There’s good news and bad news for gaming operators in Macau.
First, the good news. On January 8, the day Covid-related travel restrictions were finally lifted, almost 40,000 people visited the special administrative region (SAR), historically the world’s richest gaming hub. That was soon followed by the bad news: reports from China of some 60,000 new Covid deaths.
Until now, even minor Covid surges caused Beijing to shut down borders and businesses and mandate widespread testing. But this time—after three years of the frustrating stop-start cycle—leaders know they can’t keep those tough measures in place without risking the country’s fiscal health. Meanwhile, Macau’s Big 6 casino concessionaires, still on life support, must pony up billions in non-gaming investments as a condition of their new 10-year concessions.
Gaming analyst Brendan Bussmann, managing partner of B Global, says Beijing finally understands what the rest of the world has known for months: it has to coexist with and manage Covid, because the continually morphing virus can’t be fully contained, at least not now.
“As soon as the border opened, Covid spread rapid-fire,” possibly because enforced isolation had made people more vulnerable, said Bussmann. “Now that Pandora’s box is open, I don’t see it shutting again unless something extraordinary happens.”
Bussmann commended all six concessionaires for “surviving” the pandemic rollercoaster.
“What was asked of them was not just extraordinary but unnecessary: to shut down for virtually three years, pay everybody and hope they come out okay in the end,” he said.
Last year, even the traditionally compliant Chinese grew impatient with ongoing shutdowns and super-strict preventive measures. In November, after a deadly apartment fire was blamed on street lockdowns related to Covid, thousands took to the streets in protest. China was a “pressure-cooker” of repressed anger, said Bussmann. “Once it boiled long enough, something was bound to explode.”
Earlier this month, the state-controlled Xinhua News Agency acknowledged that China has stepped back from its zero-Covid policy because it’s “difficult to eliminate the coronavirus, and the social cost and price of Covid prevention and control are rising.”
Thus far, the country has spent billions trying to control the outbreaks. As reported by CNN, since 2019, Guangdong Province alone has spent 146.8 billion yuan (US$22 billion) on pandemic measures. Other local governments are equally cash-poor, as are Macau casino operators, whose 2022 gaming revenues were the worst on record.
That said, Bussmann is “cautiously optimistic” about the industry’s rebound, if only because there’s no place to go but up. But it won’t be easy.
“It’s a different Macau than it was three years ago,” said Bussmann. “People are just starting to get back, and they don’t necessarily have the discretionary income they once had. You no longer have junkets in the way you had them before, and the flow of money has been considerably constrained or at least rerouted. You have to work through all that stuff to see what the new Macau will be like.”
What about the government’s mandate that casino concessionaires bring more global tourism to the SAR over the next 10 years? That’s a tall order all around, said Bussmann. “There isn’t enough lift in their airport to make a dent. How am I driving more international tourism from Bangkok? What do I have to do to bring people in from Japan?”
An airport expansion is planned, but now many tourists arrive through Hong Kong and reach the city by bus or ferry. Unfortunately, only air travelers are counted in official tourism numbers.
Can Macau become a must-see tourism spot, like Paris, New York, London, Manila? Maybe, with years of development and marketing.
“Macau was never viewed as an international destination, it was a gambling enclave,” said Bussmann. “I bet if you asked nine out of 10 people, even people in gaming outside Macau, what the city has to offer besides gaming, they wouldn’t know. They wouldn’t know any of the Portuguese cultural history, for example, because it’s never really been shopped.
“You’d have to have an LVCVA (Las Vegas Convention and Visitors Authority)-type makeover to say, ‘Here’s the destination, here’s all it has to offer, it’s not just tables and slots, it’s about all the non-gaming amenities that [operators] invested in’—meetings and events and those types of things.”
Lunar New Year, which begins January 22, will be a “bellwether” of performance for the Year of the Rabbit.
“What will it look like, and how much of that pent-up demand will return?” asked Bussmann. “But it’s not just about the number of visitors, which obviously continues to grow and do better day by day. It’s also what is the spend, how much tables are generating. February’s going to be a very interesting month, with Chinese New Year under our belts and everybody’s earnings calls to say, ‘Hey, here’s where we’re going,’ and give guidance with regard to Q1.”
As for full recovery, “It’s going to take a few years, probably into 2026, 2027.” By then, the 10-year license terms will be almost halfway through. The next concession renewal process, in 2032, may be the truest barometer of the industry’s long-term viability, said Bussmann, who compared it to human relationships.
“A friend of mine says marriage is one of those things that you should be able to renew or cancel every 10 years. That’s sort of the Macau process: ‘We’re at our 10th year, should we stick around for another 10 years or just call it a day?’ But if you look at the likes of LVS or Wynn, they’re digging in deep. They’ve made the investment and managed through the ebb and flow of challenges, though the pandemic is probably the most specific.
“Macau at one point was the largest gaming market internationally,” he concluded, “and I’m not saying it won’t return to that as things start to rebound. The best thing is we’re finally at rock bottom, and all roads lead ahead.”