Macau's troubles have hit Las Vegas... hard

Macau’s problems have spread to the gambling capital of the United States, Las Vegas.

Revenues on the Strip fell 16% to $US446 million in June. That overall decline was led by at 57% decline in baccarat volumes from the same period last year.

Baccarat is used as a measure of Chinese traffic to Las Vegas because it’s an incredibly popular game in Macau — the world’s gambling Mecca and the only place in China where gambling is legal.

Table games excluding baccarat were only down 4% year over year in June.

“We view these results as moderately disappointing. We do note the comparison was very challenging as last June Baccarat set an all-time record for the month for both win and drop,” Wells Fargo analyst Cameron McKnight said in a recent note.

It was going to be tough to beat last year’s banner year no matter what. Last June, baccarat wins alone were up 150%.

That said, analysts didn’t expect a complete nose dive in baccarat volume either.

“In our view, the weakness in Strip baccarat play is partly related to the anti-corruption initiative in China and the monitoring of Chinese visitors in Las Vegas,” McKnight continued.

Chinese President Xi Jinping started his anti-corruption drive last year, promising to take down powerful “tigers” and lowly “flies” alike. He has done so, bringing in thousands of officials — some at the highest levels of government — and targeting industries where he sees the potential for graft.

The ongoing probe has brought Macau to its knees. Gambling revenue has declined 30% to 50% month after month since the summer of 2014.

Foot traffic to the island from the mainland has been capped, a proposed casino floor smoking ban in the works, and a nephew of one of Macau’s scions was recently arrested with 99 prostitutes in one of his family’s casinos.

The crack down isn’t going anywhere either. Both Chinese and US governments have made it clear that they fear that casinos are used by international criminals to launder money.

“The most significant money laundering vulnerability at US casinos is the potential for individuals to access foreign funds of questionable origin through US casinos, and to use the money for gambling and other personal or entertainment expenses, and then withdraw or transfer the remaining funds either in the United States or elsewhere,” said a recent US Treasury report.

We’ll have more insight into this mess tomorrow, when Wynn Entertainment reports its second quarter earnings after the bell. Stay tuned.

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