Macau’s Casinos Feel The China Slowdown

They’re still booming, but the rate of growth is shrinking fast | “Junket operators are turning more conservative in extending credit”

Bruce Einhorn

Gambling revenue for 2011 in Macau: $34b


Macau’s casino business is showing signs of fatigue. The former Portuguese colony, the only place in China with legalized casino betting, is the world’s top gambling hub, with $34 billion in gaming revenue last year. Thanks to Chinese tourists flocking to the Special Administrative Region, Macau has enjoyed torrid growth — gross domestic product increased by 21 percent last year — and a jobless rate of just 2 percent. Revenue growth for the casinos was even better, climbing 42 percent in 2011.

Even Macau, though, isn’t immune to the latest turmoil in the global economy. On June 2, its government announced that casino revenue was $3.3 billion in May, an increase of 7.3 percent compared with a year earlier. That pales next to the 27 percent growth the casinos enjoyed in the first quarter over the year before. It’s the slowest rate of growth since the depths of the post-Lehman financial crisis and comes at a time when China’s economy is losing momentum. The Chinese government has set a GDP growth target of 7.5 percent this year, the lowest in eight years, as China’s export machine feels the impact of Europe’s debt problems. 

So June 5 wasn’t the most auspicious day for Las Vegas mogul Steve Wynn to announce a major expansion in Macau. Wynn, chairman of Wynn Macau, told reporters of plans to spend $4 billion on a second casino. He put on a brave face when talking about the headwinds the project faces. “The economic growth of China has been so spectacular, so dramatic, it would be unrealistic to continue growing at that rate,” he said. 

Economic woes are taking their toll on the high rollers, who contribute the bulk of Macau’s casino profits. Those VIPs typically arrive from China on trips organized by so-called junket operators, a cross between travel agents and money lenders who provide clients with cash to gamble. According to a report published on June 4 by Donald Cheng Kwok Keung, an analyst in Hong Kong with Haitong International Research, “Junket operators [are] turning more conservative in extending credit to gaming partners.” 

The last time China confronted a global economic crisis, in 2008-09, the government responded with $585 billion in stimulus. Some of that money made its way to the gaming tables of Macau. A similar size stimulus package isn’t in the cards this time, according to Cameron McKnight and Barry Jonas, analysts at Wells Fargo. Gambling revenue from VIPs will probably grow just 12 percent this year, compared with 34 percent for the mass-market crowd and 20 percent growth in slot revenue, McKnight and Jonas wrote in a June 1 report. Overall casino revenues in Macau should rise 18 percent in 2012, Wells Fargo estimates.

Optimists say the good times aren’t over. The year-over-year weakness in May was attributable in part to an especially robust May in 2011. This year’s Golden Week holiday in May was also shorter than last year’s. “We think the long-term fundamentals remain intact,” Nomura analysts Charlene Liu and Michael Shen wrote in a June 4 report. They expect double-digit revenue growth to resume. Just don’t bet on a jump of 42 percent.

The bottom line Macau’s casino operators plan expansions despite revenue growth of 7.3 percent in May after first-quarter gains of 27 percent.


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