Published: July 20, 2022

In 2019 gambling revenue in Macau was six times that of Las Vegas. This year the Nevada gaming hub has edged ahead of its Asian rival

With Chinese players stuck at home because of lockdowns, the territory’s gambling revenue has plunged.

In 2019 gambling revenue in Macau was six times that of Las Vegas. This year the Nevada gaming hub has edged ahead of its Asian rival as the Chinese-controlled territory grapples with the effects of Beijing’s “Covid Zero” policy, which seeks to stamp out infections no matter the cost.

In recent weeks, Macau’s slot machines have fallen silent and its gaming floors have emptied as the enclave endures a lockdown to tame its biggest Covid-19 outbreak. That’s adding to months of virus curbs in China that have helped saddle the city’s six licensed casino operators with an estimated combined loss for the second quarter of $478 million, according to a Bloomberg survey of analysts. In the Nevada desert, by contrast, business is booming as the US tries to live with the virus.

President Xi Jinping has reaffirmed China’s strict virus approach even as it looks increasingly unrealistic in the face of more transmissible variants. And while there’s technically a border between mainland China and Macau, the enclave must follow Xi’s rules. Its casinos, which account for 80% of government income and a third of employment, are mostly patronized by Chinese visitors, who may not return in pre-pandemic numbers for years—what Guotai Junan International Holdings Ltd. analyst Noah Hudson calls a “new normal” for the territory. “It could be that there will be no fundamental shift toward opening up or relaxation of pandemic controls in Macau,” Hudson says. “Cross-border restrictions would just rotate between more and less severe depending on the frequency of outbreaks.”

Since March, China has locked down major cities and tightened visa restrictions for outbound travel to get an omicron-fueled outbreak under control. Things got worse in June when Macau, the only place in China where casino gambling is legal, faced its own flareup and the mainland tightened quarantine rules to prevent returning travelers from bringing the virus home. As tourism dried up, casinos remained open while the government shut most other businesses. But the gambling floors were largely empty save for a handful of crisply uniformed croupiers and some particularly keen players. At one leading venue, just a few dozen tables—about 10% of the total—were operating, with staff calling it a good day if they served 50 customers. On July 9, Macau ordered a one-week citywide lockdown, including shutting all the casinos. The order was later extended for an additional five days. Casinos can reopen, with conditions, on July 23.

The downturn has largely snuffed out a recovery for Macau’s casinos that began last year. The territory reported $2.9 billion in gambling revenue from January through May, vs. $3.2 billion for the Las Vegas Strip. And Macau’s outlook is deteriorating, with monthly income running at just 10% of pre-pandemic levels by the end of June. Given casinos’ outsize significance to Macau’s economy, there’s little they can do to cut costs. A tender this year for new gaming permits creates pressure to keep workers on the payroll, even if there’s little for them to do. Unwilling to lay off locals, some have fired foreign staff, introduced voluntary half-pay leave, and provided generous exit packages to encourage retirement. Moody’s Investors Service predicts a full recovery may not come until 2024 for Macau’s mass-market gaming, which has become the key contributor to casino operators’ profit since the territory’s once-dominant VIP gambling has swooned after China’s crackdown on capital outflows and money laundering last year.

The industry was burning through $20 million a day in the second quarter, JPMorgan Chase & Co. estimates, forcing Macau casinos to seek help from their Las Vegas parent companies or banks. SJM Holdings Ltd. secured as much as HK$19 billion ($2.4 billion) in syndicated loan facilities from banks led by ICBC Macau, and it has access to HK$5 billion in credit from its Macau-based parent STDM. Wynn Resorts Ltd. in June pledged $500 million to Wynn Macau Ltd., and Sands China Ltd. on July 11 got a $1 billion loan from parent Las Vegas Sands Corp., which relies on its Macau operations for 60% of revenue. The stakes are especially high for Sands, which last year agreed to sell its Las Vegas properties for $6.25 billion to focus on Macau and another resort in Singapore. Sands says in a statement the loan highlights its “confidence in the long-term growth potential of Macau.”

While Macau’s latest outbreak is easing, with just 10 cases reported on July 19, compared with 146 cases at the peak, the neighboring mainland city of Zhuhai is seeing a flareup and has suspended schools, adding to questions about any resumption of quarantine-free travel. Gambling industry observers expect the virus rules to loosen after China’s Party Congress later this year, where Xi is poised to secure an unprecedented third term as president. But it’s unclear how much the policy will change given that Xi has made Covid zero a pillar of his leadership—creating an atmosphere of uncertainty that threatens to keep a lid on growth. “Investors and operators would invest if they can predict a reasonable outcome and potential return on their investment,” says Ben Lee, a managing partner at consultant IGamiX in Macau. “If the outlook is uncertain, they are unlikely to commit.”

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