The situation in Macau is worse than Wall Street thought.
Macau’s leader, chief executive Fernando Chui, earlier this week guided down expectations for the territory’s casino revenue in 2016.
He said that he sees Macau’s casinos generating $US25 billion in revenue next year.
That’s 17% less than Wall Street analysts polled by Bloomberg projected for the year.
It’s also 13% lower than what Wells Fargo analyst Cameron McKnight estimates the Macau casinos will have brought in this year.
At a press conference on Tuesday, Chui said that the government would work hard on diversifying Macau’s economy to survive what increasingly looks like a new normal in the world’s largest gambling center.
“We try to be conservative and maintain stability,” he said, according to Bloomberg.
‘Never seen anything like this before’
What Macau has been experiencing for the past 17 months is anything but stable. Since the summer of 2014, China has been cracking down on travel to the island, installed cameras in VIP rooms, monitored debit-card transactions on the territory, and limited the number of tables allotted to new casino projects.
As a result, casino revenues have fallen like a knife. Casino stocks like Wynn Entertainment and Las Vegas Sands have been punished. Last year, 16% of the junket financing companies that serve the high-roller customer segment — the segment hit hardest by this instability — closed up shop.
“In my 45 years of experience, I’ve never seen anything like this before,” said Wynn Entertainment CEO Steve Wynn in October.
“It’s become a major issue in Macau … the impact of 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,” he said.
This week Wynn delayed the opening of its new project on the island by three months due to construction setbacks. It is now set to open in June 2016.
Last month Macau’s newest casino, Melco Crown’s Studio City, opened to a tepid reception and no high rollers whatsoever.
Meanwhile on the mainland
The back drop of all of this is China’s overall economic slow down. The government’s attempt to transition the Chinese economy to one based on consumption rather than investment has created what President Xi has called the “new normal” of slower growth.
He addressed that this week in a speech in Manila in the Philippines.
“The Chinese economy is a concern for everyone, and against the background of a changing world must cope with all sorts of difficulties and challenges,” Xi said according to the Associated Press.
In other words, even if regulations harming the casinos were relaxed, Macau would be dealing with the pain of China’s economic contraction. So it’s going to have to tighten its belt along with everyone else.
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