The narrative for more than a decade has been one of impressive growth in Macau, the former Portuguese colony and only place in China where gambling is legal. That story, however, has taken a dramatic swing into the red over the last nine months.
Macau saw casino revenue fall by 48.6 percent to $2.4 billion in February, compared to an increase of 40 percent to $4.8 billion for the same month last year. Analysts believe the decline is primarily due to a government crackdown on corruption.
But there are other factors involved leading to a “longer and more severe downturn than expected,” according to CLSA gambling analyst Aaron Fischer.
“We cut our 2015 (revenue) estimate from minus 9 percent to minus 26 percent,” Fischer wrote in a research note released Wednesday. “The perfect storm of anti-corruption measures; a weak macro environment; lower margins for junkets; and endless regulatory changes are resulting in a much deeper slowdown than expected.”
Fischer noted that players are moving from Macau to other markets, which will continue to “suppress earnings.” He also expected news out of Macau to “remain poor for another 12 months.”
Fischer is so bearish about Macau in his Macau Gaming Sector Outlook report it is titled “Death Spiral, a new normal for Macau as business shifts to mass.”
Kate O’Keeffe, a Hong Kong-based gaming reporter for the Wall Street Journal, told KNPR’s State of Nevada Wednesday that no one thought the corruption crackdown would have such a pronounced impact on Macau.
“The crackdown began a couple of years ago at the end of 2012 and it has just taken a long time to really hit home here,” O’Keeffe said. “But now that it has people really don’t think Macau will ever be the same.”
So what does that mean for Wynn Resorts, Las Vegas Sands and MGM Resorts who are all major players in the Macau market? O’Keeffe said MGM Resorts is in the best position because of the number of resorts they operate on the Strip.
“Both Wynn and Sands are really dependent on Macau and they definitely have seen a decline on top line revenue,” O’Keeffe told KNPR. “So that does affect the companies, but at this time the balance sheets are looking pretty strong, according to analysts.”
And does less revenue, mean layoffs on the Strip? O’Keeffe said there has been “no talk yet of layoffs” in Las Vegas, but in Macau “some operators are offering unpaid leave.”
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Katheryn O'Keeffe, gaming reporter, Wall Street Journal