Macau government gives bleak outlook for 2016

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Casino business in Macau has been devastated by Chinese President Xi Jingping’s campaign against corruption and luxury spending, causing revenues to shrink at VIP tables. New resorts planned for the enclave will try to save the sinking ship, but the local government doesn’t expect it will happen next year, predicting revenues to be the lowest since 2010.

Speaking at a recent press conference, Macau’s Chief Executive Fernando Chui Sai-on announced the government has projected state revenues to fall at least 12pc in 2016. With gaming tax the biggest source of government funds, this implies a downtrend of gaming revenues, as the market faces its nineteenth consecutive month of year-on-year declines.

The Chief Executive said analysts estimate casino revenue to come in as low as MOP200 billion (US$25bn) next year, which would be the lowest since 2010 and a further decline from what analysts estimate for 2015. These projections are 17pc less than Wall Street analysts and 13pc less than what Wells Fargo analysts had forecast.

“We try to be conservative and maintain stability,” said Chui, after announcing his policy proposals to legislators. “We will try our best to develop the economy.”

Macau, a special administrative region of China and only place in the country where casinos are legal, surpassed Las Vegas in 2007 to become the world’s biggest casino market. The market grew explosively over a decade and operators lined their pockets. It was inevitable revenue growth would slow, but few could have expected it to reverse at such a rate.

GDP has now fallen for five consecutive quarters, accelerating dramatically in the third quarter of 2015 to a year-on-year decrease of 24pc. The anti-corruption draft led by Beijing spearheaded the turn of events, but compiled with an economic slowdown in Mainland China as well as tighter regulations on the gaming industry, has resulted in a dramatic crash.

Gross gaming revenues are even worse and according to official figures, declined 35pc in the third quarter of 2015 and dropped 32pc to US$2.05bn in November 2015, the last recorded month. Just nineteen months before, the situation was completely different, with gaming revenues up 20pc in the first quarter of 2014 and up 25pc in the first quarter of 2013.

“In my 45 years of experience, I’ve never seen anything like this before,” noted casino mogul Steve Wynn, who owns Wynn and Encore Macau. “It’s a major issue in Macau, the impact of the government policy in planning. None of us are really clear as to what our environment will be going forward. It makes planning and adjusting almost a mystical process.”

The Macau government has been reacting to pressure from Beijing by helping control the expansion of gambling in the autonomous region. It imposed a cap on gaming tables and ensured new integrated resorts would not have the casino as the main focus, but instead drive a wider demographic through convention, entertainment, retail and leisure amenities.

Operators responded and are delivering more hotel rooms and non-gaming amenities to try and tap into the rising middle-class segment in China. The six concessionaires in the region have budgeted almost US$27bn on new developments in Macau over the next several years and each will have to adapt to the changing climate.

But the new facilities are still dependent on gaming revenue to make them money and casinos have been fighting over the limited number of tables available for new properties. When Melco Crown’s table allocation at Studio City increased from 200 to 250, it caused a stir amongst competition, with Steve Wynn and Sheldon Adelson openly expressing distaste.

A special mid-term report will be published by the end of 2015 or early 2016 by Macau’s Economy and Finance office. It will evaluate the concessionaires in the region and whether they have managed to uphold their agreements with the local government. The report will be instrumental when legislators are discussing ways to help the market get back on track.