January 23, 2015    5 minute read

Macau: From a Flush to a Blush?

   January 23, 2015    5 minute read

Macau: From a Flush to a Blush?

Macau, China’s semiautonomous betting hub, has experienced its first ever yearly fall in gambling revenue. After suffering for seven consecutive months, Macau’s Casinos enter 2015 blushing and operating under much uncertainty. 

History 

A former Portuguese colony, Macau, lies on the western side of the Pearl River Delta across from Hong Kong. With an estimated population of 624,000, it is one of the most densely populated areas of the world. It is also the world’s fourth richest territory per person, according to the World Bank. Through the influx of mainland Chinese gamblers and tourists, Macau now has a GDP per capita of $91,376, behind only Luxembourg, Norway and Qatar. 

In 1999, after 400 years, and as the last European colony in Asia, sovereignty of Macau was passed over to the Chinese government in Beijing. However, through the Sino-Portuguese Joint Declaration and the Basic Law of Macau, the region continues to operate under a high degree of autonomy. This means that a western ethos and western customs are still in practice and will be until at least 2049, 50 years after the transfer of power. 

As one of the two Special Administrative Regions of the People’s Republic of China, and as the only locality, along with Hong Kong, where gambling is legalised in the whole of China, Macau holds a unique position both politically and culturally. However, these once fruitful casinos have ended an 11-year run of gains amid a corruption crackdown engineered by Chinese president Xi Jinping. With more tough times predicted, what will 2015 hold for the Monte Carlo of the Orient?

Fall in Revenue 

For a decade, rising Macau gaming revenue was a much a certainty as death and taxes. Now death and taxes stand alone, with casino revenue in the city falling 2.6% to 351.5 billion patacas ($44 billion) in 2014. This follows a record 30.4% monthly drop in December, according to figures from Macau’s Gaming Inspection and Coordination Bureau released in the New Year. This prolonged decline in revenue is of great concern for both the casinos and Macau’s government and economy. Last year gambling revenue alone contributed 80% of the government’s annual revenue and 50% of the whole economies income. 

While Macau remains seven times the size of the Las Vegas Strip, Xi Jinping’s bid to catch ‘tigers and flies’ in an anti-corruption drive and weaker economic growth in general have greatly effected the industry. Xi has even gone as far to urge Macau to diversify its economy and transform into a global tourism and leisure centre, meaning a move away from gambling all together. This bid from President Xi may result in Macau suffering from a decline in revenue until at least mid-2015, when new resorts open. 

Macau bulls say it isn’t just a lack of demand, but a lack of casino supply. Pointing to hotel room occupancy rates north of 90% and minimum table bets above $270 that have squeezed out some bettors, they have high hopes for the massive new casinos that each of the six players will complete over the next three years. The main apprehension for all those associated with the industry is, while they affirm that the casino hub will eventually right itself, they have no idea when this will be.

Future Expansion 

For many analysts, the prospects of new casino resorts that are planned to open in 2015 greatly redeem the situation. Such a move will greatly aid supply and enable more inward investment. However, opening new casinos in such a weak and precarious market is certainly not a sure bet. By following the ‘build it and they will come’ logic, Macau is risking an awful lot. While extra hotel rooms will be offered in the planned resorts, betting tables are subject to government quotas, and that is something no one can be sure about. 

Nevertheless, Macau’s long-term future as China’s gambling mecca remains bright. But so much new capacity could give investors a hangover.

In reality, it was not too long ago when commentators were lauding Macau’s runaway success. Global companies were – and still are – investing billions in the region and gamblers were flocking there. Thus, while in this panic many questions are being asked, there is still a great chance the doubters will be the ones blushing by the end.

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