During the past quarter, Macau’s economy shrank with a horrifying 24.2% compared to last year. The autonomous territory is well known for its casinos which were very popular among Chinese citizens. Macau is the only Chinese region were gambling is allowed so many Chinese were able to find the casinos. In fact, for a while Macau did even top Las Vegas as favorite place for high-rollers, the players betting at the highest stakes. Now, this story seems really over with gaming services plummeting a spectacular 37% YoY in Q3. Tourism is the logical other bleeder with a decline of 15%.
This is a huge problem for the former Portuguese colony, since Macau is relying for over 80% of its revenues on the business of casinos. The Chinese city tries to shift away from gambling to tourism, but the fact is that a lot of tourists are interested in the slots and poker tables as well. Especially the latter category was surrounded with glamor and mystics, due to rumors of so-called nosebleed poker games in the past. Nosebleed games are high-stakes poker games with stakes of over USD 1 million per poker hand. Poker sites around the globe reported about young poker players like US-players Phil Ivey, Tom ‘durrr’ Dwan, the Germans Philipp Gruissem, Max ‘altiFC’ Altergott and UK-player Sam Trickett taking it on against unknown, but obviously very rich Chinese ‘businessmen’. But these games seemed to have dried up recently…
The recent figures show that it’s not only the high-stakes games which went silent. A possibly explanation is the slowdown in the Chinese economy. But many contribute the decline in gaming revenues due to the fight of Chinese authorities against corruption and money laundering. In particular, so called junket operators (junkets) have been heavily hit. Since China limits the amount of money people can take out of the country, junkets acted as some form of banks so that Chinese citizens could still play with considerable stakes in Macau. But these operations have largely been cracked down, despite junket companies trying to adapt and become more businesslike. Junkets were accounted to account for roughly two-thirds of Macau’s gambling revenues.
The decline in gambling is also a huge problem for casino operators. Just a few years ago, many of the big names in the gambling industry, such as Wynn, MGM and Sands, saw Macau as the new and even bigger Las Vegas and invested heavily in the former colony through their Chinese divisions. It doesn’t come as a surprise that Wynn recently announced that the opening of its newest Macau resort is delayed by at least three months. The opening of the USD 4.1 billion hotel was originally scheduled for March 25, 2016. Just recently another major project was opened, the Studio City hotel and casino resort, which costed USD 3.2 billion. The opening was highlighted by Hollywood stars Leonardo DiCaprio, Robert DeNiro and Martin Scorsese, who enjoyed a performance of Mariah Carey. The Star City resort, owned by Hong Kong billionaire Stanley Ho, is marked by many as the ultimate test for Macau’s gambling industry.
The gambling crisis has also translated into the performance of casino shares. Wynn Resorts (WYNN) lost half of its value during 2015. Shares of Las Vegas Sands did better, but still lost over 20% during the past year. However, MGM Resorts International (MGM) had a better year with shares up almost 10%. But during the last two years, shares of MGM are roughly unchanged. And the high stakes poker players? Rumor has it that the nosebleed games moved to Manila, Philippines.