Remember that great quote in Ocean's Eleven about how, "The House always wins"?
Well, it turns out that 'The House' doesn't always win, especially in Macau where the current demand for gambling has been squashed by government legislation.
After years of double-digit growth Macau gross gaming revenues have plummeted to levels not seen since 2011. The latest data from Macau's Gaming Inspection and Coordination Bureau shows just how rapid the decline has been, with February 2015 revenues declining almost 50% over the prior year.
Source: compiled. Data from Macau Gaming Inspection and Coordination Bureau.
The fall could spell disaster for Crown Resorts Ltd (ASX: CWN) which has a 33.6% interest in Melco Crown Entertainment. The Joint venture owns a number of interests in Macau, including the giant City of Dreams resort.
New anti-corruption restrictions imposed by China and partial smoking bans have put an end to most of the high yielding VIP 'junket' operations in Macau. While the prospect of full smoking bans in casinos could further dent demand from the lower yielding mass gaming market, which had been slated by many as the likely saviour.
It sure doesn't look that way for Crown, which for the most recent half year reported its share of Melco Crown's reported Net Profit After Tax (NPAT) plummeted 42.2% to $85.3 million. Melco Crown made up 41% of Crown Resort's total reported NPAT (before significant items) in the 2014 financial year, so it is a big deal for investors.
Despite the fall in revenues, there has been little reduction in the number of available gaming tables. Data shows gaming tables reducing by just 0.7% in 2014, despite gross gaming revenues which dropped by an average 15% in the last six months of 2014.
Source: Compiled. Data from Macau Gaming Inspection and Coordination Bureau.
City of Dreams had around 500 tables in 2014, the same number as Crown Melbourne. But unlike Crown Melbourne, City of Dreams is not a monopoly operation so as competition for gamblers heats up, costs will likely rise. The result is bad news for investors in the short term.
Shares in Crown Resorts have already fallen 19% in the last 12 months, compared to a 5% rise in SKYCITY Entertainment Group Limited-Ord (ASX: SKC). And although Crown is pursuing aggressive growth plans in Perth and Sydney, the long-term impact of the Macau gaming market suggests the 'Crown House' will be battling to win in 2015.
