Photographer: Billy H.C. Kwok/Bloomberg

Wynn, Sands VIP Gamblers Deterred as New Macau Rules Loom

  • Proposal raises capital requirements for new gaming promoters
  • Gaming operators, goverment planning 'blacklist' of gamblers

The Macau units of Wynn Resorts Ltd. and Las Vegas Sands Corp. may see a further squeeze in casino revenue if the local government passes a proposal to boost capital requirements 100-fold for new gaming promoters.

Macau’s government is working with new junket operators -- companies that bring in high-stakes gamblers and lend them money -- on a proposal to tighten operations for new entrants, according to people familiar with the matter. Proposals under consideration include raising capital requirements for new junket operators to 10 million patacas ($1.3 million) from 100,000 patacas, and would require at least one Macau resident as a shareholder, said one of the people, who asked not to be identified because the deliberations are private.

The change could deal another blow to the world’s largest gambling hub, tightening money flows as Macau’s $30 billion casino industry struggles with almost 22 months of slumping revenue. Chinese President Xi Jinping’s anti-graft campaign, as well as heightened scrutiny of junket operators, have sent gambling revenue plunging. Operators such as Sands China Ltd. and Galaxy Entertainment Group Ltd. are now turning to tourists by building new resorts.

Further junket supervision "can be incrementally negative for the sector, which continues to suffer from liquidity constraints, increased oversight, and other well documented operating pressures," Daiwa Capital Markets analyst Jamie Soo wrote in a report. Soo said that such a move is possible as early as this year, based on the researcher’s own discussions with an independent and directly elected member of Macau’s legislative assembly.

Wynn Resorts gave up gains of as much as 3.6 percent in U.S. trading on Thursday and closed 1 cent lower at $97.67. Las Vegas Sands fell 0.6 percent to $50.70 after rising as much as 1.5 percent earlier.

Macau’s VIP revenue, as measured by their favorite baccarat card game, was worth $16 billion last year, after plunging by 40 percent from 2014. Still, these high-stakes gamblers remain a critical part of the casino industry, contributing about 55 percent of the city’s 2015 gaming revenue.

Casino operators are trying to offer more than gambling in their new resorts in an effort to draw more families and mass market gamblers to offset the VIP slump. The $4.1 billion Wynn Palace will offer air-conditioned cable car rides and Sands China’s $2.7 billion Parisian will feature a replica Eiffel Tower when they open later this year.

The more sustainable mass-market business will be the key to a recovery for Macau gaming, said Bloomberg Intelligence analyst Tim Craighead. Stricter rules for junket operators may also “indirectly be a positive for casino revenue” by supporting the health of existing gambling promoters which are under pressure, he said.

Las Vegas Sands, which gets about 57 percent of its revenue from Macau, slipped 0.4 percent to $50.80 at 11:21 a.m. in New York trading. Sands China shares pared gains to close up 1.8 percent in Hong Kong after rising as much as 3.1 percent earlier. Wynn Resorts, which gets 60 percent of sales from Macau, gained 0.3 percent to $97.94 in New York while Wynn Macau Ltd. and MGM China Holdings Ltd. retraced gains in Hong Kong, causing the Bloomberg Intelligence Macau gaming index to close below the day’s highs.

Provider ‘Blacklist’

Junket operators plan to discuss the proposal as early as this month, said the person. The new rules won’t affect the 141 existing, licensed providers. Promoters are also working with the government to establish a shared “blacklist” of players considered to be at high risk of defaulting on gambling loans, said the people.

The Gaming Inspection and Coordination Bureau in Macau didn’t respond to requests for comment.

About $46 billion of market value was wiped out last year from the city’s six gambling houses as casino revenue sunk to the lowest level in five years. Sands China has gained 48 percent since hitting a four-year low in January, while MGM China Holdings Ltd. has advanced 24 percent this year.

The planned changes to junket operators comes ahead of an evaluation of Macau scheduled to be conducted later this year by the Asia/Pacific Group on Money Laundering, an international organization of which the city is a member, according to the government’s Financial Intelligence Office.

Gambling middlemen have found it increasingly difficult to recoup their loans to VIP players. The city’s junket industry, which includes Jimei International Entertainment Group Ltd., Suncity Group and Golden Resorts Group, also saw its reputation further hurt by scandals involving employees of promotion companies accused of stealing customers’ money.

Representatives for Sands China, Galaxy and Wynn Macau couldn’t be immediately reached for comment.

Before it's here, it's on the Bloomberg Terminal.