Not surprisingly, Macau gross gaming revenues declined at a double digit rate for another month. According to Macau's Gaming Inspection and Coordination Bureau, revenues for the month of December plunged 30% – marking the seventh consecutive monthly decline this year and also the highest. After declining in single digits for three consecutive months beginning June, revenues declined 11.7%, 23.2%, 19.6% in Sep, Oct and Nov 2014, respectively.
With this steep fall, gambling revenues have declined 2.6% year over year in 2014. Per analysts, gambling revenues in Macau, the only destination in China where gambling is legal, have fallen annually for the first time since casinos were liberalized in 2001.
What’s Going Wrong for Macau?
The slump reflects a slowdown in Macau as a result of high-stake gamblers curtailing spending amid a cooling Chinese economy. Also, the nationwide crackdown on corruption in China has compelled Macau officials to impose restrictions on high rollers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau.
Restrictions like limiting the use of state-backed payment processor UnionPay is making it harder for players to obtain cash to gamble. Moreover, tighter restrictions on visas are further worsening the situation. Per Reuters, over the past six months, the crackdown has hurt Macau casinos by $58 billion. Meanwhile, political unrest, a smoking ban on mass market gaming floors and pro-democracy demonstrations in Hong Kong have compounded woes.
Why the Share Price Decline?
Share price of casino companies like Las Vegas Sands Corp. (LVS), MGM Resorts International (MGM), Melco Crown Entertainment Limited (MPEL) and Wynn Resorts Ltd. (WYNN) that earn a major part of revenues from Macau fell on Jan 2 following the decline in yearly revenues that fell higher than expected. The share price decline also reflects the continued weakness in the region.
Tough Times Ahead
China is reportedly set to launch another major crackdown to restrict illegal money transfers from mainland China to Macau. This is expected to further hit Macau casino revenues. Per South China Morning Post, the country will launch a new security drive that will allow it to access all transfers through the state-backed UnionPay credit card, thereby helping it to identify distrustful transactions in Macau. The current move marks the latest step to stop illicit fund transfers from the country. (Read: Macau Anti-Corruption Drive to Intensify, Casino Stocks Dip). The crackdown comes at a time when leading casino companies operating in Macau are already feeling the heat of China’s anti-corruption campaign.
Meanwhile, Macau gaming regulators circulated a notice to junket operators that promoters must make sure that their clients have no criminal records before permitting them to open accounts effective from Jan 1, 2015.
Given the troublesome environment, analysts do not expect the situation to improve in the near-term. Given the timing of the Chinese New Year in 2015 on Feb 19 versus Jan 31 in 2014, some analysts once again expect a double-digit decline in the first month of the New Year.
Any Solutions in Sight?
The Chinese government wants Macau to diversify its economy beyond gambling. It wants new casinos to increase their non-gaming amenities, such as retail, dining and entertainment. We on our part can only wait and see how long the slowdown in Macau lasts and impacts the companies operating in the region.
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