The ongoing feud between China and the United States over trade may end up costing U.S. casino companies that do business there particularly hard since these companies look to Macau for a good deal of their bottom lines. However, if the trade war continues to escalate, the American-owned casinos may lose a great deal.
The Problem with a Trade War
Both the U.S. and China have been issuing threats against each other with regard to each other’s economies and trade. While the United States has stated in the past that China has been getting away with murder in its trade dealings with the United States, especially with its record of committing patent fraud, the election of Donald Trump in 2016 ramped up the rhetoric. The United States imposed tariffs on Chinese steel and the Chinese imposed tariffs on American soybeans. The trade war escalated over the summer, with both countries threatening to tax imports from the opposing side as much as 25 percent. On paper, this seems like a big deal – and it is because both countries stand to lose more than they win.
The Macau Casinos
Currently, the six major operators in Macau have three companies that originated in the United States, including the largest gaming company in the world, the Las Vegas Sands Corp. Three casino operators in all have casino interests in China: Wynn Macau, Sands China, and MGM China. All these companies make billions of dollars in revenue each year.
While both China and the casinos have enjoyed a profitable business relationship, that could quickly sour. If China decides to take its anger out on the American-owned casinos, it will create a large problem because much of the casinos’ revenue comes from China. Wynn Resorts, one of the largest gaming companies in the world, currently gets 69 percent of its total revenue from its Macau holdings and stands to lose more money than any other U.S. company if the trade war continues to escalate. The Las Vegas Sands receives 65 percent of its yearly revenue from Macau.
Retaliation from China
According to research, China could do several things to make life hard for the American-owned companies. Beijing would rather see the revenue from those casinos stay in China instead of travel back to the United States. The Chinese government could outright forbid the American-owned casinos from doing business in the country. Government officials could force the U.S. companies to sell their casinos to companies operated by the Chinese. This is considered to be a long shot because the Chinese are not nearly as familiar with how to run a successful casino as the Americans are. The outright banning of American-owned companies from gaming operations in China is seen as a long shot, however.
The Chinese might opt instead for a patriotic campaign of censure to the U.S. companies, which would mean the Chinese people could only gamble at casinos that have Asian partnerships, or with Chinese companies that have casinos. However, this is also seen as a long shot because restricting gaming in Macau through a campaign would hurt both the American-owned and Chinese-owned casinos, and China appears to have no wish to further damage its own economy.
However, because all the casinos in Macau cater to high rollers, which can make up as much as 70 percent of a casino’s revenue, experts believe China may be reluctant to act on the Macau casinos. The majority of high rollers have the option to take their business elsewhere, perhaps to gaming markets in Vietnam, the Philippines or Australia, all of which are ready to cater to the high rollers who currently visit Macau.
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