Macau is an intriguing casino destination filled with gamblers, scammers and legal uncertainty. The casinos generate significantly more casino revenue than any other place on earth. Macau gaming revenues are forecasted to hit $36 billion in 2018; that is three and half times the annual gaming revenue of the entire state of Nevada. The reason is simple; Macau lives in the shadow of China and its 1.8 billion increasingly affluent citizens. Macau’s billion-dollar plus gambling palaces play host to millions of Chinese looking for a place to spend their money. The Chinese love of gambling is legendary and that makes Macau as close to gambling heaven as it is possible to get.
There is however, a downside to Macau’s favored location. The government of China is the city’s absentee landlord. China tells those who govern Macau and regulate casinos what it expects. There is nothing transparent about the situation. One can never be certain what China expects or what new dictates it has issued. Macau Chief Executive Fernando Chui visits China when summoned and he has a Chinese representative to advise him. When he speaks, the echo of China can be heard. In the last couple of months he has issued a number of ambiguous statements. He is promising to “review and strengthen” the gaming rules and guidelines and “hold specific audits on the problems found” in junket operations. Those are hardly exact statements and Chui has not given even a hint about his intentions or his instructions; all that can be said for sure is that some things are going to change.
The vagueness of impending regulatory changes can be anxiety creating. Each time a new official statement is published analysts at major brokerage houses advise caution and warn investors of a potential downturn in the market. The situation is made worse by the hidden nature of China’s influence. The Communist Party of China has just finished a major conference. President Xi emerged from the meeting firmly in control of the party and of China. Xi has a grand vision for China and among other things, his vision includes Macau. Macau has a role in “new silk road” and in the new region that includes the major province closest to Macau. Macau is also part of a plan to bring international visitors and currency to China. The city has become too important to China to allow self government and that includes casino regulation.
As we approach the time to begin the license renewal process, the influence of China looms larger and larger. In 2020, the first casino licenses in Macau come up for review. No clear guidelines have yet been published and that leaves the future of each license clouded by doubt of its viability. The uncertainty of the situation must cause the owners and managers of casino companies as much anxiety as it does to analysts and investors. So, why would anyone want to be in business in Macau? Clearly, casino owners do want to remain. All of the operators have made billion dollar investments recently to build new properties or improve existing ones. But in the face of the uncertainty I ask again why?
The question has fascinated me for years. But I think I found the answer this week; 280 million customers. The Sands’ Venetian just celebrated its tenth anniversary. Sadly Sands Chairman Sheldon Adelson was unable to attend; he fell on his way to the festivities and broke his ribs. At 84-years old, the fall is not a minor event and could be life changing. But he promises to visit as soon as he is able to travel. Why would an 84-year old man with broken ribs want to travel half way around the world? The answer is the same – 280 million customers. The chief operating officer of the Venetian filled in for Adelson at the anniversary celebration. He told the gathered dignitaries that 280 million people had visited the Venetian in ten years. He also said that there were an additional 220 million visitors to the Sands China. Wow! Five hundred million people have visited Sheldon’s casinos in Macau in a decade. I suspect that is why he and the other operators put up with the hassle. There is no place else on earth a casino can expect to have than many customers eager to make a wager. Living in the shadow of China does have its upside.
