If we didn’t know
better, one might believe the Chinese government is trying to sabotage Macau’s
already sinking gaming market.
Nine straight months
of casino revenue declines, including a record 49 percent drop in February, are
primarily because of a government-imposed crackdown on corruption. Beijing is
seeking to reduce the influence junket operators have on bringing high-end gamblers
to Macau.
Apparently, more government restrictions are on the
way. Government officials hinted at new visa restrictions that would limit the
number of times mainland Chinese residents could visit Macau, a casinowide ban
on smoking that is far more restrictive than last year’s partial ban and other
potential regulatory changes.
This comes as three Nevada-based casino operators with
properties in Macau are spending billions of dollars on new hotel-casinos, and
analysts continue to downgrade prospects for immediate investment in the
world’s largest gambling market.
Hong Kong-based casino operators Galaxy Entertainment
and Melco are opening resorts this year. Market speculators wonder if the
unveilings will have poor financial returns, similar to what took place in Las
Vegas when new resorts opened in the depths of the recession.
Using the Chinese word “Tuhaos,” a term that describes
mainland Chinese people who are rich but uncultured, Hong Kong-based Macquarie
Securities gaming analyst Jamie Zhou told investors Macau is at a crossroads.
The market suffered its first annual decrease last year, and casinos lost $58
billion in market value in second-half 2014.
“Ongoing visa restrictions, border congestion and
weakening of regional currencies (are) prompting leisure Chinese travelers to
head elsewhere,” Zhou wrote in a research note. “We are cautious that
high-roller Tuhaos in the premium mass segment are experiencing a similar
structural decline trend as VIP players. The operators will have no choice but
bring in ‘less premium’ players to fill up the new capacity.”
The crackdown was initiated last summer by Chinese
President Xi Jinping, who visited Macau in December to celebrate the 15th
anniversary of the Special Administrative Region’s handover to China by
Portugal.
The junkets, many linked by international law
enforcement authorities to Chinese organized crime triads, fill the
ultraexclusive private gambling rooms of Macau casinos. High-end play largely
fueled Macau’s historical results. The market had a record $45.2 billion in
gaming revenue in 2013.
Following the president’s visit, Macau gaming
regulators told junket operators they must ensure clients have no criminal
records before opening accounts.
In January, Alexis Tam, Macau’s secretary for social
affairs and culture, said the government will propose a full smoking ban in
casinos, including high-end rooms. Analysts said last year’s partial smoking
ban, limited to main casino floors, contributed to the gaming revenue decline.
This month, Tam said “overcrowding” in the tourist
areas has a negative effect on daily life for locals. He suggested a potential
cap on visitors could come this year.
“With over $20 billion of capital being invested and
over 10,000 hotel rooms likely to come online in the next three years, it is
exactly these types of changes that keep market concerns elevated,” Deutsche
Bank gaming analyst Carlo Santarelli told investors.
Macau Chief Executive Fernando Chui — the region’s top
government official — is expected to deliver an address that outlines his
five-year market plan March 23. Casino operators and analysts will watch the
speech closely.
“With a predominantly new Cabinet in place, and a
presumed directive from Beijing coming out of the National People’s Congress,
we expect more scrutiny on this speech relative to prior (speeches),”
Santarelli said.
In Las Vegas, the three Nevada companies — Wynn
Resorts Ltd., Las Vegas Sands Corp. and MGM Resorts International — aren’t
backing away from previously bullish market predictions despite dire concerns
in Macau.
During an investment forum hosted by J.P. Morgan,
company executives put on a happy face for the audience. All three casino
operators said their new Cotai Strip resorts are expected to open in 2016.
Wynn Resorts President Matt Maddox said the company is
“making sure” the $4 billion Wynn Palace “will be a market share taker.” The
new resort’s 1,700 rooms will more than double what the company operates in its
Peninsula resorts. He said he thinks the Macau government would be fair in its
allocation of new table games.
Las Vegas Sands President Robert Goldstein said the
company — the first American casino operator to open a resort in Macau — has
invested more in nongaming amenities than any of the six casino license
holders. The same holds true for the $2.7 billion Parisian. Goldstein said
there is still a place for junket operators going forward, but the role “will
clearly be diminished relative to history.”
MGM Resorts President Bill Hornbuckle said the company
is focusing on growing its position in the market “despite the tough near-term
environment.” After the $2.9 billion MGM Cotai opens, Hornbuckle said, the
company plans to “reposition” the MGM Macau on the Peninsula region.
Stifel Nicolaus Capital Markets gaming analyst Steven
Wieczynski said Macau is starting to resemble the transformation of Las Vegas
from the 1980s into the 2000s, when the Strip began to rely more on nongaming
attractions.
“As the market begins the long journey to evolve from
a gambling-only enclave into a total entertainment destination, we believe
broadening Macau’s appeal should enhance visitation and produce more
predictable cash flows over time,” he said.. By Howard Stutz
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