MACAU – After three years of limping through the pandemic, the Chinese gambling hub of Macau is coming back to life.
Over the Chinese New Year holiday in January, the former Portuguese colony’s cobblestone streets teemed with visitors, restaurants filled with diners digging into specialities such as poached codfish and pastel de nata, and the city’s dozens of casinos were packed.
“I’m ecstatic,” says Mr Kwan Man Chi, owner of a snack shop in the historic centre.
For the past few years, “we only needed one person to run things. Now we have five, and we’re still really busy.”
The rebound comes as welcome news for a casino industry that analysts predict racked up US$1.2 billion (S$1.6 billion) in losses in 2022.
The enclave unseated Las Vegas as global betting capital in 2006, but it was hammered by the border closures under China’s strict zero-Covid rules.
After topping its United States rival in revenue for more than a decade – sometimes sevenfold – Macau in 2022 fell behind again, booking US$5.2 billion, compared with US$8.3 billion for the Las Vegas Strip.
Even as Macau recovers – gambling revenue jumped by a third in February – its long-term challenges are coming into sharper focus.
As the only city in China that allows casinos, it’s at the centre of a clampdown on vice. China is demanding that Macau, where gambling accounts for 80 per cent of local government income, reduce its reliance on blackjack and baccarat and re-envision itself as a more family-friendly entertainment hub similar to Las Vegas.
Macau’s government last June gained tighter control over casinos just as licences were due to expire. All six operators working in the city renewed their permits in 2022, but they had to commit to investing a combined US$13 billion-plus over the decade in non-gambling activities, which the government says will help attract more overseas visitors.
Footing the bill, getting nothing in return
But Mr Ben Lee, a managing partner at consultant IGamiX in Macau, says that plan leaves casinos paying the bill for the transformation, even as they attract fewer big-spending VIPs.
“They’re going to spend money promoting sports events, building gardens or whatever, but they’re never going to recover the money,” Mr Lee says. “The age of superprofit is a thing of the past.”
Unlike Las Vegas, where entertainment, dining and hotels provide more revenue than betting, Macau is primarily about the action at the tables.
UBS Group predicts Macau’s gambling revenue won’t reach the 2019 levels until the late 2020s, and without a steady stream of high rollers, casinos will increasingly need to rely on mass-market tourists, who spend less than a fifth of what higher-end gamblers do, Credit Suisse Group estimates.
“We expect the pace of recovery will start to slow meaningfully,” Credit Suisse analysts wrote in a January note.
New rules crack down on so-called junket operators, which used to woo wealthy mainland gamblers with such perks as private jets, luxury suites, prostitutes and – most important – credit to keep them at the tables.
Macau police in 2021 arrested Alvin Chau, an industry high-flyer closely associated with junkets, and he was sentenced to 18 years in prison on charges of illicit gambling, criminal association and fraud.
Other ways to make money
With junket operators now barred from giving loans to clients, they’re looking for new ways to make money.
One is lobbying the government to host poker tournaments to attract overseas visitors, according to a person familiar with the matter, who asked not to be identified because the plans are private and still preliminary.
Macau has little choice but to follow the path laid out by the government in Beijing, and some industry watchers say the changes will benefit the city in the long term.
JPMorgan Chase & Co predicts junket customers might now instead go directly to casinos for similar services, potentially generating higher profit for the operators.
The surge in mainland visitors is likely to last longer than predicted, says Morgan Stanley analyst Praveen Choudhary, who points to the sustained revenue boosts seen in Singapore and Las Vegas as travellers crave new adventures post-Covid-19.
The non-gambling investment commitments, he says, aren’t excessive when spread over 10 years. And given the enclave’s proximity to the mainland and shared culture, “there’s no competition for places where you can gamble”, Mr Choudhary says. “So Macau should do well.”
There are signs, though, that China aims to restrict access for Macau’s most lucrative visitors.
Even after scrapping Covid-19 restrictions in January, Beijing has maintained an increased level of scrutiny of frequent travellers to the territory.
Some people who’ve visited more than three times in the past year have been required to apply for visas in person instead of electronically, according to an industry insider, who asked not to be identified because of the sensitivity of the matter.
These visitors can be asked detailed questions about their trip and be required to provide supporting documents, and some have been denied permission to travel, the person says.
After the disastrous years of the pandemic, locals are bracing themselves for a future with fewer visitors, especially the high rollers who provide the backbone of the city’s economy.
Although the holiday was busy, “the summer will be quieter”, says Mr Wah Ng, a taxi driver who used to ferry wealthy gamblers between casinos. “We’ve lost a lot of big spenders.” BLOOMBERG