Macau’s casino industry has been battling more than its share of headwinds since the salad days ended with the arrival of Covid-19.
It started with the stringent travel restrictions and mandatory quarantines imposed on both sides of the border with China. Combined, they effectively strangled visitation from the mainland, without whose gamblers upwards of three-quarters of the market’s world-leading gaming revenues, which last year topped US$36 billion, have disappeared since January.
Only in the last month or so have the restrictions begun to ease, highlighted in August by the Chinese government’s restoration of tourist visas for individual travel. The visas, once they’re fully resumed nationwide, which hasn’t happened yet, are seen as the key to a recovery because they’re the travel vehicle for most of the market’s lucrative VIP and high-end mass market players, the two segments which together account for the lion’s share of casino win.
Analysts are looking to this vaunted high end to lead the recovery. But there are some ominous indicators clouding those hopes.
The signs that VIP is in trouble pre-date the pandemic. The segment, which is financed and operated by an array of mostly Chinese promoters, junkets as they’re collectively known, generates around half the market’s total win. That’s down from around 70 percent in its heyday, a decline that points up the segment’s particular vulnerability to a variety of Chinese and global macroeconomic and geopolitical factors.
VIP never fully recovered from a nationwide crackdown on corruption and lavish spending launched by the ruling Communist Party when President Xi Jinping assumed power in late 2012, and it has remained in the doghouse with Xi and the party, the junkets being perceived as major scofflaws in their long-running battle to halt the capital flight that has plagued China’s economy for years.
The corruption crackdown worked to stifle underground cash flows to the point where dozens of junkets, mostly smaller operators, were wiped out, unable to muster the liquidity to compete with the bigger concerns.
Last year, Beijing went after those bigger concerns with a crackdown on illegal online and proxy gambling, which directly affected major financiers, like Hong Kong-based, publicly traded junket Suncity, which use them indirectly as conduits for providing credit for Chinese gamblers in Macau, the Philippines and elsewhere.
VIP revenues, which were soft through most of 2019𑁋battered by slowing economic growth in China and weakness in the yuan, both exacerbated by trade tensions fomented by the Trump administration𑁋
fell around 30 percent in the second half as the crackdown took hold.
Earlier this summer, Beijing stepped up the crusade, labeling the cross-border flow of funds for gambling as a national security risk. International news outlets say thousands of bank accounts have been frozen, cash seizures have surpassed 229 billion yuan (US$32 billion), and underground gambling rings across the country have been raided on a near-weekly basis.
“China clearly intends to cut out these middlemen and gain better control over the outflows of renminbi through Macau,” said Anthony Lawrence of consultancy Greater Bay Insight, speaking with The Straits Times of Singapore.
“It definitely impacts liquidity,” said Lam Kai Kuong, director of the Macau Junket Association.
Reuters reports that last month around 900 players withdrew deposits held with Suncity VIP rooms across Macau. The run on the rooms was immediately noted by Macau regulators, who said they were paying close attention to the situation, although they had not seen any “irregularities” concerning Suncity.
Separately, AG Asia Entertainment, which targets Chinese gamblers via online operations in the Philippines, said earlier this month it was ceasing operations and notified customers to withdraw their deposits.
In Lawrence’s view, “The junket sector in Macau has been living on borrowed time for years, and the end is drawing nearer.”
Ben Lee of IGamiX Management & Consulting told Reuters, “The only way for the VIP segment to recover is for the casinos to expand their lines of credit without corresponding cash collateral (from the junkets) which has been a prerequisite for them in the past.”
But the casinos, reeling from the impacts of Covid-19, face plenty of their own challenges, and negotiating them is getting ever more delicate.
This is especially true for the three U.S.-based operators, which are growing increasingly concerned about possible fallout from the Trump administration’s anti-Chinese posturing in the run-up to the November presidential election.
With Macau’s six casino concessions due for renewal in 2022 in a process, as yet unknown, that could include fresh bidding, Wynn Macau, the Hong Kong-traded subsidiary that holds the concession of Las Vegas-based Wynn Resorts, said in a recent filing with the Hong Kong Stock Exchange: “Our business and prospects may be negatively impacted by the fact that we are majority owned by a U.S. company should the U.S.-China relationship further deteriorate.”
Wynn Macau, whose three casinos generate around 70 percent of Wynn Resorts’ annual revenues, noted the administration’s recent ban on WeChat, the massively popular Chinese social media app in use around the world, as one of the tit-for-tat measures contributing to the deterioration of the geopolitical climate.
“We are unable to ascertain the scope of the ban at this point, and there is no assurance that the ban will not adversely affect our ability to communicate with certain of our customers,” the company said.
Both Wynn Macau and Wynn Resorts, which filed the same statement with the U.S. Securities and Exchange Commission, expressed concern that last year’s Trump-instigated tariff wars were now spilling into areas affecting “national security and national and regional politics.”
“Sustained tensions between the United States and China could significantly undermine the stability of the global economy in general and the Chinese economy in particular,” they said.
