For more than a decade, Macau, the world's biggest casino hub, has been on the kind of roll to set any gambler's pulse racing, with gaming revenues multiple times higher than Las Vegas, and the dice rolling hot.
But President Xi Jinping's swingeing anti-corruption campaign in China means receipts from the green baize are falling, forcing the tiny former Portuguese colony to rethink its role. Total gaming revenue in November was down 32.3 per cent to 16.4 billion patacas (€1.87 billion), according to Macau's Gaming Inspection and Co-ordination Bureau, the 18th straight month of falling revenue.
Beijing, which took over the reins in Macau after the handover in 1999, is putting strong, steady pressure on Macau to morph from a destination for corrupt government officials and businessmen into a mass market for less-wealthy tourists, most of them from China.
There is evidence of this transformation in places like the Galaxy Macau, where glitzy and impressive shopping malls have sprung up around the casinos. Through the halls shuffle visitors from Japan, Korea and other countries in the region, although by far the biggest number come from China.
The casinos are a constant – as you walk through the hotel lobbies decorated with crystal and gold-leaf, you hear the occasional cheer from someone who has won big on one of the baccarat tables.
The Venetian Sands is the biggest casino in the world, but it also offers guitar festivals and Bon Jovi concerts. The Batman Dark Flight ride competes for the attention of the punters at Studio City, while the Grand Lisboa, the flagship of Stanley Ho – the man who transformed Macau into a gaming paradise – has four Michelin-starred restaurants.
The tables in the main casinos are still busy, but the impact of the crackdown is most keenly felt in the high-roller rooms on the upper floors. At one point, they represented 80 per cent of revenues, but now the big spenders make up about half of revenues.
One industry specialist who requested anonymity said gaming revenues were still very significant but Macau needed to take a leaf out of Las Vegas's book, where the Nevada city has seen gaming revenues fall but has grown other areas such as family business, conferences and entertainment.
“The decline in VIP business is about 98 per cent responsible for the market we’re seeing in Macau right now. In terms of gaming revenue, even this year, Macau is probably going to be 2½ times bigger than the state of Nevada, and you’ve got six operators here rather than hundreds in Nevada. I don’t think Chinese people are any less wild to go gambling than they were two years ago,” he said.
Non-gaming income
“But at the top end they can’t access the funds they were accessing previously. The real challenge here is to broaden the base, so non-gaming income becomes a significant part of income. It’s far more challenging to get a diverse and compelling offering of non-gaming attractions.”
Baccarat is the most popular game among Chinese gamblers and during the third quarter of this year, there was an increase in mass-market baccarat play, which is the best way of judging non-VIP gaming.
In late 2014, Xi made it clear that Macau would have to speed up the pace of diversification, speaking of “deep-seated problems”. “It is important for Macau to adopt a global, nationwide, future-oriented and long-term perspective,” he said, calling for focus on “a global tourism and leisure centre”.
While stopping the outflow of funds is central to Xi’s campaign, the crackdown also includes a moral crusade – it has included jailing celebrities for drugs and prostitution.
Among the crimes confessed to by Guo Meimei, widely considered China's most brazen "professional mistress" who was jailed for five years in September, was running up 260 million yuan (€36.66 million) in gambling debts in Macau.
In concrete terms, some of the measures include the launch of a nationwide crackdown on abuse of the state-backed China UnionPay card payment system, where customers use their cards to “purchase” goods at point-of-sale machines, then return them to the retailer and get cash back, minus a commission. This allows them to circumvent China’s strict currency controls, under which Chinese citizens are allowed take only the equivalent of $50,000 (€45,512) out of the country each year, and cannot take more than about 20,000 yuan out of the country per day.
China lost an estimated $1.08 trillion (€980 billion) in illegal outflows between 2002 and 2011, so the government has been keen to put a stop to the practice. The new system will require people with the point-of-sale machines to be more strictly licensed.
One of the pioneers of Macau gaming is Steve Wynn, the Las Vegas magnate who oversaw the construction of the Golden Nugget, the Mirage, Treasure Island and the Bellagio. When the Macau government opened up the gaming business to overseas investors, Wynn won one of three gaming concessions and he opened in Macau in 2006. It now accounts for more than half of his group revenues.
Big star attractions
For the casinos, uncertainty has become what Wynn calls the “plaguing word of the day in Macau”. When the Studio City hotel and casino resort opened in October, Robert De Niro,
Martin Scorsese
,
Brad Pitt
and
Leonardo DiCaprio
came and the property features a figure-of-eight rollercoaster.
But Wynn has his headaches too. In November, he announced the opening of his latest $4.1 billion hotel in Macau would be delayed by three months.
Weeks before it opened, the local government announced the casino would initially be permitted only 200 tables – half the number that Studio City’s owners had planned.
Junket industry
The slowdown has devastated the junket industry. Junket operators are gambling agents who bring big high-rollers from the mainland to Macau’s casinos, lend them money and collect debts. Analysts estimate the number of junket tables has fallen by a third since the start of 2015, and probably about 100 junket operators have gone out of business. There have been protests on the street about the theft of millions of dollars from investors by a financial manager at junket operator Dore Entertainment.
Macau's chief executive Fernando Chui forecasts that casino revenues will come in at 200 billion patacas (€22.8 billion) in 2016, their lowest level since 2010, and he urged developers to achieve a better mix between gaming and non-gaming.
He said this had been achieved on the Cotai Strip, an area of reclaimed land between the Coloane and Taipa areas of Macau. There are other challenges facing Macau – a report by KPMG suggests that a full smoking ban in casinos would knock 16 per cent off Macau’s gross domestic product and badly affect both VIP and mass-market visitors.
