Battered by the Covid-19 outbreak, the U.S. gaming industry is looking to what began as the viral epicenter—China, and specifically Macau—as a model for its own eventual recovery.
The viral pandemic originated in Wuhan, Hubei Province in China in late 2019. In late January, the first coronavirus case was diagnosed in Macau. In February, the city took the unprecedented step of shutting its casino industry for two weeks, and gaming halls began reopening in stages on February 19. For a moment, it seemed the worst of the contagion had passed, but in mid-March, the city registered its first new Covid-19 cases, all from travelers, and the borders slammed shut.
Figures from the government’s Gaming Inspection & Coordination Bureau show that win from the 39 operating casinos flatlined in February, down more than 87 percent from the same month in 2019. Win for March was $664 million, down 79.7 percent year-on-year. So far in 2020, revenues have plunged 60 percent.
There will be no quick rebound. Mainland residents who visit Macau now must undergo a 14-day quarantine on their return through Guangdong Province. Casinos are operating with half the usual number of table games, and each patron entering a casino must submit to a body-temperature check and wear a face mask. Baccarat tables, which typically seat seven, now are limited to four.
GGB News asked gaming analyst Ben Lee, CEO of Macau-based iGamix, how he expects the recovery to continue. Lee was quarantined in Australia at the time, waiting to return to Macau.
GGB News: The United States has looked to Macau for clues to how the recovery could occur. Do you think Macau is a reliable model for the U.S. and other markets?
Ben Lee: Macau has been a beacon for the gaming industry globally, leading in various fronts from electronic gaming tables to slot machine player protection to facial recognition in their surveillance systems.
On the Covid-19 issue, the local authorities in Macau were the first to suspend casino operations and implement social distancing—a recommendation I made in a TDM-TV interview a week before they did that. Those moves have since been copied elsewhere. So yes, Macau is a reliable model.
How would you describe the situation there at this point? Are people coming out of hiding, much less going to gaming halls?
With the new restrictions, with everybody returning to Guangzhou needing to be quarantined for 14 days and the same constraints in place for Hong Kongers returning to Hong Kong, we now have virtually empty casinos.
What does the decline in gaming revenues mean for the local economy there, seeing as gaming provides the bulk of government income?
The government has consistently reported substantial surpluses in the past decade, averaging about 60 percent to 70 percent. As a result, they have significant reserves to weather the pandemic easily.
Is the current crisis even more proof that the Macau economy needs to diversify, as mandated by Beijing? The virus has shut down everything, but tourism and hospitality take bigger hits when consumers stop consuming.
The pandemic has hit all sectors of the economy, but tourism and hospitality have been the hardest hit. Yes, we need to diversify beyond hospitality and gaming—but the bigger questions are, diversify to what, and how?
Do you think this crisis will affect the concession renewal process?
No.
Some analysts are saying it could take five to seven months—through the summer and into fall—before GGR in Macau gets back to normal. Is that a reasonable projection, in your view?
That is pretty fanciful at this stage. Even if the lockdowns were lifted between China and the two special administrative regions (SARs), Macau and Hong Kong, the following will need to happen before we can even begin to approach normality:
- People will need to rebuild their savings and businesses, which have been decimated.
- After that, the average Chinese will have to feel comfortable traveling again.
- The people at the destinations will have to feel comfortable receiving massive number of Chinese tourists again.
We believe a timeline of 12 to 15 months is probably a more likely timeframe to reach 2019 levels—and that’s not even factoring in what’s happening in the rest of the world.
Macau isn’t out of the woods yet—far from it, as gaming revenues hover near zero and the territory continues under virtual lockdown. But what happens in Macau may offer realistic signposts for the global industry.
Last week, in what must be forcibly construed as positive news, China ended its lockdown of Wuhan after more than 10 weeks. Hubei Province “reported no new cases of confirmed infections, no new cases of suspected infections and three deaths,” according to an official statement. As the global gaming industry adjusts to a new normal, it may find reassurance that in China, where the viral pandemic began, it now seems to be ending—slowly, and with painstaking effort and sacrifice.
At this point, however, any timeline for a true recovery is educated guesswork. As Lee warns, “There is more pain to come.”
