What started out as China’s answer to Las Vegas, Macau is currently facing a future that seems a lot less rosy. It was recently reported in Bloomberg that according to Macau’s Gaming Inspection and Coordination ‘gaming revenue in the world’s biggest gambling hub fell 49 percent to 19.5 billion patacas ($2.4 billion) last month’.
This fall in stocks, currently being suffered by Macau’s casinos, was predicted last year by several analysts, who believe worse is still to come. Jamie Zhou, an analyst at Macquarie Securities, was quoted in South China Morning Post saying, ‘Gaming revenue will keep sliding through mid-year and dividends will get cut as the cost of new capacity eats into free-cash flow, leaving share valuations too expensive.’ He went on to say, ‘Macau is in a tough spot. We believe dividends will be slashed across the board.’ The market value of the two largest casinos has dropped around 19 percent and the six main operators – Sand, Galaxy, Wynn Macau, SJM Holdings, MGM China Holdings and Melco Crown Entertainment have lost US$89 billion in market value over the last twelve months.
There seem to be two contributing factors to the industry’s present slump: Firstly China is experiencing the slowest economic growth since 1990, and secondly, President Xi Jinping’s anti-graft campaign has had a negative impact on the VIP high rollers. This anti-corruption stance has meant many high-stakes gamblers have chosen to avoid any scrutiny by authorities into their affairs during the holiday period. This sentiment was echoed by Grant Govertson, an analyst at Union Gaming Group. He emailed Bloomberg: ‘The biggest culprit for the weak month was the already-troubled VIP segment. While we believe there was a pickup in VIP headcount, gaming volumes just weren’t there.’
However, many seem to think that Macau can recover. Even its slump was better than many expected with Bloomberg reporting their eight analysts had given a median estimate of a 54 percent drop. There is also a move in focus to new projects to boost revenue. The industry giants are looking to attract more mass market tourists with expansions that include a theme park rides to its own version of New York’s Broadway strip, which is in line with the government’s pressure to move away from the gambling.