Nikkei Asia: Macao gambling revenue plummets as COVID leaves tables empty

Macao gambling revenue plummets as COVID leaves tables empty Operators suffer mounting losses, casino hub battles worst virus outbreak

Nikkei Asia - Macao gambling revenue plummets
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By PAK YIU, Nikkei staff writer

July 8, 2022 16:17 JST HONG KONG -- Macao's gaming revenue plunged in the first half of the year, and the pain is set to deepen as operators hemorrhage cash while the casino hub battles its worst COVID-19 outbreak.

Turnover at the city's gambling tables dropped nearly 47% on year to MOP26.2 billion ($3.2 billion) between January and June, according to Macao's Gaming Inspection and Coordination Bureau (DICJ), putting full-year revenue on track to come in even lower than the $10.7 billion in 2021 and $7.4 billion in 2020.

"Macao's fortunes in the second half of 2022 [are] inversely proportional to the length and depth of its current COVID-19 outbreak," said Alidad Tash, managing director of gaming consultancy 2NT8. "If the current wave persists, Macao's casinos and its economy will do worse than the already-dismal first half of 2022."

The world's biggest gaming hub has seen annual visitor numbers plummet from pre-pandemic levels of 39 million in 2019, when it raked in revenue of about $36 billion.

Strict virus restrictions, including a ban on visitors from outside mainland China, kept many punters away. The government has also tightened restrictions on arrivals from the mainland, who make up the bulk of visitors to Macao.

The plunge in gaming revenue comes as Macao grapples with a spike in infections that this week forced the lockdown of its landmark Grand Lisboa hotel, with hundreds of people reportedly inside.

Authorities have allowed casinos, which supply about 80% of government tax revenue, to stay open in a bid to avoid mass job losses. But the city of 600,000 has shut down nearly every other business and public facility over fears the run-up will overwhelm its one public hospital.

Some of the city's casino resorts are being used as COVID-19 medical facilities. On Friday, officials said more were being added to ramp up capacity.

While Macao's more than 1,200 infections since mid-June are small by global standards, the city is following China's strict zero-COVID policy meant to quash outbreaks with mass testing, lockdowns and other measures. About 15,000 people are under a mandatory quarantine order in Macao, which had been relatively unscathed through much of the pandemic.

Lifting the restrictions could help reverse the damage to Macao's gambling-dependent economy, said Bernstein's Vitaly Umansky.

"Macao revenue has been about as low as it can go as a result of travel restrictions stemming from COVID, and any impact on Macao from an economic slowdown in China would be minimal in light of the recovery to be driven by opening the borders," Umansky wrote in a report this week. The city's six licensed gaming operators, including Wynn Macao, SJM Holdings and Galaxy Entertainment, were earlier warned not to lay off staff, so they have scrambled to find ways to offset labor costs amid the falloff in gaming revenue.

Analysts expect dismal second-quarter results across the board, with Morgan Stanley warning that industry EBITDA losses could balloon to $544 million.

Lisboa operator SJM Holdings is expected to post a quarterly loss of 1.1 billion Hong Kong dollars ($140 million) after junket operator Gold Group closed all of its VIP tables at the company's casinos earlier this year, according to Morgan Stanley.

Junkets and the high-rollers they brought in once supplied a key source of revenue for casinos, but the government has cracked down on their operations amid worries about money laundering and capital flight.

Last month, Fitch Ratings downgraded SJM Holdings to a speculative BB- rating.

"The downgrade reflects our reduced confidence in the recovery of Macao's gaming industry as a result of the government's strict COVID-19 pandemic-related policies," it said in a report. "[The policies] continue to constrain the cash-flow generation ability of Macao's operators."

Shares in Hong Kong-listed SJM, which nearly doubled its loss for the first quarter to HK$1.28 billion from a year earlier, are down about 33% since January.

SJM, founded by late gaming tycoon Stanley Ho, won approvals from banks and the gaming regulator for a HK$19 billion loan facility, allowing it to repay existing debt and supplying the company with some HK$6 billion worth of liquidity.

In June, Wynn Macao said it had struck a $500 million loan agreement with its U.S.-based parent Wynn Resorts, carrying a 24-month maturity and 4% annual interest rate. It said the loan facility would help supply working capital and other funding needs. On Wednesday, Wynn said prominent Chinese businesswoman Linda Chen would become the company's president in March.

The announcement came with casino operators gearing up to renew their licenses, which expire at the end of this year, and after the government pushed through amendments to its gaming law. With regulators tightening their oversight of the industry, the duration of casino operating rights has been halved to 10 years.