[Corrected to change quote reference from Wilfred Wong to Davis Fong]

With the Chinese and Hong Kong economies expected downturn even after quarantine restrictions are lifted, the local gaming sector will take years to recover, business and gaming consultant Sudhir Kal, told Macau News Agency.

The founder of GamePlan Consultants and former advisor to Sands China, Wynn Macau, Galaxy and Melco, Kal said that despite the recent easing of restrictions between Macau and Guangdong, with the tightening of policies for Hong Kong, and while the issuing of individual and group visas for mainlanders does not resume, the current situation will get a lot worse before it gets better.

Starting from Wednesday, people travelling to Guangdong from Macau will no longer have to undergo the mandatory 14-day quarantine in the Chinese Province if they can provide a negative Covid-19 test and make a declaration of their good health through the health codes of both regions.

This same week, authorities indicated that anyone coming from Hong Kong will have to present a valid negative Covid-19 test to be allowed to enter, having still to complete a 14-day quarantine afterward.

At the height of the casino boom, we had US$46.8 billion in gaming revenues. It will be a huge downturn. Im not very optimistic about things picking up for the rest of this year or even for next year [] Hong Kong used to be a relatively big market after Mainland China for Macau, and I think Hong Kong will be in a recession in the foreseeable future, partly because of Covid-19 but more because of the protests. I think that revenue will be less than half even after restrictions are lifted, Kal noted.

Macau received 39.4 million visitors in 2019, of which 71 per cent were from Mainland China with about half coming through the Individual Visit Scheme and 18.7 per cent coming from Hong Kong.

The government, as well as the casinos, like to portray a positive outlook than what reality is. [Legilsator and researcher] Davis Fong, was quoted as saying that Macau would be able to do US$1 billion a month. I think were far from that.

Macau reported some MOP716 million (US$89.4 million) in gross gaming revenues for June, a 97 per cent year-on-year drop.

China is one of the few economies poised to grow in 2020, according to the International Monetary Fund, but the 1.2 per cent growth forecast for the country is a sharp slowdown from the countrys economic performance in previous years, with a downturn expected for Hong Kong.

According to Kal, there is an interesting correlation between the volume of Chinese government loans and capital introduced in the construction sector and the performance of junket operators, with the downturn expected to reduce the usual cashflow running towards local casinos via the VIP sector.

If you look at the VIP and premium mass segments, and the people that make these two segments in Macau, they tend to be politicians or business owners [] but the money is not going to be available. Their working capital is going to be so constrained that I dont think there will be a lot of demand in the junket sector or premium mass, he added.

However, despite the decrease, while incurring large operational expenses and unable to lay-off local workers, local gaming concessionaires find themselves in a tight spot, as they are unable to put a hold in their scheduled non-gaming investments, under the risk of running afoul of the local government before the expected gaming license renewal.

Every company is losing a lot of money. Wynn is losing about US$2 million a day, Sands China about US$3 million. When I was working in Sands China, across all our properties we had about 200,000 people coming through our doors, across all properties every day, and today were getting about 15,000 or 17,000 people. That has been a great change, and of course, it will take a huge toll, the consultant noted.

There is your continued investment in terms of your fixed capital, for example, what is happening with The Londoner and other properties where Sands said, Well it doesnt matter, we will continue to invest US$2 billion renovating Cotai Central into The Londoner.

Still, the gaming consultant noted that concessionaires have considerable cash reserves and can also sustain themselves for months with reduced revenue by negotiating credit with their financial partners.

Recently brokerage Morgan Stanley predicted that all six gaming operators will report negative property earnings before interest, taxes, depreciation, and amortization (EBITDA) in the second quarter of this year, for a total of MOP1.03 billion in losses.

Contingency plans for hard times

In order to face the dire current situation, Kal made some possible contingency plans that gaming operators could put to use; namely, widening their market, weaning themselves out of VIP, and broadening their definition of premium mass.

-Widening their market

With President Xi tightening his power, I think we will have more and more bold moves to control capital flows from Mainland China. It will get even worse and we know not all money that arrives in Macau comes from very legal and legitimate means. Theres already a tightening in terms of UnionPay cards and jewellery shops, he added.

That being the case, companies need to widen the geographic base of their market. There will be markets like Indonesia and Singapore, Malaysia, India. Dont put all your eggs in the same basket of China.

-Weaning themselves out of VIP

VIP looks good on paper because its a very large amount of revenue, but the profits are negligible. Considering the thin profit margins, you are also exposing yourself to a lot. After you pay the commissions and everything, baccarat becomes an almost even money game for the operator. [] Cast a wider net.

-Broaden your definition of premium mass

Where its been HK$3,000 a hand, maybe include people betting HK$1,000 per hand and include them in your premium mass and share all the perks. In the current environment, if you are welcoming 50 to 60 guests in your casino, if you take the lower limit players and treat them well and increase player investment, they will become loyal to you. In the past, we got too spoiled with people making huge bets and even casinos got addicted to the big betters. What people can afford has changed and this will remain maybe for two or three years at least. You should look at the people with lower betting limits and try to establish a strong consumer franchise with them and make them loyal to that particular casino.

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Gaming sector will take years to recover as China and HK economies reel from pandemic -Consultant - Macau Business