Las Vegas Sun

March 29, 2024

Casino execs: Expect the unexpected in Macau

Casino Debt

Kin Cheung / AP

A baccarat gaming table on the opening day of Sheraton Macao Hotel at the Sands Cotai Central in Macau.

Macau once was a reliable cash cow for Las Vegas casino companies. But for almost a year, the Chinese gambling hub has been a source of trouble.

A government-led crackdown on corruption in China has curtailed the flow of high rollers responsible for much of Macau’s financial success, analysts say, and gaming revenues there have declined for 11 straight months as a result. No one knows if and when the situation will improve.

The downturn is particularly harmful to Las Vegas Sands, Wynn Resorts and MGM Resorts International, which all run big resorts in Macau. Still, all three are pressing full steam ahead with the construction of new resorts there.

Each company is affected differently, and the circumstances generally are out of their control. But as the casino operators look to expand, the question remains: Will Macau return to its former glory, or is it becoming a bad bet?

The situation

Macau’s yearly gaming revenue is more than six times that of the Las Vegas Strip, and a much greater portion of it comes from baccarat.

Last year, for example, revenue from VIP baccarat alone accounted for more than 60 percent of gaming revenue in Macau, according to the UNLV Center for Gaming Research. Other baccarat play was responsible for more than 30 percent of the revenue.

In Las Vegas, baccarat constituted only about 23 percent of the Strip’s revenue in 2014.

That means Macau is particularly vulnerable to changes in VIP play, which has been hit hard by the anti-corruption drive initiated by China’s President Xi Jinping.

“Big players choose to lay low, and as the drive has continued and widened its scope, fear has spread, inducing more players to stay away, visit less often or go to other destinations where they believe they can better avoid scrutiny from mainland authorities,” a recent Forbes article explained.

Nonetheless, analysts from Union Gaming Group, which closely monitors Macau gaming, wrote in a recent report that “while much of the story feels very much like doom and gloom,” analysts remain positive about the city’s outlook. Union Gaming said it believes some of the VIP play will bounce back.

“Namely, we believe that there exists a large pool of VIP customers who are patiently sitting on the sidelines waiting for the all-clear message to be sounded,” analysts wrote. “Although we do not believe the anti-corruption drive will cease, we do believe that at some point, it will begin to wane, and those who feel the least at risk will return to Macau.”

LAS VEGAS SANDS

Despite its name, Sheldon Adelson’s Las Vegas Sands Corp. gets most of its revenue from China, where it controls four properties: Venetian Macao, Sands Macao, Plaza Macao and Sands Cotai Central. Last year, nearly two-thirds of Las Vegas Sands’ net revenue came from Macau.

Financial performance

During the first quarter of this year, Sands’ revenue dropped 24.9 percent from the previous year to $3 billion, while earnings declined 34 percent to $511.9 million. Revenue from the company’s Chinese subsidiary dropped 34.9 percent from 2014 to $1.8 billion.

Plans

Sands’ big project is the $2.7 billion Parisian Macao, set to open next year on Macau’s Cotai Strip. It is expected to include about 3,000 rooms and suites and a replica of the Eiffel Tower.

Sheldon Adelson

Sheldon Adelson





"Our job is to set the right strategy so we can grow and prosper for the long term, in spite of the current challenges. … I am today as confident as I have ever been in the long-term outlook for the Macau market.”

— CEO Sheldon Adelson

WYNN RESORTS

Macau is very important to the business of Wynn Resorts. The company runs Wynn and Encore in Las Vegas, as well as Wynn Macau, which also has an Encore tower. But the revenue share is not divided equally. Macau far outpaces Las Vegas.

Financial performance

During the first quarter of this year, Wynn Resorts’ revenue dropped 27.8 percent from 2014 to $1.1 billion, and the company reported a $44.6 million loss. Net revenue from Macau operations dropped to $705.4 million from $1.13 billion during the first quarter of 2014.

Plans

Wynn Resorts is pressing ahead with its $4.1 billion Wynn Palace project, set to open next year on the Cotai Strip. Its amenities include a 1,700-room hotel and a “performance lake.” Steve Wynn has raised expectations for the new resort, telling analysts it will be the most stunning hotel on the planet. It is being built at the same time Wynn Resorts moves forward with plans to build a hotel-casino near Boston.

Steve Wynn

Steve Wynn





"It is impossible for us to predict how long (the downturn) will last. We’re not in a position to answer those kinds of questions intelligently. We’re only in a position to react intelligently to what we see.”

— CEO Steve Wynn

MGM RESORTS

Compared with the other two companies, MGM Resorts International is much less vulnerable to fluctuations in Macau. MGM Macau brings in a lot of revenue for the company, but the company’s domestic resorts still accounted for about twice as much revenue last year. So Macau is a problem for MGM, just not to the level it is for other operators.

Financial performance

During the first quarter of this year, MGM Resorts’ net revenue dropped 11.3 percent from 2014 to $2.3 billion, while earnings rose 65 percent to $169.9 million. In the company’s Chinese division, revenue for the quarter declined 33 percent from last year to $630.1 million.

Plans

MGM Resorts is working on a $2.9 billion MGM Cotai project, which, like the competing projects, is expected to open next year. It is expected to include about 1,500 hotel rooms and a flashy “transformable” theater that will provide “a wide range of entertainment that will literally change before your eyes,” MGM China officials said.

Jim Murren

Jim Murren





"I’ve come to expect the unexpected in that marketplace … (but) there is very strong, tangible, factual evidence to show that China wants Macau to flourish over the long term.”

— CEO Jim Murren

Effect on Las Vegas

Baccarat may be less important to Las Vegas than to Macau, but it’s still a significant factor in gaming revenue for the Strip and Nevada overall.

It’s not that the game is wildly popular with most tourists; rather, it’s a relatively small group of high rollers at a handful of properties who play with a lot of money.

“Let’s put it this way: It’s not played at every casino, and it’s not played by the masses,” said Michael Lawton, a senior research analyst for the state Gaming Control Board. “You’re looking at a very narrow view when you’re looking at the baccarat business.”

Given baccarat’s popularity in China, then, is Las Vegas experiencing any spillover effect because of the slowdown abroad?

Perhaps, but Lawton said the jury still is out. Nevada experienced six consecutive monthly declines in baccarat betting volume before it went up in March.

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