In the early 2010’s, Macau was the darling of the casino industry. It was the source of new, untapped potential, and it seemed that the money was never ending. A few short years later, however, and things in Macau have taken a dramatic turn for the worst. Many believed that Caesars Entertainment made a colossal mistake by not entering the Asian Macau market, and they certainly did, but these days, it is Sands and Wynn who are trying to right the Macau ship that has long been sinking.
Unbelievably, gambling revenues in Macau have dropped for a 26th consecutive month. Yes, you read that right, gaming figures have dropped for over two years straight. Even worse is that there is not a definitive end in sight. There are a number of factors contributing to this epic downfall. It is little secret that much of the free flowing money in Macau is obtained either illegally or in some very shady manners. China is known world wide for its issues with corruption, especially as it relates to money and government. Much of this corrupt, dirty money had been finding its way to Macau. Between gambling, drugs, and a sizable prostitution market, the money never stopped finding its way to Macau.
Macau finds itself in a tough place since almost all of their earnings come from the taxes generated by gaming revenue. It is located a short distance from Hong King, and operates largely independently from China itself. Visitors need to take a ferry from mainland Hong Kong in order to actually reach Macau itself. In years past, many visitors were brought into the territory by what are known in the industry as “junkets.” These junkets are glorified affiliates who would send players to the casino properties. In exchange for the players, casinos would pay the junkets a percentage of the gambler’s losses. Macau has begun to crack down on this practice, however, and it has backfired in a dramatic way.
There is little current incentive for new or existing gaming companies to enter the Macau market. The territory itself both relies on, but is also cracking down on, the “dirty money” and suspicious characters that have infiltrated their land. The location is key, given the lack of competition in mainland China, but Macau needs to either pick revenue or less illegal activity, but its unlikely that they can have both.
There are two primary reasons that revenue has dropped so dramatically in Macau. First, efforts to thwart corruption in Beijing have effectively reduced the amount of easy money available to many of Macau’s biggest and most loyal players. If the money being obtained was done so via corruption, it is now that much harder to put it in play in the casinos.
The second reason for the drop in available money comes from the economic struggles that China has endured the last few years. While their economy was once booming, several large hits to their stock markets have drained much of the net worth of wealthy Chinese citizens. If this money had previously been classified as disposable, and therefore available for play in Macau, it is now simply non-existent.
Going forward, economic recovery is both the best and most legitimate way for Macau to recover. Outside of China becoming lax in their handling of corrupt money and politics, Macau likely does not have great near term prospects, but they could certainly see a long term recovery.