Macau’s casinos are going through a crisis that could wipe them off the map
Gambling is by far the most important industry in Macau, providing massive employment and over 80 percent of the autonomous territory’s revenue. Yet the casinos of major groups such as Wynn, MGM and Sands were hit hard by the Covid-19 pandemic, which closed the city’s borders for over two years. Today, the future of Macau’s casinos is very uncertain, and pessimism is the order of the day.
Macau casinos: gross gaming revenue expected to fall by at least 98%
Since last week, Macau has been under strict orders to cease all operations to deal with a surge in Covid-19 cases. Macau, a former Portuguese colony now governed by China, is subject to the notorious ” zero Covid Beijing’s “zero Covid” policy, which aims to eliminate all traces of the virus within its borders.
Not only have such measures largely proven ineffective, but the new restrictions imposed on Macaowhich were supposed to last for a week, have been extended for another seven days. In addition, the Chinese authorities have made a rather unprecedented announcement, stating that casinos are also affected by the lockdown, which is in itself a reversal of previous measures.
According to Vitaly Umansky, senior analyst at Bernstein Research, the recent measures will have a terrible impact on gross gaming revenue, which is none other than the most important indicator related to casino revenues. ” These are likely to plunge by nearly zero,” warned Vitaly Umansky. Indeed, the Bernstein Research team predicts that Macau’s gross gaming revenues will fall by at least 98%. this month compared to July 2019, i.e., before the pandemic strikes, and that’s assuming casinos do resume operations next week.
Casino operators try to find ways to survive
The more time passes, the more red the companies that operate casinos in Macau see. For example, major casino stocks traded in Hong Kong – such as those of Sands China (SCHYF), Wynn Macau (WYNMF) and MGM China (MCHVF) – have fallen by about 60 percent or more since the start of 2020.
Moreover, the major entertainment companies were already struggling to stop the hemorrhaging of cash before the Covid-19 pandemic broke out. For example, by 2020, at the onset of the global health crisis, Wynn had revealed that it was losing up to $2.6 million a day !
During the spring of 2022, Macau’s broader gaming industry would have lost between $113 million and $260 million per month, Goldman Sachs estimates. In addition to the confinements, one factor weighing on businesses is the fact that Chinese authorities have banned the firing of workers. Unfortunately, while the decree has helped protect people’s livelihoods, it has exacerbated the financial pressure on casino gambling firms. In Macau, labor accounts for 20 to 25 percent of operating costs.
Overseas, the pandemic and current conditions are causing serious headaches for executives anyway. Recently, both the Sands and Wynn Macau have turned to their owners to help them weather the storm, with loans obtained from each of their U.S. parent companies, according to Bernstein analysts.
But the new restrictions come at a particularly delicate timecasino operators will soon have to apply to extend their operating licenses or they will have to leave Macau. But the local government is demanding large amounts of cash as collateral. ” The parent companies of these highly indebted subsidiaries have to inject cash that they do not necessarily have, so Macau represents a real burden for them “explains Vitaly Umansky.