Casinos lose millions and ditch deals as virus shuts down Macau

The SJM Holdings Ltd. casino turned them off on the first day of a 15-day shutdown to contain the spread of the coronavirus, a glaring exhibit of the crisis facing the world’s biggest gambling hub.Some companies have already detailed their losses. Wynn Resorts Ltd. said Feb. 6 that its Macau outpost, which accounts for about 75% of its revenue, is down $2.5 million a day. Melco Resorts & Entertainment Ltd. said it would step back from a $1.2 billion deal to take a 20% stake in Australia’s Crown Resorts Ltd. and reassess all non-core investments this year.

Overall, Fitch Ratings estimated that the crisis could wipe out $3.3 billion in cash flow for the six Macau operators, including Wynn, Melco and two other U.S.-listed companies with Macau businesses, Las Vegas Sands Corp. and MGM Resorts International.

The depth of the losses, though, depends on how long it takes to bring the coronavirus under control. The city’s $36 billion industry is highly dependent on Chinese visitors; during the recent Lunar New Year holiday, tourism from the mainland fell by roughly 80%, and that was before the casinos closed.

“It hurts that we still need to pay for the staff and other fixed costs,” said U. Io Hung, founder of Pacific Intermediary Co., which makes travel arrangements and provides credit and high-stakes games for big-money gamblers from China. “The only work I have done lately is to keep canceling the hotel and flight bookings for my clients.”

It’s likely to get worse before it gets better. It’s not clear the gaming floors will reopen at the end of the current suspension, Fitch Solutions Macro Research warned in a report published Feb. 5. Even if they do, Chinese gamblers may stay away longer if travel seems risky or if the economic hit from the virus has everyone tightening their spending.

In its report, Fitch noted “a significant risk” of an extended closure of the casinos and forecast the city’s economy would shrink 3.8% this year after a 3.2% contraction in 2019.

Macau’s beleaguered casino operators were hoping the Year of the Rat would bring them good fortune. A thaw in the U.S.-China trade standoff could’ve reinvigorated mainland visitors. The resorts have embarked on projects representing several billions of dollars in investment, including a new phase of Galaxy Entertainment Group Ltd.’s resort on the Cotai Strip, the debut of the British themed resort, the Londoner, from Sands China Ltd., and hope for the long-delayed HK$39 billion ($5 billion) project from billionaire Stanley Ho’s SJM.

Now, with travel around the region ground to a halt, it’s not clear when many of the migrant workers who work on those construction projects will be able to return.

The renovations and development are critical to Macau’s broader efforts to reinvent itself with more family-friendly and middle-market offerings. Tourists and casual gamblers accounted for more than half of Macau gaming revenue for the first time last year, and the casinos have been eager to broaden their appeal.

Las Vegas casinos, for example, get roughly two-thirds of their revenue from non-gaming sources like food, entertainment and retail. That accounts for just 10% of revenue in Macau.

For now, though, there’s little the casino operators can do. The monorail is empty, several stores and restaurants are operating at reduced hours if they’re open at all. The ruins at St. Paul’s Church, usually packed with tourists, are hushed.

On a Jan. 29 earnings call, Las Vegas Sands President Robert G. Goldstein tried to sell optimism. “There will be a lot of people there the day that virus is resolved,” he predicted. “We will be happy to serve them and welcome them back.”

MDT/Bloomberg
Bruce Einhorn, Jinshan Hong and Daniela Wei