It’s the money…

José I. Duarte
Economist
One of the most difficult things when dealing with some subjects is to contest ideas that have become so ingrained that they become a kind of unquestionable truth. Some ideas are like this: they usually look obvious, at least on the surface, and they keep being repeated as unquestionable facts of life. They provide comfort to both the speaker and the listener, something that all can easily agree on, providing an easy and solid shared ground. Quite often, it also happens, they can be untrue or mostly untrue.
When talking about casino revenues in Macau people will often establish some linkage between them and the number of visitors; or the changes in individual visa policies; or the conditions for transit visa holders – and so on… The last iteration of that linkage was the news about the number of days the transit visas can stay in ‘transit’ in Macau, so to speak. In fact, the relationship between the revenue figures and the number of overall visitors is statistically quite weak. There must be some impact, some relationship? Certainly yes – but figures throughout the years suggest that impact was low. Under the business model that prevailed for most of the last years, the total number of visitors had little bearing on the evolution of revenues. What really mattered was how much money from a few of those gamblers was placed on the tables of, you guessed it, the VIP rooms.
If in doubt – some ideas are so strongly held and repeated that actual data or facts seem impotent to tame them, to put them in their proper proportion – just look at the figures. There is a weak correlation between, say, the monthly rates of change in the total number of visitors and the corresponding rates of change in casino revenues. Break down the visitors in same-day visitors and overnight visitors and the correlation hardly improves. Do the same with the figures for individual visas and you will reach a similar conclusion. If further evidence was required, just watch how the number of visitors kept rising to historical records in 2014 while revenues dropped sharply!
Casino revenues have not been mainly driven by the evolution in the number of visitors. Alternatively, look at the credit or money supply in the Mainland – and the correlation becomes very strong. It was not by chance that the anti-graft campaign and the increased control by the monetary authorities had a noticeable and enduring effect on gambling revenues: they choked the supply of ‘gambling money’ at source.
And yet, hardly a week goes by without someone making a reference to the presumed serious effects of visitor flows, the casinos’ revenue – and, by extension, the regions’ gross domestic product and wealth. That relationship may get stronger in the future if Macau manages to make a transition to a more mass and family market oriented business model. Until then, it’s all (or mostly) about cross-border money flows.