BEIJING (AP) — The US casino giants that helped make Macau the “Las Vegas of Asia” are losing money from COVID and facing a new challenge: The small Chinese territory wants them to help reduce their reliance on gambling by paying to build theme parks and other attractions.
The former Portuguese colony stayed out of business decisions for decades and is now joining the official strategy in mainland China, where foreign companies must help pay for the ruling Communist Party’s development ambitions, profitably or not.
The licenses of MGM Resorts, Las Vegas Sands, Wynn Resorts and three Chinese rivals that have invested billions of dollars in Macau will expire in December. Rules released in early July say anyone who wants to work over the next 10-year period must have an additional requirement to invest in “non-gaming projects.”
Casinos are under even more financial pressure after being forced to close this week, along with most other businesses, as Macau tries to contain a renewed outbreak of the coronavirus. They were already working under rules imposed at the end of June that limited the number of their employees to 10% of normal.
Financial analysts expect Americans to get licenses, but the government says anyone can bid.
The territory of 700,000 people on a 30-square-kilometer (12 sq mi) peninsula that juts into the South China Sea off Hong Kong is the largest global gambling hub, but is under pressure from the government of Chinese President Xi Jinping to cut down on spending. rely on its dominant industry.
Beijing wants theme parks, entertainment and conventions to attract more non-Chinese visitors. Even before tourism was halted in 2020 to fight COVID, the mainland tried to limit the flow of gamblers across the fenced border separating Macau from Guangdong province.
Macau is “dedicated to steering the makeup of industries toward adequate diversification,” economy minister Lei Wai Nong said at a May 31 government meeting.
An added complication for Americans, relations between the Xi and Washington governments are strained by disputes over trade, technology, human rights and other annoyances. Other companies have been hit by retaliation for US rate hikes, but casinos in Macau have not been targeted.
“There is a high risk that at least one, if not two, will not get a new concession,” said Ben Lee, managing partner of IGamiX, a gambling industry consultancy based in Macau. “Why would 50% of such a dominant industry in Macau be ceded to foreigners, especially Americans?”
The pressure to change comes as Macau faces increasing competition for potential non-Chinese gamblers from casinos in Singapore, Malaysia and Cambodia.
Financial analysts expect MGM, Sands and Wynn to be approved for licensing because of the jobs and tax revenue they generate. Their casino hotels with thousands of employees soar above the narrow streets of the ancient city center of Macau and Cotai, a strip of land reclaimed from the sea.
Still, the risk of an incumbent being denied a license “must not be ignored,” Fitch Ratings said in a June 16 report.
China’s competitors include SJM Holding, part of the empire of the late Stanley Ho, a competitive ballroom dancer, and Macao’s “King of Gambling,” which had a four-decade-long government-granted monopoly on casinos until 2001. SJM is run by Ho’s daughter Pansie.
The others are Melco International, run by Ho’s son Lawrence, and Galaxy Entertainment Group.
The decision to allow foreign-owned casinos in 2002 sent a flood of money to Macau, once best known in China for its Portuguese egg tarts, and billions of dollars in profit for their operators. In total, the six licensees operate 41 casinos.
Annual revenues from slot machines, dice tables and other games peaked at $45 billion in 2013. That was equivalent to $65,000 for every man, woman and child in Macau and more than triple Nevada’s 2021 revenue of $13.5 billion.
But revenues fell even before COVID hit in 2020. Beijing tightened controls on how often mainland gamblers could visit. A crackdown on money laundering and tax evasion imposed restrictions on financial transfers to Macau.
By 2019, before the pandemic, gambling revenues had fallen 19% from 2013 to $36.4 billion. In 2020, it collapsed another 80% to just $7.6 billion. Last year, sales climbed back to $10.8 billion, which is 75% less than in 2013.
According to government data, Macau’s economy, arguably the most tourism-dependent in the world, has shrunk by half since 2019.
The government has appealed to casino operators to prevent workers from being laid off.
Macao’s appeal is so powerful that Las Vegas Sands Corp., traditionally the largest global casino operator by revenue, sold its eponymous Las Vegas hotel in 2021 to stake it all on its six properties in Macao and one in Singapore.
The company has invested an estimated $13 billion in Macau. It is in the midst of a $2.2 billion overhaul of one of its hotels.
However, betting so heavily on Asia gave Sands the biggest COVID hit. The company reported a loss of $478 million in the first quarter. Sales were down 21% from a year earlier to $943 million.
Wynn Resorts Ltd. said sales at its two casinos in Macao fell, but its Las Vegas properties helped limit the total loss to $183.3 million on $953.3 million in sales, putting it temporarily ahead of Sands.
MGM Resorts said Macau’s first quarter revenue of $268 million was down 76% from pre-breakout levels of $734 million in Q1 2019.
Adding non-gambling assets would make Macau look more like Las Vegas, where casinos try to attract families and non-gamers with roller coasters, music, shopping malls, art exhibits and water parks.
SJM operates a zipline and indoor skydiving attractions. It has dropped a previous proposal for a Hello Kitty theme park. The tycoon behind Galaxy talked about a possible theme park similar to the movie ‘Avatar’, but it never went through.
“Entertainment and theme parks are expensive to run, with questionable returns,” Lee says.
Regulators need to draft investment requirements “very carefully,” Lee said. “You can’t force dealers to invest in theme parks and entertainment with no return unless it’s black and white.”
