By Kate O'Keeffe
The future of the world's casino capital depends on Beijing--a
fact that, if ever in doubt, was made clear in 2014 as China's
antigraft crusade dealt Macau its first recorded decline in
gambling revenue.
Last year gambling revenue in the Chinese city fell 2.6% to
351.5 billion patacas (US$44 billion) from 2013, government data
showed Friday. It was the first calendar-year revenue decline since
2002, which is as far back as public data go. December gambling
revenue plunged a record 30% to 23.29 billion patacas (US$2.92
billion) compared with the same period in 2013, extending a
seven-month losing streak in the casino hub, the data showed.
The recent poor performance pummeled casino stocks. Shares of
Macau's six licensed casino operators fell an average 40% in 2014.
Las Vegas Sands Corp. unit Sands China Ltd. (1928.HK) and Galaxy
Entertainment Group Ltd. (0027.HK)--the only two that are part of
Hong Kong's blue chip Hang Seng Index--were two of the three
worst-performing stocks on the index last year, weighing down the
entire market. Galaxy shares dropped 37%, and Sands China shares
fell 40% compared with the HSI's 0.4% rise over the year.
By contrast, in 2013 when Macau gambling revenue rose 19%, the
share prices of Nasdaq-listed Melco Crown Entertainment Ltd. as
well as Hong Kong-listed MGM China Holdings Ltd. and Galaxy all
more than doubled.
The sharp reversal in the fortunes of Macau, which in 2013 raked
in seven times the gambling revenue of the Las Vegas Strip and
which had for some time been growing by the size of the Strip each
year, took many executives, analysts and investors by surprise.
The primary cause of the sudden downturn is a China-wide
crackdown on corruption, they say. In addition to bringing down
many top mainland officials, the sweeping campaign has led
highrollers to shy away from Macau's baccarat tables, they say.
Other government policies introduced this year that have negatively
impacted Macau include tighter visa policies for Chinese traveling
to Macau and increased oversight on the UnionPay cards many
gamblers use to access funds there, they add. Many say they have no
idea when things will improve though they do believe the city will
right itself in the long-term.
Wynn Resorts Ltd. chief executive Steve Wynn, who has long
extolled the virtues of what he deemed predictable government
policies in China, said on an October earnings call that the
antigraft campaign had "put a lot of the wealthy businessmen in the
foxholes" and that he didn't know how long the policies would
affect Macau. "I don't know whether it is a squall or we are in the
rainy season or how long it will last, but we are still very, very
bullish on Macau," he told listeners on the call.
Alongside the corruption crackdown, Beijing has also been
intensifying its calls for Macau to diversify its economy away from
gambling, which accounted for more than 80% of the government's
revenue in 2013, according to official data. Chinese President Xi
Jinping reiterated the message during a rare visit to the former
Portuguese colony last month for the 15th anniversary of its return
to China.
A once desolate Chinese island called Hengqin is the linchpin of
the plan, according to a Macau government adviser. China wants
land-strapped Macau to use its riches from gambling to develop
non-gambling ventures on the island, the person said. Hengqin is
three times the size of Macau and located at the crossroads of that
city, Guangdong and Hong Kong.
But China has thus far been frustrated with the slow pace of
development on Hengqin and complained that many Macau investors in
the island are just sitting on the land as investments with no
plans to actually develop soon, said an executive involved in
discussions about Hengqin. Now, however, China is no longer just
suggesting Macau work seriously to develop the island, said the
Macau government adviser. The call has become "an order."
Macau casino operators including Galaxy and MGM China have said
they plan to invest in nongambling projects in the area. Casino
companies can also participate in the diversification plan by
offering more non-gambling activities at their casino-resorts, said
Ambrose So, chief executive of SJM Holdings Ltd., Macau's oldest
casino operator. "Integrated resorts offer a diverse mix of
activities for patrons--including lodging, dining, shopping,
entertainment" and meetings and convention facilities, he told The
Wall Street Journal in reply to an emailed request for comment.
"This requires hiring and training local employees with a diverse
set of skills," he said.
While China's policies have hurt casino investors, many in Macau
actually welcome the fresh direction, said Éric Sautedé, a
political commentator and part-time professor at three universities
in Macau. While Macau has had great success in developing casinos,
infrastructure including public transport, housing and health care
remain woefully underdeveloped. "I don't think people see the
central government as a threat. They see it much more as the last
resort for things to change," he said.
Mia Lamar contributed to this article
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