Macau casino gross gaming revenue (GGR) derived from VIP play could decline at 4 percent compounded annually in the period 2019 to 2023, falling from US$14 billion, to US$12 billion by 2023, suggests a Wednesday report from brokerage Sanford C. Bernstein Ltd.

This was based on its assessment that VIP GGR accounted for 39 percent of Macau’s circa US$36 billion GGR in 2019. The brokerage added that only about 2 percent of Macau’s circa 39.5 million visitors in 2019 were responsible for generating that 39 percent of GGR. Official data from the Macau government said the VIP segment accounted for 46.2 percent of aggregate GGR in full-year 2019.

The institution cited several factors for a likely VIP contraction, including capital liquidity for the junkets; the middlemen that have traditionally brought Chinese high rollers to Macau casinos, and that require a significant stock of working capital for reasons including the hold volatility typically associated with the VIP casino game of choice, baccarat.

Consumer demand was also mentioned in the report by analysts Vitaly Umansky, Tianjiao Yu, Kelsey Zhu and Xiaonan Zhang.

The Sanford Bernstein team said also that it expected Macau aggregate GGR to grow at 2 percent compounded annually between 2019 and 2023, supported by 6-percent growth in the mass-market segment. It forecast Macau market-wide GGR to reach US$40 billion by 2023, with VIP revenue set to “stabilise at less than one-third” of aggregate revenue.

The brokerage also referred to China’s crackdown on “illegal online gambling activity” involving Chinese players. This is typically understood by industry commentators to refer not only to online casino and sports betting sites aimed at Chinese consumers, but also to gambling at tables of licensed casinos, but where the player is not physically present, but uses a “proxy” person to place bets on the absent player’s behalf.

Macau’s gaming regulator issued an instruction in May 2016, clarifying this was not permitted in the Macau market.

In remarks understood to refer to activity beyond Macau, Sanford Bernstein’s analysts wrote: “Due to the intense scrutiny, certain junkets… have shut down their online gambling activities and suffered from investors/depositors looking to pull out funding, while VIP customers have limited their desire to interact via junket for the time being.”

The institution added: “At this stage it is too early to tell what kind of long-term structural impact this will have on junkets being able to do business in Macau.”

The brokerage further noted: “If the same money channels (underground banking in particular) remain under scrutiny, junket liquidity will be tight and have negative ramifications on VIP growth in Macau over the short- and medium-term.”