Macau is technically a Chinese territory, but years under Portuguese rule and a strong gambling-related tourism industry have left the tiny island in an incredibly favorable position. Even when China has struggled with economic and trade issues in the past, Macau has always remained strong.
Things might be slightly changing, however. Tourism is the backbone of Macau’s economy, but much of that tourism comes from mainland China, where gambling is illegal. As China deals with a slowing down in their economic growth, caused by a mix of weakening domestic demand and higher U.S. tariffs – travel to Macau has decreased significantly, which means fewer VIP players spending tons of money at the island casinos.
The Smoking Ban Could be Responsible for the Decline
Surprisingly, Macau’s smoking ban, which passed earlier this year, has also negatively impacted tourism, as Chinese visitors are used to indoor smoking and are unhappy about the change.
“We remain watching the situation with caution … global growth is uncertain, and where the trade war ends up is also uncertain,” said Matthew Maddox, chief executive of Wynn Macau. “We continue to experience peaks and valleys in Macau.”
Macau officials are hitting back by focusing on policy and regulatory changes, including dealing with expiring licenses (and new deals when it’s time to renew) for some of their biggest casinos, including Sands China, Wynn Macau, MGM China, Melco Resorts, SJM Holdings and Galaxy Entertainment.
“There is always something to worry about. We get that, we are just very bullish and we are blinded by the extreme size of Macau, the market today but more important the market tomorrow.”Robert Goldstein , Las Vegas Sands president
There’s also been a renewed interest in clamping down on illegal capital flow from the mainland, primarily focusing on cash transfers and underground gambling – all activities that undermine legal gambling in Macau. In January, the government seized 30 billion yuan (£3.4 billion) in one of the largest clampdowns this decade.
Regulators in Macau are now also focusing on taking control of the high-rollers making a fortune in the island casinos, providing credit to VIP players but also collecting on their debts. These measures could end up having a negative impact on the VIP market, which brings over 50 percent of the casino revenue, accounting for about $3 billion a month.
A Flood of Visitors
One of Macau’s most profitable weeks has always been during the Chinese New Year holiday. This year, over 1.2 million visitors arrived on the island over the period of a single week, which has traditionally translated to a huge jump in casino revenues as well.
But while hotels had an average occupancy rate of 97 percent during that week this year, casinos still saw a reduction in the amount spent by visitors. In fact, the Tourism Board is seeing more tourists looking for “experiential” holidays, including picture-taking adventures and an increased interest in restaurants and nightlife. The lower growth adds pressure to casino operators struggling with rising costs, said Praveen Choudhary, an analyst at Morgan Stanley based in Hong Kong.
The newly-opened Hong Kong-Macau-Zhuhai bridge, which now offers a 30-minute connection between Macau and Hong Kong’s international airport, was expected to have a huge positive impact in the local economy, but visitors are limited by hotel supply – so overnight visitors haven’t grown as much. Add to that a weaker yuan affecting how much visitors can spend, and the result is that the growth hasn’t been as strong as expected.
While financial analysts are unsure how bad the casino slowdown will end up being in 2019, some are predicting either a very tiny growth (much lower than in previous years) or even a decline. Las Vegas Sands president, Robert Goldstein, said the company remained strong believers in Macau. “There is always something to worry about. We get that,” he said. “We are just very bullish and we are blinded by the extreme size of Macau, the market today but more important the market tomorrow.”