s government recently declared to be its ‘new normal’ monthly gross gaming revenue. The government scaled back its expectations for monthly revenue from MOP 27.5b to MOP 20b but some legislators are worried that the government will fall into a deficit position if revenue slips below MOP 20b. Gaming revenue taxes accounted for 83% of total government revenue in 2014.

If monthly gaming revenue was to drop to MOP 17b for the remaining nine months of 2015, the government would take in around MOP 6.3b ($789m) less revenue than its estimated annual expenditure. As such, the government is making contingency plans that would see each department trim its budget by 5% while hoping that 2016 will bring a return to happier times.