2019 hasn't exactly been a banner year for Macao casinos: The amount they've won fell by 2.4% overall through the first 11 months of the year. Revenue has been up and down throughout the year, but the two lowest revenue months of the year have come in the past three months. The trend looks to be a slightly shrinking market. 

For Macao's casino companies, gambling revenue is the tide that lifts (or sinks) all boats. If the market is in decline, there's not a lot any individual company can do to overcome the pressure. 

Macau's skyline at night.

Image source: Getty Images.

Where Macao is losing business

What's absolutely clear right now is that a decline in VIP baccarat play is what's hurting Macao's casinos. In 2018, the worst quarter still saw 40.1 billion patacas (approximately $5 billion) lost at the VIP tables, but this year, players haven't lost nearly as much. In Q1 2019, the territory raked in 37.2 million patacas in VIP revenue, which fell to 34.6 million patacas in Q2, and 31.1 million patacas in the third quarter. At the rate things are going, the fourth quarter's results could be even worse. 

Mass-market play, on the other hand, has been steady, and has even shown some year-over-year growth. After hovering around 25 million patacas lost at mass-market baccarat tables in early 2018, this year the number has risen to about 30 million patacas each quarter. But losing VIPs and gaining mass-market players will have a big impact on casino stocks

Playing the mass market

The decision about what type of customers a given casino will target is made long before it's built. For example, Las Vegas Sands (NYSE:LVS) has always targeted mass-market players, so its resorts have thousands of hotel rooms, convention space, entertainment, and huge casinos to serve those customers. They're set up well to gain market share as a result. 

Wynn Resorts (NASDAQ:WYNN) has historically made its fortunes by catering to the high rollers, so the decline of VIP baccarat in Macao is quickly hitting the company's top and bottom lines

Melco Resorts (NASDAQ:MLCO) and MGM Resorts (NYSE:MGM) fall in the middle -- they're benefiting some from mass-market growth but still heavily dependent on VIPs. 

Every company adapts and shifts marketing and incentives to attract growth where it exists, but the key trends in 2019 are the big decline in VIP baccarat play and the uptick in mass-market play. That'll generally hurt Wynn Resorts while helping Las Vegas Sands. 

What to watch from casino stocks

There are a few things investors need to watch as this dynamic plays out in the casino industry. One is just where customers are trending, which I outlined above. 

Even as the gambling market shifts, Macao is still adding capacity, and it isn't generating enough growth to match the increase in casino tables, hotel rooms, and the opening of new resorts. If the overall decline in casino play continues, whether it's driven by VIPs or mass-market, we may see revenue pressure across Macao. Right now, the tide is going out, and that will affect everyone in the industry.