Macau Gambling Revenues Decline as US Gaming Companies Build New Casinos

Las Vegas casino gambling companies did not like what they heard from Macau’s top official this week, after he made public comments that indicated tough times are still ahead for the special administrative district’s gaming economy. In fact, Las Vegas commentator Howard Stutz wondered on paper whether the Chinese government is trying to sabotage Macau’s casino industry.

Despite maintaining the world’s largest gaming market by far, Macau’s casinos are in a financial free fall at the moment. February 2015 showed a 49% decline in revenues from one year ago and analysts expect the entire year to show the same kind of problems.

Nine Months of Financial Decline

Macau’s gaming economy has had 9 straight months of decline. 2014 was the first year in the modern history of China’s only gambling enclave that the city’s gaming industry had a net decline. In fact, the previous ten years involved the most astounding growth in the history of gambling anywhere.

Macau Is at a Crossroads

Jamie Zhou, a gaming analyst for Hong Kong-based Macquarie Securities, says that Macau is at a crossroads. The industry lost $58 billion in market value in only the second-half of 2014, but that might not be the end of the troubles.

In a research note, Mr. Zhou noted, “Ongoing visa restrictions, border congestion and weakening of regional currencies (are) prompting leisure Chinese travelers to head elsewhere. We are cautious that high-roller “Tuhaos” (a Chinese term roughly equivalent to “nouveau riche”) in the premium mass segment are experiencing a similar structural decline trend as VIP players. The operators will have no choice but bring in ‘less premium’ players to fill up the new capacity.

Junket Economy Being Targeted

Officials are targeting the junket industry of Macau. Junkets for VIP gamblers largely were responsible for the record $45.2 billion in gaming revenue the city had in 2013. But those junkets are thought to be operated by Chinese Triads and officials want to eliminate the connection to organized crime.

After Chinese Premier Xi Jinping visited the city in December 2015, city officials told the junket operators they would have to assure clients on those flights did not have past criminal records. Now, word has come down that Chinese citizens will have a limitation on the number of times they can visit Macau.

Smoking Ban Is Tightened

Also, the Macau government is tightening the smoking ban. The ban on smoking is one reason people stayed away from the casinos, but the 2014 bans were minor compared to the comprehensive ban announced in January 2015 by Alexis Tam, Macau’s secretary for social affairs and culture.

US Gaming Companies Affected

What happens in China might not matter, but 3 of the 6 casino operators in the city are Las Vegas-based companies. Las Vegas Sands Corporation, Wynn Resorts, and MGM Resorts have invested heavily in the Macau gambling industry in the past ten years. As all three surpassed Caesars Entertainment in overall health and capital, they could look at their Macau operations for the bulk of their growth.

All three of the U.S. gaming companies active in Macau are also in the middle of expansions of those investments. Casino developments take multiple years and billions of dollars to complete, so it would be hard for LVS, Wynn, and MGM Resorts to simply stop development on those projects.

Serious questions are being asked by investors about the future of those projects, though. When new casinos opened in Las Vegas during the Global Recession, those casinos suffered. One or two went bankrupt, such as the Cosmopolitan of Las Vegas. The Cosmopolitan was named the “Best Hotel in the World” by Gogobot in 2013, but it was still considered a failure Deutsche Bank still sold the casino at a loss to Blackstone Group. Revel Casino in Atlantic City was described as the most beautiful building on the east coast, but Revel AC cannot seem to find a buyer.

Galaxy and Melco Also Affected

The two Hong Kong operators in Macau, Galaxy Entertainment and Melco Crown, are opening projects this year in the city. Multiple observers have wondered if those casino operations won’t suffer the same issues that happened to American casinos, as the number of visitors fell rapidly.

Quotes from US Companies on Macau

The three US casino companies are not backing away from their investments, though. Wynn Resorts President Matt Maddox told investors at J.P. Morgan that the $4 billion Wynn Palace “will be a market share taker.

MGM Resorts President Bill Hornbuckle said “despite the tough near-term environment“, that his company will reposition the MGM Macau after the $2.9 billion MGM Cotai opens on the Cotai Peninsula in Macau.

Las Vegas Sands President Robert Goldstein said there will still be a place for junket operators when the $2.7 billion Parisian opens, but that they will not have the same impact they had historically.

About Cliff Spiller

Cliff Spiller has been an online writer for 14 years. He worked for Small World Marketing for a decade, where he covered topics like gaming, sports, movies, and how-to guides. Since 2014, he has blogged about US and international gambling news on BestOnlineCasinos.com, USPokerSites.com, and LegalUSPokerSites.com

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