The fight over VIP gamblers in Asia is heating up. As more casinos come online throughout the region, junket operators are more than willing to go where the money is. Wynn Macau has noticed that its collection of contacts driving traffic to its venues is fallen and is prepared to do something about it. For the first time in 14 years, the Asian casino arm of Wynn Resorts is going to give casino junkets a raise.
Most employees, a category to which junkets could loosely be attributed, would never wait 14 years to see their pay get a boost, and there’s little doubt that Wynn has made the decision out of a belief that an increase was in order. Instead, it comes down to sheer economics. Forbes points out, thanks to a report by analysts with Trefis, that Macau’s VIP segment contributes 40% of the company’s overall casino revenues. That’s a huge chunk that should be rewarded for its efforts.
As of March 1, Wynn is going to give junkets a commission of 42.5%, up from the previous 40%. This should put it in line with what other casino operators offer and allow Wynn to be more competitive in the shrinking junket market.
It took a massive hit in its junket share for Wynn to make the move. The company’s rolling share, according to analysts with Credit Suisse, went from 23% in the first quarter of 2019 to 20% by the end of the year. It continued to fall as the new year rolled around, dropping to as low as 16% last month. The analysts point to the obvious and basic business premise, explaining, “As volume shrinks, junkets will naturally allocate business to operators offering higher commission.”
The Credit Suisse analysts, Kenneth Fong, Lok Kan Chan and Rebecca Law, were caught off-guard by the increase, as most likely were the junkets. They point out that Wynn has always favored product over pricing, and state, “We are very surprised by such a move, especially with such minimal demand now.”
Based on the increase in commission, Wynn Macau could feel a pinch in its wallet. The analysts point out that the company’s EBITDA (earnings before interest, taxes, depreciation and amortization) margin from junket VIP activity hovers around 13%, but could now drop to 10%. It could also signal a negative overall EBITDA impact of around 7%, which could ultimately be offset somewhat if Wynn’s pay raise hits its target and attracts more business.
It’s not going to be an easy task, though. Due in no small part to the coronavirus, VIP action is down around 80% since the casinos in Macau reopened last month following an obligatory, temporary closure. Mass gaming is down, as well, plummeting a massive 90%.
