Analysis | Macau’s gambling crown slips with Chinese staying home

In a normal year, right about now would be the start of a tourism tsunami across China. And after months of near-zero revenue, Macau’s pandemic-
weary casinos were hoping that a rush of travelers during China’s Golden Week would provide a fast rebound. Starting today, the anniversary of the founding of the People’s Republic, Macau usually swells to more than twice its normal population as mainland punters stream in.
But even though Beijing started handing out visas and easing travel restrictions over the past two months, Macau has seen only a trickle of arrivals, and its gaming floors remain largely empty. The most optimistic predictions now are that Golden Week will deliver half of last year’s almost 1 million tourists—a big disappointment for a local economy that contracted 68% in the second quarter.
“Everyone’s expectation is to do a percentage of the past year’s [revenue]. No one is expecting to have an immediate rebound,” says Linda Chen, vice chairman of Wynn Macau Ltd., affirming industry estimates that this year’s Golden Week will log only 30% to 50% of last year’s gaming revenue, which gaming consultancy IGamiX pegged at about $1 billion. “We need to do it step by step. To have a successful, issue-free Golden Week period will turn around the whole perception of travel to Macau.”
Those figures are all the more underwhelming given that the Las Vegas Strip, which brings in only a fifth of Macau’s returns, saw gaming revenue hit 60% of last year’s level in July after casinos gradually reopened in June. And in Cambodia, an up-and-coming destination for Asian gamblers, NagaCorp Ltd.’s gaming revenue jumped to more than 90% of pre-Covid levels in August after its casino complex reopened in early July.
In contrast, September revenue in Macau will be only about 11% to 14% of last year’s, according to Ben Lee, a Macau-based managing partner at IGamiX. That tepid performance comes despite visas having been available to residents in China’s Guangdong province—which previously accounted for a third of Macau’s visitors—since late August.
The outlook has deepened concerns over the future of the gambling enclave, which was in a slump even before the pandemic thanks to growing regional competition, China’s slowing economy, and street protests in neighboring Hong Kong. “Macau has seen a more gradual recovery because its ‘local’ clients are in fact on the other side of a border,” says China International Capital Corp. gaming analyst Shengyong Goh. “The pandemic has exposed a chronic problem of Macau: its economy being overdependent on tourism and gaming.”
Travel agents say that interest in visiting Macau has been weak because of inconvenient new requirements for those crossing the border between it and mainland China, such as a negative virus test. Any resurgence of coronavirus infections could also lead to abrupt new border controls imposed by China, and holiday makers don’t want to run the risk of being stranded in Macau. Meanwhile, vacation destinations on the Chinese mainland, such as the southern province of Hainan, are proving an alternate draw with such perks as duty-free shopping.
On Chinese travel portal Qunar.com, the average booking price of Macau hotel rooms for this year’s holiday week was down 40% from 2019. “We won’t expect much tourist traffic to Macau for the rest of the year,” says Versiglia Chong, a sales director at Macau-based VT Travel Agency Co.
Still, some retailers who count on tourists to the gambling hub remain hopeful. “The entire industry was so quiet for the past nine months that in the next three months, the stakes are very high,” says Vincenzo Carrieri, Asia Pacific regional director of Italian luxury menswear brand Canali. The brand hasn’t seen any substantial increase in traffic at its two Macau outlets since the China border reopened, but it hopes business will return to 70% of pre-Covid levels by yearend. “Both casinos and brands are preparing big marketing plans and putting resources in in order to get more customers back,” he says.
The Macau Government Tourism Office has stepped up its promotional offers across the border. To entice mainland tourists, it’s issuing 290 million patacas ($36.3 million) in consumer vouchers through weekly lotteries it’s holding on WeChat, Tencent Holdings Ltd.’s messaging app, from September to December.
Macau is facing other choke points on its lifeline of Chinese customers. Half its revenue usually comes from high rollers known as VIPs, who bet big through credit provided by middlemen known as junket operators. Some of these junket outfits also promote gambling trips and online games for affluent Chinese in locations such as the Philippines and Cambodia. Beijing has cracked down on the activity in the past year, calling it a “profound financial risk,” as it involves cross-border currency movements.
In recent months the government has frozen bank accounts and arrested tens of thousands of people involved in cross-border gaming—including participants in online games held in those locations through which Chinese gamblers take part via video links. This has spooked high rollers, who have held off on gambling in Macau as well, even though wagering there is legal, say analysts. That, in turn, will slow the enclave’s recovery, says IGamiX’s Lee. “Junket liquidity, which traditionally financed high-level play, is at an unprecedented low,” he says.
Pacific Intermediary Co., a junket operator that focuses on Chinese VIP gamblers, is starting to feel the pain. “Even people who wish to come to just have fun are adopting a wait-and-see strategy, and all the cash-lending activities have to be tightened,” says founder U. Io Hung.
To overcome current challenges, operators are reviving long-discussed plans to promote Macau as more than just a haven for baccarat and blackjack. Although casinos have tried to use stage shows, theme parks, and shopping arcades to draw mass-market tourists in the past decade, the enclave’s economy still relies overwhelmingly on the gambling tables. MDT/Bloomberg