While it seems the tough times for the enclave of Macau keep on coming with the Gaming Inspection and Coordination Bureau reporting that gambling revenues fell 37.1% last month, nearly $2.55B USD less than May 2014. This marks the 12th consecutive month that Macau casinos have shown drops in revenue and there are no signs of things improving in the short term as regulations become tighter.
Although the drops were expected, it’s pretty staggering to see these figures declining so much just a single year after some of the most impressive revenue numbers were coming out of the jurisdiction. The culprit is tighter Chinese regulations on corruption which previously had allowed the flow of millions of dollars out of China and into the elusive VIP rooms that offer Baccarat to the world’s highest rollers.
Because of special restrictions that limit the amount of currency that Chinese citizens are allowed to bring out of the country, the Macau gambling scene is largely controlled by “junket” groups which are essentially agents facilitating credit so Chinese players can skirt the laws and gamble for huge money.
The way it usually works is one of two ways – either the player “purchases” an item (say a Rolex) for an exorbitantly marked up price on the Chinese side collecting that cash in Macau, or the junket simply extends credit to them on arrival and handles the collections when they arrive back on the mainland.
The major issue with this system is that since gambling debts are illegal to collect in China, the junkets generally rely on unsavory groups such as the Triads to ensure that debts are paid by the players. This has brought a lot of negative publicity to the junket industry and the subsequent crack down by China.
Although this is one of the main contributing factors in the revenue decline, the Asian region is also getting a lot more competitive these days with lots of options for high rollers in the Philippines, Vietnam, Cambodia, and for a longer trip to Australia which is home to the Crown group of casinos.
This increased presence of casino operators in Asia has played a part in Macau’s lagging growth and it seems the proverbial hay day of unlimited profits is coming to a halt, as least for now. Although there are lots of new properties being built up in Macau, it’s likely that some of these will never be finished since as we saw in Las Vegas during the financial crisis of 2008, declining revenues usually stop growth.
Another interesting thing to look out for over the next few years is the resurgence of Vegas as an Asian gambling destination with heavy hitters Genting slated to open their hotel within the next 3 years. The group is extremely well known in the Asian market and will likely bring players back stateside to play.