Star Entertainment Group, one of Australia’s largest gaming and entertainment groups, is feeling the pressure. As China’s economy goes through a period of stagnation (due to local financial issues that include trade tensions with the US), gaming spending by top-end punters and high-rollers is slowing down.
The last six months of 2018 saw a plunge of 33% in the amount of money spent at the Star’s casinos by international players, and a massive 49% plunge in the amount spent by VIP players at the group’s largest casino in Sydney.
Part of the decline was also caused by a spike in the house win rate, which drove Asian players away – either by causing them to spend less money overall, lose their money faster, or play fewer hands. The result, according to Star chief executive Matt Bekier, was a more cautious gambling approach by Asian gamblers.
“The caution relates to uncertainty relating to the trade war between China and the US,” said Mr Bekier. “They just don’t take as much risk as they might have 12 months ago.”Star chief executive Matt Bekier
With the Chinese economy now experiencing the slowest growth in the past three decades, gamblers are simply spending less and taking fewer risks. In the case of VIP players, this is massively impacting overall revenues for Australian casinos.
Competitors Facing Similar Issues
Star’s rival casino company, Crown Resorts, has also experienced a downturn in revenues. Since most of their high-rollers also come from China, it seems like the trend is affecting all local casinos the same way. This change in the high-roller programs is not an isolated incident, however – casinos around the world are reporting uncertainty and lower revenues, as their VIP players, who often focus on poker and baccarat, are simply not putting as much money on the table as they used to.
Despite the financial concerns, Star Entertainment (which owns and operates three major Australian casinos and hotels) believes the 2018 dip in turnover is more of a temporary glitch than a long-term concern. Bekier also remains optimistic that things will get better and slowly stabilize. “Once the uncertainty settles down, I expect it to come back,” he said. “We are not pushing the panic button … we are executing our strategies.”
Earnings fell in 2018. And in some cases, didn’t meet analyst forecasts for the year – but the overall after-tax profits remained strong. For example, Macquarie Research had predicted $135 million in earnings, while JPMorgan had expected $129 million, but Star ended up reaching about $124 million, the company said. Still an impressive number in an uncertain economy, but far from the hopeful results that would’ve closed 2018 on a more positive note.
Mixed Investor Opinions
While international earnings might be suffering, the domestic gaming business remains strong and even showed a 6% increase at Star’s flagship casino in Sydney – a growth strong enough to impress investors and lead to the company’s share price climbing 5.68% by the end of December.
“The domestic gaming business held up through November and December with overall main floor gaming revenue growth of 6.5% in the first half of 2019,” Macquarie senior analyst David Fabris announced.
“Investors [are] saying they were a bit disappointed by the VIP … but very impressed with the domestic business,” Mr Bekier said. “That’s what we’ve been working on very hard for the last little while – investing in loyalty, investing in customer service, upgrading our facilities across the properties. I think it shows.”
While the Australian VIP market seems to have temporarily stalled, Bekier is optimistic that 2019 will bring about the necessary changes to help VIP earnings sore again.