Following through on campaign promises, Donald Trump started announcing new tariffs on Chinese goods in early 2018, with tit-for-tat additional tariffs announcements on goods from both sides ever since. Both countries have actually experienced some economic growth as a result of the trade war, largely due to desires of businesses to increase output and trade prior to the tariffs being imposed (the announcements generally precede the actual imposition by several months), but unless a new trade agreement is soon reached, it would appear inevitable that the Chinese economy will start demonstrating some of its impacts.

In particular we recognize that the Chinese are amongst the largest consumers of casino entertainment in the world, contributing the lion’s share of an Asian gaming market of approximately $55 billion.  Analysts, investors and operators therefore are closely monitoring tweets, continually needing to re-assess the potential long-term effects of the trade war on the gaming industry; this has already been demonstrated by a beatdown on Macau-centric stocks (a September 13 Macau Daily Times article notes that the stocks of Galaxy Entertainment, Wynn Macau, Sands China and MGM China all hit 52-week lows at the close on September 12th), but it should be noted that Chinese gamers are critical to major gaming jurisdictions everywhere. A couple quick questions to consider:

  • (When and how bad) will the trade war start demonstrating harm to the Chinese economy?
  • What has/will that mean in terms of Chinese outbound tourism and gaming behavior, from a Mass Market and VIP perspective?

Thus far evidence that the trade war (behaviorally in terms of discretionary spending) has impacted Chinese gaming and tourism behavior can be viewed through several different lenses. From a positive perspective, gaming revenues in Macau were up over 10% for six straight months through August of 2018, including a 17.1% growth rate for August 2018 over 2017. It could be argued that this growth rate was inflated by the fact that the worst typhoon to hit Macau in over 50 years happened in August 2017, such that it had a low base to grow from, but the August 2018 GGR was still the second highest monthly total since October 2014 (only slightly exceeded by October 2017 – the Golden Week holiday period falls every year in October, contributing to annual tourism peaks during that month).

From a negative perspective, while revenue growth of over 10% for a relatively mature market would be a success story in most markets, many analysts had forecast monthly GGR growth rates closer to 20% for much of 2018, attributable to the opening of several high-profile gaming properties. Several factors account for this lower-than-anticipated volume. Year-over-year visitation to Macau from Mainland China was up 7.6% in July 2018, and up 12.3% cumulatively year-over-year through July (equating to 70% of all visitation), but visitation from Korea has been down sharply in 2018 and flat from other major feeder markets such as Hong Kong, Taiwan and Japan. This would suggest that Mainland Chinese visitation is not the sole culprit in the ‘underwhelming’ trajectory of gaming revenue growth. Additionally, it has been reported that while mass market visitation and spending growth has remained strong, VIP demand is down. This may be indicative of the fact that wealthy business owners (VIP gamers) are starting to feel the impacts of the trade war, while the mass market has not yet felt it. As a result, there would not yet be a demonstrable impact on visitation, but GGR growth has not been as strong as would otherwise be expected.

Another super-typhoon hitting Macau and Hong Kong in September 2018 will continue to murky the waters numerically regarding the impact of economic issues on Chinese gaming behavior in Macau.

Visitation to Singapore from China has varied significantly month-to-month in 2018, ranging from an 8.1% decline in January to a 36.3% growth in February; however, more recently, the growth rate has been steadily declining since April, reaching 11.0% in June and 3.1% in July.  These rates are slightly lower than the tourism growth rates from the aggregate Southeast Asia markets, which grew at 14.3% and 3.9% for June and July 2018, respectively, though in recent years Chinese tourism has been the driver for overall Singapore tourism growth. China has accounted for approximately 19% of all visitation to Singapore for 2018 year-to-date, but it should be noted that this is still a significantly smaller percentage than comprises Macau’s tourism. As a result, from a casino visitation perspective, the Singapore casinos should not be experiencing a significant drop-off in gamer visitation, however it is possible that like Macau there has been a demonstrable impact on Chinese VIP-caliber gaming expenditures.

Related declines may be starting to impact Nevada, as year-over-year baccarat and mini-baccarat wagering (Win/Win %, as reported by the Nevada Gaming Control Board) in July 2018 was down 4.5% from 2017, despite being up 6% cumulatively for the last 12 months.  This impact was compounded by a low win percentage (particularly on mini-baccarat, as well as a high 2017 baccarat win percentage), such that year-over-year casino baccarat/mini-baccarat win was down sharply (over 20%). Again, having additional months of data will be informative to determine whether this is becoming a trend with long-term implications.

The fact that gaming stocks are getting battered by the decline in Chinese gaming expenditures demonstrates that it is not a revelation by me that there is a correlation between the trade war and casino demand. What makes this particularly interesting is that this is an indirect impact, in that entertainment/casino spending obviously is not on the list of things being tariffed.  Yet.

Scott Fisher, Ph.D.

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