The Recent Rollercoaster Ride of Macau’s Gaming Industry

Posted by: on Jun 25, 2018 | No Comments


Macau’s gaming industry has finally started gaining momentum, after two long years of struggle. China’s gambling hub had been a raging success story. In fact, it rapidly overtook Las Vegas to become the world’s most profitable gambling city. Not just that, only a handful of casinos raked in more money than all the casinos on the Las Vegas Strip. And, with gamblers sipping tea instead of gulping down margaritas and scotch!

From Riches to Rags

A couple of years back, Macau’s luck seemed to run out. How could Macau go from being the fastest-growing economy in the world, to the world’s biggest loser? It happened with just one wrong move by the government.

A so-called crackdown on money laundering schemes rapidly damaged the entire economy of the region. The People’s Bank of China imposed controls on the amount of money leaving China. Many of the biggest casinos in Macau (including The Venetian, The Sands and Wynn Macau) are owned and operated by American companies.

When government policy hits business, the economy slumps. And when the economy slumps, businesses get further affected, which in turn causes the economy to slow even more. Thus, begins a downward spiral that is difficult to stop.

Macau’s economy shrank 20% in 2015.

Back in Action

Since the massive slowdown, there were several reports on the region’s inability to prosper again. Proving sceptics wrong, Macau’s casino revenues have begun picking up pace… and quite convincingly so. One can see lights flashing again on the Cotai Strip and hear the jittering fall of coins from slot machines.

In January 2018, Macau’s gambling revenue surged to 26.3 billion patacas (a little over $3.25 billion), skyrocketing 36% from the 19.3 billion patacas recorded in January 2017. The January 2018 figures handsomely exceeded the average analyst estimate, which was at an ambitious 25% growth.

Then came February. Gaining confidence after the previous month’s performance, analysts pegged revenue growth estimate at 7%. Macau gambling revenues did grow, albeit at a lower rate of 5.7% to 24.3 billion patacas (slightly more than $3 billion). This was particularly disappointing since February is China’s holiday season, which is typically marked by big spending.

In March, growth in Macau gross gaming revenue again beat analyst expectations of 18%. Gaming revenue jumped 22% to 26 billion patacas (or $3.2 billion). In April, the region’s GGR spiked 28%, ahead of analyst expectations of a 20% gain, driven by both high-rollers and mass market.

Macau recorded 12% growth in GGR in May, clocking in 25.5 billion patacas (or $3.2 billion). For the year through May, the region’s GGR growth has come in at 20%, at $40 billion. Although the performance in May missed average estimates, analyst reports have turned bullish. 

The gaming industry is back in action, lifting the overall economy. The “for sale” signs on small shops have disappeared. And, one can hear the chatter of guests at resorts and hotels, with occupancy rates close to 90%.

Plans Ahead

On June 15, Macau’s gaming giant Melco Resorts inaugurated Morpheus, its most luxurious property inside its mammoth City of Dreams development located on the Cotai Strip. The property had been under construction for more than five years and has reportedly costed over $1.1 billion. Morpheus will be the flagship hotel in the City of Dreams and is being opened under the leadership of Stanley Ho’s son Lawrence Ho, who is now the CEO of Melco Resorts. The 41 stories high hotel has 772 rooms, suites and what are being called “sky villas”.

MGM Cotai is undergoing a ramp-up that is expected to be completed by the end of the year. Construction of SJM Holdings’ Lisboa Palace is underway and the property is expected to open in 2020.

Given the recovery in gaming revenue growth, all seems well for the Macau economy.

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