29 Nov: Arrest drama in Macau

Macau arrests SunCity's Chau, Genting Q3, Q4 regional analysis, SBC Summit preview

Nov 29

Good morning. The future of the junkets in Macau is clouded in doubt following Friday’s arrest of Alvin Chau Cheok Wa, a key figure with what is commonly regarded as the largest junket operator SunCity Group. Genting has its Q3 numbers out and Wells Fargo take a look at Bally Corporation. We also take a look ahead at the SBC Summit being held in New Jersey later this week.

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Macau arrest

Chinese laundry: The arrest on Friday of Alvin Chau, chairman and founder of the SunCity Group, is another setback for Macau at a time when its future as the leading global gambling hub is being undermined by the actions of the Chinese authorities. The arrest warrant was issued by Wenzhou People's Procuratorate in Zhejiang and the Balenciaga sneaker-wearing Chau was later detained by the Macau police along with 11 others. The Macanese plod subsequently held a press conference displaying prominently the equivalent of over $385,000 in currency for the cameras.

Setting Sun: The Macau police have accused Chau of arranging for Chinese nationals to gamble overseas illegally, thought to be in gaming facilities in Cambodia and the Philippines. Central to the case would appear to be a system of proxy betting whereby a casino customer gives bet placement instructions remotely to a person present at a live-dealer table in a casino. Proxy gambling is not permitted in Macau.

Border worries: Most worrying for the sector is the possibility, as noted by analysts at JP Morgan, that all junket activities might now be considered by the Chinese authorities as now being covered by the laws prohibiting cross-border gambling. Suncity was three years ago the subject of a scathing state-backed report which suggested it had raked in billions of yuan from illegal online gaming and proxy betting. But the JP Morgan team added that they had already assumed a structural impairment to VIP play given Beijing’s recent heightened scrutiny.

“We’ve modelled VIP only driving 1-4% of operators’ EBITDA in 2023 (or about 2% of sector profit as a whole) so it doesn’t move the needle for our estimates anymore,” the JP Morgan team added.

Further reading: Macau gaming’s fractious relationship with Beijing.

The week ahead

While there are no results, there will be the latest monthly data from Macau on Wednesday. There is also the SBC Summit North America taking place on Wednesday and Thursday (see below).

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Genting/Genting Malaysia Q3

Las Vegas debut: Genting’s US and Caribbean operations generated RM1.1bn/$260m vs. RM70m/$16.5m YoY. The group’s Resorts World Las Vegas made its maiden contribution since opening on 24 June, achieving revenues of US$175m during the quarter. Genting’s Malaysia turnover dropped 99% to just RM16m/$3.7m vs. RM1.18bn/$278.3m in 2020, due to the temporary closure of Resorts World Genting and higher than expected costs associated with the opening of RWLV. RWG reopened on 30 September.

New York hopes: Genting Malaysia is pursuing both land-based and online opportunities in New York. This includes the development of Empire’s new VLT facility in Orange Country New York which is slated to open in summer 2022. Recall, Empire was also one of the licensing winners in New York for mobile sports-betting. The company said it would be hoping to “drive business volume and improve the overall profitability” of its US operations.

Bally Corporation analyst update

Missed the boat: Analysts at Wells Fargo suggest in a new note on Bally Corporation that problems with the deal with Sinclair for the media groups RSNs (regional sports networks) add to the execution risk around the relaunch of Bally Bet. The RSNs are seen as being key to Bally’s customer acquisition plans, but a recent carriage deal between Sinclair and Dish across 144 stations and 86 markets did not include the RSNs.

Diamond in distress: The Wells Fargo team noted that the Sinclair subsidiary that owns the RSNs, Diamond Sports Group, is so highly levered that its bonds are trading at distressed levels. Diamond Sports controls the broadcast rights to ~45 sports teams across 21 RSNs. but:

“Live regional sporting events are expensive, and also have decreasing appeal to MVPDs (e.g., Dish Network, Comcast, etc.) given low viewership and limited ability to pass on costs to subscribers,” the Wells Fargo team noted.

Bears and graces: Meanwhile, Wells Fargo also scrutinize the Gamesys transaction and point out that while it remains a “sensible and strategic” acquisition, the price paid was certainly fully valued. The main issues, they suggest, as the looming UK Gambling Act review - which could yet put a £2 stake limit on online slots for instance, - and Gamesys’ exposure (c32% of revenues) to the unregulated market of Japan.

“While Gamesys may be at lower risk than some UK online peers, we believe the prospect of UK online gaming regulation should not be dismissed,” the Wells Fargo team added.

Deutsche Bank Q4 regional analysis

Softer regionals: Deutsche Bank has lowered its Q4 estimates for regional casinos to reflect “softer than expected October GGR trends”, tougher calendars expected in November and December and “the broader rationalization of top line trends from the July peak”. The DB team said it had “already essentially been told that regional segment margins have contracted further from 3Q21 margins”. The contraction was caused by “lower revenue levels, typical seasonality and continued one-off pressures in certain markets for the various operators”.

Sparks out: DB added that gambling-focused customers were the primary driver of spend per visitor growth but with the boost from the first vaccination rollout now waning, it asked: “To the extent customers haven't returned yet, especially elderly customers, what's the spark to get them to return anytime soon?”

SBC North America Summit preview

New York New York: WE+M’s will be at the SBC North America Summit this week, where we will be reporting on all the key discussions and panels. Make sure you check out the Thursday and Friday newsletters to read about the key points discussed during the keynotes of Soo Kim, chairman of Bally Corporation and that of Bill Miller, President and CEO of the AGA. We will also be reporting on the SBC Leaders panel featuring DraftKings, BetMGM and Penn, and will bring you all the latest on sports betting innovation, engagement, esports, M&A and much more.

Perfect pitch: WE+M parent company Wagers.com is also proud to sponsor the inaugural SBC First Pitch that will bring together five startups competing to win a $90K investment package. Make sure you attend on Thursday morning at 11.10am on stage 4.

What we’re Google translating

Green to the gills: An Austrian law firm is preparing “thousands” of lawsuits against 888 regarding the William Hill-owned Mr Green’s previous online activities in the country. Recall, in September Bet-at-home exited Austria and said that following a recent Supreme Court verdict it had been forced to take a charge of €24.6m against customer lawsuits. The law firm in question, Advofin Prozessfinanzierung, says it is claiming damages on behalf of clients of up to €100m.