The global economic slump has hit the casino industry hard. Macau, once the dream of Las Vegas operators, is reeling from the downturn.
It seemed a sure bet. With 1.3 billion people at the doorstep, a newly affluent middle class flush with cash, and a bullish government anxious to spread the wealth, Macau was a casino operator’s dream. With Las Vegas companies putting their all into the city’s development, its future as the gaming mecca of Asia was all but guaranteed.
As the pangs of a global economic slump reach every corner of the globe, Macau’s casino industry is feeling the crunch of evaporating credit lines and disappearing customers. Construction of mega-hotels has been put on hold all while hundreds of baccarat tables wait for installation.
Gaming revenue alone is down 30% since January 2008. Macau’s Cotai Strip, the famed Las Vegas Strip’s eastern brother, lies in flux — half built, half dream.
Spurred on by a vision of near limitless opportunity, American casino operators like Las Vegas Sands (LVS) and MGM Mirage financed billion-dollar projects in Macau, anxious to grab a piece of the China boom.
In 2002, the Chinese government opened up the peninsula’s gaming operations, once wholly controlled by Chinese entrepreneur Stanley Ho, to foreign firms.
The Sands Macau, LVS’s first casino in its new market, opened in 2004 at a cost of US$240 million. The 740-table casino claims to be the world’s largest casino, yet provides only 51 hotel suites, a reflection of mainland China’s day-tripping gamblers.
The brainchild of gaming tycoon Sheldon Adelson, the Sands’ risk-taking chairman, the Cotai Strip has seen incredible growth in recent years.
Wynn Resorts opened its first resort in the fall of 2006, offering 205,000 square feet of gaming amenities and fine dining.
In December 2007, MGM Mirage and Pansy Ho, Stanley Ho’s magnate daughter and director of his company, Sociedade de Turismo e Diversões de Macau, opened the 35-story, 600-room MGM Grand Macau. All three companies have publicly announced their plans for large-scale expansions.
In 2003, Adelson laid out his vision of the Strip, a decade-long plan to add 20,000 hotel rooms and hundreds of retail and convention spaces. The first phase, a simple eight resorts stretched across the peninsula, would cost US$10 billion. And while the plan had its critics, Adelson’s past successes in Las Vegas and the allure of the Chinese markets brought early investors.
The opening of the company’s Venetian Macau, a massive centerpiece of the Strip’s development, in 2007 and its Four Seasons hotel in August 2008 only enhanced the vision of Macau’s winning future.
William Eadington, Director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada-Reno, said:
‘It is easy to say [they overextended themselves] now, because obviously everyone is overextended in the gaming business, but it didn’t look that way a year ago.“It was going to be growing very, very rapidly…it is just very hard to manage growth when you are growing by 20, 30, 40% a year on visitation and revenues.’
The city is facing a series of long-term challenges threatening to derail its continued progress.
Visa restrictions have become one point of high contention.
With Macau the only legal destination for gamblers inside the People’s Republic of China, mainland visitors are a critical lifeline for casino revenue.
Before June 2008, visitors from neighboring Guangdong province and other locales were allowed to enter Macau once every two weeks. By October 2008, however, Beijing had implemented new restrictions allowing visa only once every three months, severely curtailing the number of mainland entries into the city.
US China Today reports some observers are optimistic, though, that visa regulations may be eased in the coming months. The Hong Kong Economic Times recently reported on future plans for one-year, multi-entry visas for the 95 million residents of China’s southern Guangdong province.
Yet as global markets suffer and China’s public feels the aftermath, the government is attempting to inhibit wasteful gambling among the country’s less wealthy. Lam noted that the government keeps a close watch on the potential of certain social problems creeping out of Macau.
‘There are increasingly issues with problem gambling. Some Chinese officials and high-level executives in state-owned enterprises are secretly squandering away their money, some public funds, in Macau’s casinos. Macau is seen to be exporting these problems to neighboring regions, especially to China and Hong Kong.’
Desmond Lam sees potential in Macau’s future. ‘Chinese do love to gamble, in good times or bad. The present emphasis on gaming rather than non-gaming will probably see Macau bound back from this global crisis much faster than other countries. This is a blessing in disguise for Macau.’