Macau has been in the limelight over the past few months but not for the right reasons. Per the Gaming Inspection and Coordination Bureau, Macau’s total gross gaming revenue for the month of August declined around 6% to $3.6 billion. This was the third successive month of decline after a 3.7% fall in June and 3.6% decline in July.
Shares of Melco Crown Entertainment Ltd (MPEL) which earns a better part of its revenues from Macau declined 3.7% in response to the sluggish numbers. In fact, share price of the company has plunged 20% since May this year ever since Macau started experiencing troubles.
Share prices of other companies that operate in the region like Las Vegas Sands Corp. (LVS), Wynn Resorts Ltd. (WYNN) and MGM Resorts International (MGM) also declined after the sluggish August numbers. Price of Las Vegas Sands, Wynn Resorts and MGM Resorts tumbled 5.1%, 4% and 2.6%, respectively.
Reasons for the Decline
The FIFA World Cup that took place in June-July has largely been blamed for the debacle. Also, the government’s crackdown on corruption, which includes restrictions on VIP gamblers to stop billions of dollars from being siphoned off illegally from mainland China to Macau, has also affected footfall at the casinos.
Limitations like the one on the use of state-backed payment processor UnionPay is making it harder for players to obtain cash to gamble. Since the new restrictions on UnionPay machines and visa restrictions came into effect, VIP customers have become more cautious and have started avoiding Macau, resulting in lower revenues.
Moreover, a cooling Chinese economy has lowered consumer spending. China’s economy has been slowing down of late. The restrictions on VIP gamblers would further reduce the flow of money from China into Macau and impact local economic growth.
What’s Next in the Gambling Space?
Labor-related problems are expected to adversely impact the margins of these casino companies, going forward. Aware of the huge profits that the operators earn, casino employees are now demanding wage increases and benefits. Casinos, on the other hand, are trying to retain talent, which has reportedly increased staff costs by 10%-15% year over year.
With eight new resorts coming up in the region in the next three years, labor issues such as these pose a challenge. Meanwhile, new resorts would also result in stiff competition. Also, an impending ban on smoking in casinos would continue to put pressure on gaming revenues in the upcoming quarters.
The ongoing pressure would compel gamblers to move from Macau to other destinations like Singapore, the Philippines and Australia. Japan is also a contender set to enter the market, subject to approval.