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Changing fortunes: Sports teams rise, fall — and so does Macau gambling

25 Jun 2014

By Howard Stutz
The last time Macau’s casino industry experienced a monthly gaming revenue decline, the Los Angeles Lakers won their 16th National Basketball Association championship and the Los Angeles Kings were National Hockey League doormats.

Fortunes can change quickly in both sports and gambling.

Last season, the Lakers were one of the NBA’s worst teams. The Kings won their second Stanley Cup in three years.

In Macau, there are ominous signs the market will suffer its first gaming revenue decrease since June 2010.

That sound you hear isn’t Wall Street jumping off the bandwagon, but the noise made by hitting a pothole on the revenue superhighway.

Gaming analysts told investors to relax and catch their breath.

Don’t start selling off your shares of Las Vegas Sands Corp., Wynn Resorts, Limited and MGM Resorts International just yet. The Nevada companies are spending billions of dollars to expand their Macau holdings by 2016. That won’t change.

Through the first five months of 2014, Macau’s gaming revenue total is up 15.8 percent over 2013. Last year, the three-dozen casinos in the Chinese special administrative region produced a world-record $45.2 billion in gaming revenue.

The 2013 figure was an 18.6 percent increase over 2012’s previous record of $38 billion.

On Monday, Sterne Agee gaming analyst David Bain warned investors to brace for bad news when June’s revenue figures are released next week by Macau’s Gaming Inspection and Coordination Bureau.

But he didn’t revise his initial projections for an 11 percent gaming revenue increase for all of 2014.

“Following investor-digested, mostly sensationalized issues, concerns have shifted to short-term (high-end) results driving overall (gaming revenue), creating a salivating buying opportunity for longer-term investors,” Bain said.

Once again, soccer is to blame.

Macau’s high-end end gamblers have a much higher interest in results from the World Cup matches in Brazil than the cards flying across the baccarat tables in peninsula and Cotai Strip casinos.

In June 2010, gaming revenue in Macau declined 20 percent. The month coincided with the opening matches of soccer’s 2010 World Cup in South Africa. The drop was met with a chorus of vuvuzelas.

Fast forward four years and history is repeating itself.

“Gaming revenue headwinds from the World Cup have begun,” Bain said. “This once in every four-year disruption does not change our long-term secular outlook. We would use any corresponding stock weakness as a buying opportunity.”

Bain noted that in July 2010, gaming revenue surged 18 percent. He expects a similar event next month with the World Cup ending on July 13.

“Post-World Cup pent-up demand positively influenced the back half of July 2010,” Bain said.

So where is all the baccarat wagering going?

According to Hong Kong’s South China Post, police last week broke up an illegal betting ring at an unnamed Macau hotel that took in roughly $645 million in wagers on the World Cup, including a single bet of $51.5 million. It was the second-such arrest for illegal soccer wagering.

The illegal sports betting market siphoned off bets that could have been placed with the Hong Kong Jockey Club, which has a government-mandated monopoly on sports and racetrack wagering.

That sound you’re hearing is the samba.

Deutsche Bank gaming analyst Carlo Santarelli said Macau’s June prospects caused him to lower his second-quarter and 2014 estimates for Wynn Resorts. The three-month period ends Monday and Wynn draws 80 percent of its quarterly revenue and cash flow from Wynn Macau and Encore at Wynn Macau.

Santarelli didn’t lower his expectations for Wynn’s price per share, which closed Tuesday at $201.64, up 48 cents, or 0.24 percent, on Nasdaq. The company’s share price is the highest in the gaming industry.

“Our property level forecasts are down given lower (high-end) volume and lower-than-expected mass revenue specifically,” Santarelli said.

Wells Fargo Securities gaming analyst Cameron McKnight said he expects the Macau numbers to be down in June, but he didn’t change his outlook for the market.

“(High-end) play continues to be impacted by the World Cup,” McKnight said. “We would expect levels of play for the rest of June to trend around or below current levels.”

McKnight warned investors, however, the rest of 2014 could be “choppy” because of a number of factors, including “decelerating credit growth and a softer macroenvironment.”

The only other time in recent history the market came close to a decrease was in July 2012, when gaming revenue climbed just 1.5 percent. Twice already in 2014 have Macau’s gaming totals increased by less than double-digit percentages.

So nothing is impossible.

Then again the Kings will be gunning for their third hoisting of the Stanley Cup in 2015.

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