Shares of Wynn Resorts fell by 10% in a few hours of trading after the gaming company reported its 1st Quarter earnings. Though Wynn Resorts is seen as a Las Vegas or US casino developer, the biggest portion of the company's revenues have come from Macau, China is the past few years.
Those numbers declined in a precipitous fashion from Q1 2014 to Q1 2015. Where Wynn Resorts reported $227 million in profits in the 1st Quarter of 2014, it recorded $44 million in losses in the 1st Quarter of 2015. A swing of a quarter-of-a-billion dollars is always going to spark a sell-off on Wall Street, which is exactly what happened.
Revenue Statistics
The impact Macau's revenues have on Wynn Resorts bottom line can be seen in one key set of statistics. Revenues were down 38% for Wynn's Macau operations, while they were down 28% for the company as a whole. The various Las Vegas properties accounted for a little over 25% of the impact on the earnings reports. The earnings for the 1st Quarter were $1.01 billion.
In 2013, Macau casino made 7 times the money Las Vegas casinos made. Last year, that number dropped to about 4.5 times the revenues generated by Las Vegas. Thus, Macau remains by far the largest gambling destination in the world, but that is no comfort to the six gaming companies which operate in the special administrative region of China.
Macau's Rise and Decline
Macau is the only place in China land-based gaming is legal. For ten years, it appeared that the national government in Beijing was content to allow the special administrative region handle its own economic affairs. The city's leaders lured three major American corporations--Wynn Resorts, Las Vegas Sands Corp, and MGM Resorts--to the area.
All three Las Vegas casino companies built multiple gaming venues in Macau. All three have additional Macau gaming developments they are pouring billions of dollars into. Whether those casinos should be built now is a matter of speculation, though.
VIP Gaming to Blame
In its report to stockholders, Wynn Resorts pointed at the fall-off in the VIP gaming market in Macau as the reason for the decline. The report stated, "Table games turnover in the VIP segment was $17.1bn for the first quarter of 2015, a 52.4% decrease from $36bn in the first quarter of 2014."
The VIP market collapsed when the government of Chinese Premier Xi Jinping turned its anti-corruption crackdown on the financial system of Macau. While Macau reported $44 billion in revenues in 2013, the unreported income is estimated to have been about $200 million. Most of that money was made by the junket operators, who drive the VIP high-roller commerce in the Macau gaming industry.
Chinese Restrictions
China restricts the amount of money people can carry into Macau to $3,000 per visit and no more than $50,000 per year. To be a high-roller, one has to be able to play on credit. The only problem is, Macau's casinos cannot sue for the payment of debts on the Chinese mainland, so they do not offer casino markers the way a Las Vegas would to a high roller.
The decline in April 2015 marks 11 straight months of falling revenues for Macau. It is uncertain how much longer the revenue drop is going to last. The most accurate gauge of the ups-and-downs of casino revenues tend to be year-to-year totals, so people want to see how a casino did from April 2014 until April 2015. That allows the financial analysts to discount month-to-month changes from holidays or the number of days n a month.
Projections for Macau - 2015 and 2016
With that in mind, Macau soon will enter a phase where last year's declining revenues are going to be factored into the comparisons. At that point, we'll see exactly how long the decline is going to be. I predict several more months of decline. The numbers started out somewhat bad, beginning in June 2014, but they turned much worse in the late-summer and fall of 2014. Thus, expect to see revenues decline into the late-summer, then begin to point up again.
By 2016, Macau's revenue totals might show a significant turnaround. Several new casinos are set to open on the Cotai Peninsula. Construction on those gaming complexes was finished after the decline began, so the gaming companies should have been able to adjust to the new realities in Macua.
Beijing officials want more non-gaming attractions, so expect to see the companies involved (Las Vegas Sands, Wynn Resorts, MGM Resorts) create more non-gaming businesses to attract the mass market customers with families, instead of the high rollers. Those companies did the same thing on the Las Vegas Strip for the past 5 years, with great success. Ultimately, Macau needs the Las Vegas Strip treatment to meet the approval of Xi Jinping, so expect to see the Cotai Peninsula truly become the Cotai Strip everyone has speculated about.
