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Macau finding its new normal after slide

Sep 15, 2015 3:00 AM

Macau just can’t seem to catch a break. First Taiwan clamps down on its outbound remittances, then the U.S. government clamps down on its U.S.-based gaming companies, then the Chinese government starts enforcing its financial regulations, then the Chinese government starts a corruption crackdown, which sends such a chill it causes even the most legitimate of patrons to become wary of going to Macau.

Concurrently, new casinos start popping up in Korea, Vietnam and the Philippines along with expanded gaming cruise ship inventories throughout the region. Just when things start to look like they are leveling off, along comes a minor stock market meltdown in China and another step up in efforts to find corrupt officials.

Back in the ten years spanning 1966 to 1976 China endured its cultural revolution, which was more about power and control than its stated purpose – the political cleansing of the bourgeois, capitalists and traditionalists out of the government hierarchy and protect the Maoist Communist ideology.

Though estimates vary, some 30 million people are thought to have died throughout that time and numerous innocent people having been falsely accused were killed in the name of the revolution. In addition, a greater number of academics, middle class and upper middle class business people were variously impacted either through persecution, arrest, harassment, property seizure and/or re-education, and as it was less than 50 years ago it remains a very real and vivid event for several hundred million people.

So what has this got to do with Macau?

Recently, in an effort to continue their pursuit of corruption, the government went public by requesting the public to provide tip-offs on corrupt officials. While this will not rise to the level of another purge, it may well be the same as announcing in the U.S. that everyone going to Las Vegas will get an IRS audit.

Admittedly that maybe a bit of an overstatement, but if you are a government official at any level or an executive in any state-owned company (there are a lot of them), your vacation and recreational plans probably just became a lot more wholesome, or a lot more low key, even if you have done nothing wrong to look over your shoulder for.

The net result is that even if you are not a high-roller but a medium-sized customer from China you are going to start, if you had not already, thinking twice about gambling in Macau. Even if you are an upper lower-level gambler you are going to think twice about going to Macau.

So the better casino operators will try and focus on driving more high roller business from India, Korea and Japan and look to make up the decline in the premium gaming business with the mass market. As the casinos shift their attention to the mass markets, the larger operators, such as LVS, which are already positioned with both large room inventories and convention facilities, will likely continue to be the market leader in Macau.

Based on the numeric trends and some new levels of statistical norms for Macau, it appears the new “normal” size of the casino market will be dancing around the lower end of $2 billion dollars a month for the rest of the year. September, which traditionally is one of the weaker months for gaming activity in Macau, may actually come in, if trends continue, just below or right at $2 billion, the lowest in a very long time.

In its heyday Macau did five times the casino business that Nevada casinos did. And as it is settling into its new “norm,” it is looking like Macau will be on cruise control at about twice the casino business of Nevada, making absolute sense for companies such as Wynn and MGM to complete their expansion projects in the largest current single gaming destination in the world. They will just have to settle, like LVS, for making gold and rubies in those properties instead of the platinum and diamonds of just a year ago.

While it is hard to feel sorry for a market that at its worst is still pacing over twice the size of our home state’s, hopefully the local government kept enough of their gaming tax revenues to help facilitate the infrastructure changes needed to support the mass market – lessons Atlantic City should have learned from Las Vegas.

The Analyst is an experienced gaming industry executive who offers insight each week on events and issues affecting the industry. Email: The Analyst at 

The Analyst is an experienced gaming industry executive who offers insight each week on events and issues affecting the industry. Email: [email protected].

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