Gambler’s paradise Macau has announced an unprecedented dip in revenue that has led to a sharp drop in share prices, with many experts predicting worse to come in the ensuing months.
Macau’s record-low income was the latest in a five-month slump. Figures compared to October 2013 represent an astounding 23.2% decrease in income. This is in stark contrast to the previous half a decade of pure, unadulterated growth which saw the Chinese betting haven eclipse Las Vegas to become the world’s largest gaming centre.
Until recently Macau was an unstoppable force generating more income with each year. In 2013, for instance, $45 billion was accumulated. Macau is the only place where gambling is legal in China and, with a huge betting community just around the corner, Macau has become somewhat of a Mecca for gamers. A short ride from Hong Kong, Macau attracts a huge tourist following that accounts for the massive annual income. As recently as 2012, The New Yorker ran a story headlined ‘The God of Gamblers: Why Las Vegas is Moving to Macau’. This statement was not outlandish or unfounded but a matter-of-fact assessment on an industry that was expanding exponentially. So what changed?
Corruption and gambling have long shared an unwanted relationship, and with new territory in China opening up this was a chance for less savoury operations to try to take advantage of the new kid on the block. This all changed with a recent anti-corruption campaign led by Xi Jinping, Chinese President and General Secretary of the Communist Party. In a bid to cleanse the image of the country to unparalleled levels, Jinping has attacked corruption head-on at all levels including government, state-owned and military mediums.
This is not to suggest that all of the profit seething through Macau was down to money laundering and other unlawful avenues. A slowing Chinese economy has also contributed to the slump as have tighter immigration guidelines, ruling out many gambling tourists. But the crux of the issue comes down to the anti-corruption campaign, which has left such an imprint that it has spooked many high rollers – even those who are doing nothing wrong.
“The ferocity of the anti-corruption drive has scared a lot of people” admitted one of Macau’s leading casino executives, who did not wish to be named. It is a view shared by leading broker CLSA’s Aaron Fischer, who stated “The big dogs in Beijing are coming to Macau and some people don’t like gambling when officials are around” whilst predicting 1% year-on-year revenue reductions for Macau.
It is understandable why such a fervent political agenda may dissuade some of the high rollers. A casino rammed with high-powered authority figures on the lookout for anything untoward wouldn’t make high-rollers feel at home throwing their cash about and indulging themselves with complimentary beverages, let alone the common gambler. So what does this mean for the future of Macau?
For the immediate future at least, there appears to be little promise of an upturn in fortunes. Grant Govertsen, speaking on behalf of Union Gaming Group which is located in Macau, projects worse to come as the anti-corruption campaign continues to garner support.
“We currently see no reason that trends should materially improve in the first quarter of 2015, relative to current levels” said Govertsen. On the subject of the government setting up a long-standing anti-corruption office, he continued: “This, in turn, suggests to us that the anti-corruption drive is far from over and is likely to continue to impair Macau’s VIP market for a significant period of time.”
This news will be an unwelcome prediction for many of the major players investing in the region. Wynn Resorts, MGM Resorts International and Las Vegas Sands Corporation – all of whom have already invested in Macau – have significant projects in development. Wynn Palace will cost $4 billion, the MGM Cotai $2.9 billion, and Las Vegas Sands also has a $2.7 billion development in progress. With all three venues set to open as soon as 2016, shareholders will be anxious for some promising news regarding the future.
Perhaps there is some light at the end of the tunnel, though. Macau saw this dip in revenue coming for some time and, although there was no way to avoid the inevitable decline, there are some plans in place to alter the clientele Macau attracts. As it stands, Macau is a gambling capital that attracts some of the wealthiest gamblers in the world. However, casino bosses are aiming to rejuvenate the region’s image into a more family-friendly realm that will see increased tourism, particularly for more casual gamblers.
In order to facilitate such a swing in momentum, Macau will be creating huge malls and introducing a series of entertaining shows aimed at drawing in a mixed audience; much like Las Vegas, some experts have commented. Glenn McCartney, tourism expert at the University of Macau, certainly sees potential in this new direction.
“An accountant would say, looking at the balance sheets, that this thing is far from broken,” McCartney said. “But when you go beyond the economics, you realise you shouldn’t have all of your eggs in one basket.”
It is certainly an uncertain time for Macau. Whilst there has been a huge downturn in profits, this was largely anticipated and despite a natural drop in shares there has been little sign of panic among key figures. The new plan to redirect tourism from other avenues may not return Macau to its illustrious heights of years gone by, but it seems there is plenty of potential left in this Chinese gambling nirvana.