Wynn Resorts (NASDAQ:WYNN)
Historical Stock Chart
6 Months : From Nov 2018 to May 2019
By Ese Erheriene and Patrick Thomas
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 11, 2019).
A run of good fortune for the world's top casino operators is coming to a halt as high-rollers feel the pinch from China's economic slowdown.
Industry analysts are bearish on prospects for casinos in Macau, the southern Chinese territory that is the world's largest gambling hub. Most forecasts call for revenue to fall in 2019 after two years of double-digit growth, though some analysts expect revenue to rise -- albeit at a much slower pace than in recent years.
Sluggish Chinese economic growth and overhanging trade tensions with the U.S. have led wealthy gamblers who make up more than half of Macau's wagers to moderate their betting habits.
Concerns over lower spending sent stocks for U.S.-listed casino operators Wynn Resorts Ltd., MGM Resorts International Inc. and Las Vegas Sands Corp. down over the past year. In 2018, fourth-quarter revenue growth at Sheldon Adelson's Las Vegas Sands slowed to 2.5% from 12% a year earlier as VIP players spent less and growth in the mass-gaming category was lower than expected. At the company's Marina Bay Sands property in Singapore, VIP revenue fell 39% over that period.
Overall gambling revenue world-wide from VIP players is expected to decline 4.5% in 2019, according to research firm Consensus Metrix. The industry defines VIP players as high-rollers who spend on average about $50,000 a hand, but that measure varies considerably, according to analyst Jared Shojaian at Wolfe Research.
"The high-end people are much, much more likely to be affected by the big swings in the economy," said Alidad Tash, managing director at gaming consultancy 2NT8 Ltd. and a former senior vice president at casino operator Melco Resorts and Entertainment Ltd. "People don't feel as rich."
Mr. Tash estimates there will be a 10% decline in VIP gambling this year in Macau that will be mostly offset by an 8% rise in bets from so-called mass players -- more modest gamblers who typically spend about $125 a hand and account for less revenue.
Gambling tables designated for VIP players can handle more than $1 million in wagers a day, while tables for casual gamblers handle roughly $60,000 a day, according to analysts at Nomura Instinet.
Casino operators are increasingly concerned about Macau because it brings in more than five times the annual revenue of Las Vegas. In 2018, Macau generated $37 billion compared with $6.6 billion in Las Vegas, according to records from Macau and Nevada gambling regulators.
Several Chinese high-rollers in Macau late last month said times were tougher. An electronics-factory owner visiting MGM Resorts' Macau property MGM Cotai said he had cut his trips to Macau in half and reduced the size of his bets to 15,000 yuan ($2,224) from 40,000 yuan.
"There's not as much money in the wallet," he said. "Naturally, I would be more cautious, just like you would shop less."
The contribution from high-rollers to global gambling revenue fell to about 47% in the third quarter of 2018, from roughly 50% a year earlier, according to data from Union Gaming, an investment bank focusing on the gambling industry. That figure has been shrinking since 2011, when VIP players accounted for roughly three-quarters of revenue. VIP gamblers include so-called whales, who bet between $10,000 and $400,000 per hand in a card game.
Casinos in Macau had been recovering from a two-year slump in 2014-15 sparked by a crackdown on corruption by Beijing. China's economy, which has slowed to the weakest pace of growth since the financial crisis, is now squeezing casinos again. JPMorgan Chase & Co., Morgan Stanley and Morningstar Inc. are predicting a decline of between 1% and 3% in gambling revenue in Macau this year, compared with a 14% rise in 2018 and a nearly 20% increase in 2017.
Wynn Resorts said last month that net revenue rose 4% year-to-year in the fourth quarter of 2018, compared with a 30% jump a year earlier. The operator's Macau properties are far more VIP-focused than its competitors'. Given the slowing growth, it has become increasingly difficult to predict market revenue in Macau, Wynn Resorts Chief Executive Matt Maddox said on the earnings call.
Fitch Ratings expects the VIP slowdown to spread to other significant gambling markets. The less volatile Las Vegas Strip market -- where VIPs account for about 20% of takings, or net gambling revenue after prizes are paid out -- has been less affected. Total revenue rose 6.8% for the three months ended in December, after falling a similar amount in the preceding quarter, according to the Nevada Gaming Control Board.
In Singapore, where about one-third of VIP revenue comes from Chinese high-rollers, gambling revenue fell 3% in the first half of 2018, compared with a rise of 14% for all of 2017, according to Fitch Ratings.
Las Vegas Sands, which operates Macau properties through its Sands China Ltd. subsidiary, is one of the better-positioned Macau operators because it has more exposure to casual gamblers, a category that has held up better than the VIP segment. Even so, the company's fourth-quarter results were below analysts' expectations. Sands executives said that while Macau revenue and profit rose in 2018 from the prior year, the territory would continue to be pressured in the high-end gambling segment in 2019.
"The VIP segment will continue to be challenging," said Rob Goldstein, president and chief operating officer at Las Vegas Sands, on an earnings call in January.
--Yifan Wang contributed to this article.
Write to Ese Erheriene at firstname.lastname@example.org and Patrick Thomas at Patrick.Thomas@wsj.com
(END) Dow Jones Newswires
February 11, 2019 02:47 ET (07:47 GMT)
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