In March, casino revenue in Macau fell 0.4 percent to $3.2 billion; in February revenue was up 4.4 percent and in January down 5 percent. VIP win was down 10 percent for the first quarter and mass-market win was up 8 percent. Predictions for the rest of year vary, but no one sees any significant growth in 2019. However, Morgan Stanley is predicting dramatic growth over the next 3 years, from $37 billion in 2018 to $50 billion in 2022. Morgan Stanley believes the increase in the number of visitors, particularly from Mainland China and increased visitor spending will drive the gaming revenue up, way up. That is a huge leap of faith and to me that is not easy to understand.
Macau and its casino industry has never been as straightforward as other jurisdictions. Since December 1999 Macau has been part of China. It is called a Special Administrative Region. It has its own legal and political system and a capitalistic economy. China calls it “One Country, Two Systems.” Or at least that is what China used to say, the phrase is mostly missing in action these days. Now, Macau is mentioned as part of a bigger picture. China is moving forward with its vision as a world power. To further that vision it has initiated the “New Silk Road” or “Belt and Road” and is creating a new construct called the Greater Bay Region. The Greater Bay includes Macau, Hong Kong and Guangdong. Macau is important in both plans.
In the plan, Macau’s role is to attract visitors from around the world. As part of that plan, China wants the casinos to diversify and offer more than gambling. The Chinese government is doing as much as it can to assist. China is backing major improvements in the infrastructure in and around Macau, including the Hong Kong-Zhuhai-Macau Bridge. The bridge is 34 miles long and cost $18.8 billion. It is one of the ways China is making it easier to get to Macau from the Mainland. And China eased its restrictions on Chinese visiting Macau. However, there are two major exceptions; people with low “social credit” scores find it difficult to travel anywhere; and Guangdong citizens are only allowed to visit Macau once every sixty days. That is an important exception as most of the Chinese visitors are from Guangdong. A new plan is going to put additional stress on the casinos in Macau. China also announced its intent to use the island of Hengqin as an “island for international leisure and tourism”. The idea is to give visitors to Macau something else to do besides gamble.
There are other factors that make it difficult to predict Macau’s future. Beginning in 2022, the casino licenses come up for renewal. The government of Macau is being coy about the criteria it will use to evaluate the current licensees to determine if the licenses should be renewed. One suspects the coyness comes from China. Macau has not been told what China expects from the process yet.
In the early years of the dramatic growth of casino revenue in Macau there was very little competition. The Chinese government had not begun its crackdown on corruption that caught many of Macau’s highest rollers. Smoking was permitted in casinos; and there were no New Silk Roads or Greater Bays. In those days it seemed that there was absolutely no limit on Macau’s potential. But then President Xi Jinping cracked down on corrupt officials and VIP gamblers disappeared into the mist. In the same period, other countries looked at Macau and coveted that Golden Goose. Now, Vietnam, Korea, the Philippines and Cambodia have developed or are in the process of developing major resorts capable of competing with the casinos in Macau.
At the end of the first quarter of 2019, the future of casinos in Macau is less certain than it has been at any time since the Chinese takeover. China under Xi has a very different vision for China and for Macau than China had 19 years ago. As that vision unfolds new pieces are revealed that are going to change the conditions, not unlike Alice’s Wonderland. Beyond China conditions are also changing and they are ones that even the mighty Emperor Xi cannot control. Every industry driven by innovation, competition and economic factors changes and evolves over time. The casino industry is no exception. In the United States, a steady stream of new jurisdictions offering gaming products has created a national gaming industry and bears little resemblance to the casino business in Nevada in 1934. Macau is subject to the same forces as any other jurisdiction, but one other force is also in play in Macau. China has a managed economy. Slowly, but surely China is putting Macau under that same management. No outsider knows what that will mean.
