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Top Challenges Facing Macau If China Casino Monopoly Ends

Updated on
  • Gaming in Hainan could threaten Macau’s $33 billion industry
  • Plans to allow gaming on island may pave way for casinos

A plan to allow gambling on the Chinese island of Hainan and pave the way for casinos less than 300 miles (480 kilometers) from Macau could pose a challenge to the $33 billion industry fueling revenue for Las Vegas Sands Corp. and Wynn Resorts Ltd.

Government agencies are considering allowing online betting and other gambling on Hainan Island, and the proposal could open the door to physical casinos south of the former Portuguese colony, according to people familiar with the talks. The move would reshape gaming in China’s territories, especially in Macau, which is hosting a surge of mainland visitors. Currently, Macau and Hong Kong are the only Chinese cities where gambling is allowed, while Macau is the only one that hosts casinos.

Wynn Palace in Macau.

Photographer: Anthony Kwan/Bloomberg

An index of Macau casino companies tumbled on the news, with Sands China Ltd. and MGM China Holdings Ltd. dropping as much as 6 percent and Wynn Macau Ltd. falling as much as 6.7 percent before paring losses.

If gambling and casinos eventually take hold in Hainan, here are the top challenges the move would present for the world’s largest gambling hub:

Competing Markets

Hainan, often referred to as China’s Hawaii for its white sand beaches, presents an alternative destination for Chinese gamblers on the mainland. It could sap the flow of tourists to Macau, where casino gaming revenue last month showed the strongest growth since 2014. The bulk of Macau’s gaming revenue comes from Chinese tourists. Out of 3 million visitors in December, more than 2 million were from the mainland.

The two destinations could also be competing over the same type of customers. Macau, which has relied on high rollers to drive a rebound in business over the past year and a half, has been shifting to attract Chinese tourists and families to the territory. That’s the same target audience in Hainan’s push. Macau’s gambling revenue from casual gamblers accounted for nearly half of December’s total, the highest split with VIP since July 2016, according to Bloomberg Intelligence.

Read Gadfly: Macau’s No Sucker in This Chinese Gambling Experiment

Analysts played down the potential risks for Macau. Morgan Stanley expects the territory’s growth trend to continue, with analysts writing in a note that legalization of gambling outside Macau is unlikely and the process would take time. Analysts at Sanford C. Bernstein & Co. noted that talks are preliminary, saying, “We do not see casino development in China as a real threat to Macau.”

China Boom

Macau gaming revenue has surged in the last decade on Chinese gamblers' visits

Sources: Macau's Gaming Inspection and Coordination Bureau, Nevada Gaming Control Board

Resort Investments

Casino operators’ expansion plans for Macau may become more risky if Hainan draws away visitors. Companies are doubling down on investments in Macau, adding hotel suites and junket rooms to bring in more VIP and mass-market business. They are also creating more family friendly attractions to target Chinese recreational gamblers.

Billionaire Sheldon Adelson’s Las Vegas Sands has invested over $13 billion in Macau since 2002, and plans to spend $1.1 billion in a remodel to bring a London-themed resort. MGM Resorts International is expected to open its Cotai property as early as this month.

Infrastructure upgrades, such as the Hong Kong-Zhuhai-Macau Bridge, are in the works to allow more traffic and better access from mainland China and Hong Kong.

Regulator Oversight

Macau is often the elephant in the room as China aims to stem billion of dollars in outflows, with the territory’s casino industry considered a primary exit point. Last year, regulators required cash machines to be deployed with facial recognition software to limit withdrawals by Chinese cardholders and curb potential money laundering schemes.

Allowing gaming on the mainland would be one way for Chinese authorities to limit capital outflows and ensure gaming revenue benefits the provincial economy on the mainland.

Hotels and residential buildings in Sanya Bay.

Photographer: Brent Lewin/Bloomberg

Hainan’s plans also come at a sensitive time as Macau regulators outline the process for the bidding of gaming concessions this year, with operators’ licenses expiring beginning in 2020. The casino industry is also being roiled by the sexual harassment allegations against Steve Wynn, raising concerns that the scandal could taint Macau’s reputation as it pushes for a more family-friendly image.

Global Rivals

Hainan would add another destination for global gamblers to choose from as casinos pop up from Australia to Manila in an effort to draw tourists from China. Japan is also ramping up plans to introduce casino resorts, with expectations for doors to swing open sometime after the 2020 Tokyo Olympics. Casinos in the Philippines and Vietnam are also drawing Chinese gamblers.

— With assistance by Keith Zhai

(Adds analysts’ comments in seventh paragraph.)
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