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Analysts thought Macau's first-ever annual dip could have been worse

5 Jan 2015

By Howard Stutz
Macau’s first-ever annual gaming revenue decline wasn’t a surprise although analysts worried for months the market would suffer an even larger decrease than its 2.6 percent dip in 2014.

The worry is now about 2015 and what effect continued softness in the world’s largest gambling enclave will have on Nevada casino operators.

“We anticipate a slew of negative revisions to consensus market gross gaming revenue forecasts,” Deutsche Bank AG gaming analyst Carlo Santarelli told investors Friday.

The Macau Gaming Inspection and Coordination Bureau said Friday Macau’s 35 large and small casinos collected $44.1 billion from gamblers in all 2014, marking the first time revenue fell on a year-over-year basis since American companies began operating in the Chinese Special Administrative Region in 2003.

In December, gaming revenue fell 30.4 percent to $2.9 billion, Macau’s largest-ever single month decline and the seventh straight monthly decrease.

MGM Resorts International, Las Vegas Sands Corp. and Wynn Resorts, Limited all operate casinos in Macau and are expanding their holdings.

Macau has been nose diving since June and analysts expect the trend to continue into the first three months of 2015.

The lucrative Chinese New Year holiday falls entirely in February this year, rather than straddling the first two months, as it did in 2014. Most analysts expect January’s gaming revenue to be off anywhere from 15 percent to the high-20 percent range.

“All-in we would expect first quarter 2015 gross gaming revenue to decline in the low-to-mid 20 percent range,” said Union Gaming Group analyst Grant Govertsen, who is based in Macau. “This forecast largely assumes that there is no material change in either mass-market or VIP trends.”


Much of Macau’s decline has been the result of the sourness in China’s economy and a crackdown on corruption by the Chinese government that is forcing high rollers to avoid the market. In June, wagering on the World Cup soccer tournament took away the attention of high rollers.

The largest factor has been a campaign against extravagance and corruption initiated by Chinese President Xi Jinping.

The move has targeted junket operators who bring high-end business into the private gambling salons inside Macau casinos. Many of the junket operators have alleged associations with Chinese organized crime triads.

According to Reuters, the crackdown has cost Macau casinos $58 billion in market value over the past six months.

Xi visited Macau last month to celebrate the 15th anniversary of Macau’s handover to Chine by Portugal. That event also slowed visitation.

After the president’s visit, Macau gaming regulators circulated a notice to junket operators, stipulating that promoters must ensure their clients have no criminal records before allowing them to open accounts.The rule became effective on Thursday.

Wells Fargo Securities gaming analyst Cameron McKnight said the rule follows another mid-December decision in which Macau gaming authorities would be given access to review all transfers of money through China’s UnionPay bank payment cards.

“We believe that this new regulation is long term in nature, and is likely designed to aid China’s Economic Crimes Investigation Bureau’s recently announced efforts to circumvent illicit cross-border fund transfers,” McKnight said.

Another factor hurting Macau were political protest this past year in Hong Kong against the Chinese government.

Govertsen said the protests have since died down, but had a more “profound impact” on visitation than most analysts expected.

Friday’s news was a factor in the stock price declines of MGM Resorts, Las Vegas Sands and Wynn.

MGM fell 36 cents, or 1.68 percent, to close at $21.02. Las Vegas Sands was off $1.86, or 3.2 percent, to close at $56.30. Both companies are traded on the New York Stock Exchange.

Wynn Resorts, traded on the Nasdaq, fell $1.87, or 1.26 percent, to close at $146.89.


Macau still took in more than seven times the Strip’s annual gaming revenue and far outranks both Nevada and Singapore as the would’s largest gaming revenue-producing market.

But the declines this year have been staggering. The last four months of 2014 saw double-digit decreases, including a record 23.2 percent dip in October, which stood until December.

Las Vegas Sands and Wynn Resorts rely on Macau for the vast majority of their quarterly earnings. Both companies, as well as MGM Resorts, spun off their Macau holdings into separate publicly traded companies on the Hong Kong Stock Exchange.

The three Nevada gaming companies are moving forward with new developments on Macau’s Cotai Strip region: Las Vegas Sands’ $2.7 billion The Parisian Macao, Wynn’s $4 billion Wynn Macau Palace and the $2.9 billion MGM Macau Cotai.

Other Macau casino operators have Cotai projects under development, including Hong Kong-based Galaxy Entertainment Group’s expansion of the Galaxy Macau resort and Melco’s Macau Studio City complex.

Most observers predict the current Macau downturn will reverse itself sometime this year.

Macau is the only place in China where casino gambling is legal. China ended billionaire Stanley Ho’s casino monopoly in 2001.

The Beijing government wants Macau to diversify its economy beyond gambling. New casinos are required to increase their nongaming amenities, such as retail, dining and entertainment.

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