Macau Gets Dealt a Bad Hand

According to Macau’s Gaming Inspection and Coordination Bureau, Macau’s total gaming revenue fell 49% last month compared to the same period of the previous year. This has marked the lowest dip since revenue began to drop sharply last summer.

American casino operators such as Wynn Resorts are feeling the pinch from this prolonged downturn as well. After expanding into the Chinese market back in 2002, Las Vegas Sands and Wynn Resorts have now come to depend on Macau to generate well over half of their total revenue.

It is anticipated that this gambling hub will see further drops in its annual earnings throughout the year, Bloomberg reports. In 2014, Macau experienced its first decline in revenue, at 2.6%, since this Special Administrative Region (SAR) liberalized its gaming industry in 2002.

As for Wynn Resorts, the company reported a 25% year-on-year fall in sales during a three-month period late last year, resulting in a net profit of US$109 million. This reveals a 50% drop from the previous year’s net profit. Las Vegas Sands also recorded significant losses, with its net revenue for Q4 of 2014 falling 16% from the previous year.

This recent decrease in earnings is widely attributed to the economic slowdown taking place in China, coupled with President Xi Jinping’s ongoing campaign against corruption. Xi’s visit to Macau in December, to celebrate the 15th anniversary of Macau’s handover to China, no doubt doubled as a way to punctuate his efforts as the leader of China’s anti-graft campaign.

So now, high-rolling officials are no longer among the VIPs flashing cash around the casino tables in Macau. Apparently, efforts to target corruption even involve measures that scrutinize monetary transfers into Macau from the mainland, or anywhere for that matter.

Besides the crackdown on corruption, Beijing is putting the pressure on Macau to diversify its economy. “It is important for Macau to adopt a global, nationwide, future-oriented, and long-term perspective, formulate appropriate plans and blueprints for its development, and promote sound economic and social development,” President Jinping said, commenting on state-run Chinese television. “Focus on building a global tourism and leisure centre.”

But how does an island/peninsula that is only 30 sq km (11.5 sq mi) diversify? And isn’t Macau already a tourist and leisure destination? What’s missing?

Nearby Hong Kong is a shipping and banking powerhouse and neighboring Shenzhen has already emerged as a tech hub.

Of course diversification is pretty much essential in the long term, but President Jinping should be more direct in his advice. Small territories such as Macau have very few options. Most have followed the “safe haven” route that is in the process of being shut down by most first-world economies, and may even be worse for China than gambling.

How is a gambling economy worse for China than its shadow banking system, which is reported to be in the range of US$500 billion?

Still, with all the attention centered on what looks to be the downfall of big stakes gambling in Macau, analysts predict it will recover and continue to hold its place (as well as grow) as the casino destination in Asia. Its gambling industry is still seven times that of Las Vegas, while being only one-tenth the size. There are no resources, just urban development. And that is mainly in the form of gigantic resorts and casinos. And the gaming industry has contributed to huge increases in Macau’s GDP while also boosting the median income. Gambling is Macau’s economy.

H/T: Nikkei Asian Review