Macau Casinos – Were They a Good Bet?

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Macau has been touted the East’s answer to Las Vegas, and has been Asia’s gambling mecca for decades and was originally owned and run by Chinese casino mogul Stanley Ho. Chinese regulators ended Ho’s exclusive monopoly in 2002, opening up the district to U.S investors. Soon casino giants like MGM Resorts International, Wynn Resorts and Las Vegas Sands entered the market, constructing resorts valued at billions of dollars and happily cashing in on the East’s gambling boom in the Macau Metropolis.

Attracting visitors from mainland China as well as the surrounding areas, Macau became the world’s largest gambling centre by 2006 thanks to the fact that it is the only area in China where gambling is legal, with casino’s contributing to around 80% of the territory’s revenues.

For over a decade Macau enjoyed exceptional growth in revenues, but flash forward to present day and the picture is a great deal different. Macau gaming revenues began to decline in June of 2014 and the sharpest declines have been seen in recent months, with gross gaming revenue falling by a significant 35.5% in August in comparison to the previous year, leaving many questioning whether the Las Vegas casino operators who entered the Macau market made a good bet after all.

Of course, these sentiments are being reflected in the stock markets with stock prices tumbling as the various casino groups show declines in gaming revenue and the losses have been great. Wynn Resorts shows the biggest losses at a whopping 63% and that with a $4.1 billion dollar construction of Wynn Palace on the Cotai Strip underway in Macau which is expected to open in the first half of 2016. Competitors Las Vegas Sands and MGM Resorts have also not gone unscathed reporting 38% and 34% losses respectively, and both also having multi-million dollar resort projects in the works.

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A number of factors account for the decline after over a decade of booming success, among these are an economic downturn in China which has led to the de-valuation of the Chinese Yaun, an aggressive crack-down by the Chinese government on money laundering and corruption, a reduction in visitors visas to Macau due to stricter regulations and to add insult to injury, a smoking ban levied on all Macau Casinos.

Approximately 70% of Macau’s visitors originate from mainland China and with a poor economic, weakened currency, governmental red tape to get through, as well as the restriction of smoking in the casinos, traffic to the area has been greatly reduced. Adding to these woes, the government’s anti-graft policy is targeted at the upper echelons of the mass market which means the number of casino high rolling VIP’s which flock to the mecca to play high value slots and table games, and account for $44 billion in revenues for Macau casinos have declined.

However it’s not all doom and gloom and while the government’s actions have affected casinos in the short term, they are making efforts to invest heavily in Macau’s infrastructure, stating that while they want to support growth, they also want to clean up the industry, eliminating underground operations and corruption while emulating a Las Vegas model which is not only gambling related but also offers and entertainment destination for families.

The key players in the industry have followed suit with this notion, diversifying their offering into retail, hotels and entertainment with more non-gambling features being added to entice middle income earners and families to the area. While this group may not be as profitable as the casino VIP’s, they are expected to drive revenues, although given the cultural differences between the East and West, these revenues are not projected to match Las Vegas’ non-gambling revenues.

While it is unsure when Macau will return to positive growth, according to industry experts the intermediate and long term growth of the region remains a good prospect with analysts predicting a 10% long term growth rate once revenues settle back to their long term trends.