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After years of focus on diversification and mass market tourism, old school VIP play has led Macau’s casino revenue growth in recent months. (Credit AP Photo/Kin Cheung)

Macau’s casino revenue outdid lofty expectations in March, rising 18% from a year ago, after forecasts pointed toward a gain in the low double-digits. March gross gaming revenue of 21.2 billion Macau patacas (MOP; US$2.65 billion) was the highest total for a non-holiday month since March 2015 and the biggest year on year gain in GGR since the February 2014 40% jump to the unchallenged record of MOP38 billion. The global casino capital’s eighth straight winning month after 26 consecutive declines, March caps a first quarter in which GGR rose 13% from a year earlier and 5% from the fourth quarter of 2016. The numbers may signal it’s time to reconsider whether Macau’s recovery is the product of its government backed pivot toward tourist and leisure visitors, part of the drive to diversify Macau’s economy beyond hardcore gambling that billionaires Sheldon Adelson of Las Vegas Sands, Lui Che Woo of Galaxy Entertainment and Lawrence Ho of Melco Crown have bet on, or a revival of the VIP junket business, where Wynn Resorts founder Steve Wynn and to a lesser extent MGM Resorts International have put their money, a sector that was written off as economically unstable and politically suicidal just a few months ago.

For more than five years, Macau’s mass market casino revenue has grown faster than its VIP revenue. The trend became more pronounced with Chinese President Xi Jinping’s crackdown on corruption, which has come to include greater scrutiny of underground overseas funds transfers crucial to high rollers, plus the mainland’s slowing economy. Junket promoters left the business by the dozens and junket rooms closed in droves.

But in recent months, there’s been a rising tide of VIP revenue in Macau. JPMorgan estimates the segment grew 27% last month and 19% in February, outstripping mass growth of 10% and 16% respectively. Analysts DS Kim and Sean Zhuang credit the rise to China’s “favorable macro backdrop,” including a property market rally and looser monetary policy, in an improved mainland economy plus greater junket liquidity and “confidence” boosting VIP credit availability. Sources have indicated that junkets still in business have reached some form of understanding with the authorities in Beijing – and I’d wager that for most of them, that’s not anything new – and that the arrests of Crown Resorts employees in China has led operators to curtail their direct VIP marketing in the mainland, pushing those players back to junkets.

Union Gaming analyst Grant Govertsen cites new supply and renewed visits by customers that feel safe from corruption allegations as keys to recent VIP expansion, but believes gains from here will follow on China’s GDP growth. The Macau based analyst and longstanding mass market bull says it may be time to switch his description of Macau’s gaming revenue renaissance from “mass led” to “mass anchored.” Macau boosters and investors should hope operators see it that way and don’t let the VIP windfall distract them from continuing to build their mass business.

Despite the recent gaudy VIP numbers, mass customers remain a better bet for Macau. While VIP revenue fueled a decade of spectacular growth, it left Macau vulnerable to busts amid the boom that could come about for reasons beyond its control and focused almost solely on the China market. Mass play is more sustainable, produces higher margins and is less vulnerable to the political whims of Beijing. The mass customer base numbers in the hundreds of millions and can be found throughout the region. Of course, other destinations want these travelers, too, so Macau has to keep improving its game to attract them. Beyond the VIP led milestones, JPMorgan’s estimates March marked Macau’s 12th consecutive month of year-on-year mass market revenue growth, suggesting Macau has the game to win in this ever-tougher league.

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