Some analysts have shared their concern with the fate of Macau as a popular gambling destination. Once a flourishing gambling destination that has been entitled as the largest casino hub on a global scale, the gambling and entertainment sector of the special administrative region could now have its days numbered following the arrests of more than ten individuals, including the CEO of Suncity Group – Alvin Chau.
High-roller customers fled away from Macau casinos’ baccarat tables on November 26th following some reports that the competent Wenzhou authorities had issued an arrest warrant for Alvin Chau, the Chief Executive Officer of a junket operator that organizes tours for high-roller gamblers to the local casinos.
As CasinoGamesPro reported at the time, police authorities detained Mr. Chau for questioning at the end of November. Apart from the 47-year-old Mr. Chau, 10 other individuals were also arrested under allegations of money laundering and using Macau as a destination to host an illegal cross-border live web betting platform that is based in the Philippines and lured customers from mainland China where all forms of gambling are currently banned as illegal.
Could the arrests that took place about a month ago have been the beginning of the end for Macau as a leading casino hub on a global scale?
Recent Arrests of Suncity’s CEO Raise Further Questions about Macau’s Future as Casino Hub
It all started with the above-mentioned arrests of the 11 individuals who are allegedly associated with the illegal cross-border gambling syndicate and money laundering in Macau. The arrest of Mr. Chau has renewed fears that the Central Government of China is now coming after the gambling sector in Macau, following a year of strict crackdown measures that seriously hurt sectors such as e-commerce, online tutoring, online gaming, ride-hailing, etc.
After the police enforcement authorities made an official announcement of the arrests, the stocks of Suncity Group Holdings, of which Mr. Chau is the CEO, were suspended on the Hong Kong Stock Exchange. Furthermore, the share value of Macau casino operators, including Wynn Macau, MGM China and Sands China, suffered a considerable decline.
A couple of days after Mr. Chau got detained by the police, the shares of Suncity’s lister arm, which does not include the junket operations of the company, resumed trading on the Honk Kong Stock Exchange. However, the company’s share value declined by 40% and at the time, the gambling and entertainment company revealed in a filing that its CEO intended to file his resignation.
According to the Wall Street Journal, the high-rolling days of the Macau casino industry are over, with these claims being supported by Steve Vickers, a risk management consultant in the South China Morning Post. At the beginning of December, he suggested that investors in the region’s casino industry should have managed their expectations in accordance with the situation.
The gambling industry of Macau currently generates about 50% of the city’s gross domestic product (GDP) and brings about 80% of its overall tax revenue. Approximately 17% of the city’s residents are employed in the local gambling sector.
Stricter Regulation from Mainland China Is Also Endangering Casino Operations in Macau
According to several experts, the arrests of Mr. Chau and 10 other individuals under allegations of facilitating illegal gambling services and money laundering, as well as the share value decline that followed for local casino operators would not be the last difficulties to put an end to Macau’s losing streak. Chinese VIP players and their financiers, who have previously been among the largest revenue sources for local casinos, are expected to withdraw their support from the sector in an attempt to keep their own heads above water rather than resuming their previous large spending on Macau’s casinos in 2022.
As mentioned above, Mr. Chau was arrested under accusations of running a cross-boundary gambling syndicate that sought to illegally recruit residents of mainland China to gamble outside the country where gambling is currently illegal. In addition, two years ago Chinese state media accused Suncity Group Holdings of using an online gambling platform to facilitate capital outflows.
Macau gambling industry investors have been worried that the Government of mainland China could impose stricter and broader control of capital outflows to the special administrative region, or to other places, by rolling out a crackdown on so-called junkets, or junket operators, which deliver high-roller customers to local gambling venues.
The pending revision of the gambling laws of Macau has made the outlooks for the local gambling sector worse. Investors have been worried that stricter oversight from the local authorities and higher costs are on the way and are concerned about the future of their operations in the special administrative region, especially considering the fact that all six casino operators in Macau have lost about 50% of their market value in 2021, which is an even worse performance in comparison to the one in 2020.
According to estimates provided by Goldman Sachs, approximately 70% of the VIP volume of Macau is associated with such junket operators, which not only recruit gamblers originating from mainland China but also lend them money. The bank’s experts have shared expectations that the gambling revenue accumulated by such high-rollers in Macau will only recover to 15% of 2019’s level in 2022, which is a decline from its original projection of 45%. Suncity Group Holdings, on the other hand, has been the largest junket in the region, accounting for around one-third of Macau casinos’ VIP market.
Is there Light at the End of the Tunnel for Macau Casino Operators?
Probably the biggest consolation for Macau casino operators is that local gambling venues have already become much less dependent on their VIP gamblers than before.
Only about then years ago, high rollers accounted for almost 75% of the special administrative region’s gambling revenue. According to data provided by the Government, over the last few years, that share has significantly declined to around one-third in the latest quarter. Casino companies prefer to no longer rely mostly on VIP gamblers, so they have started attracting more casual gamblers to their resort-style casinos in Macau – a policy that has actually been strongly encouraged by the Government.
Unfortunately, the coronavirus pandemic has significantly shrunk the tourism sector as well, with tourists still not coming back to Macau. The gambling revenue of the city over the first 10 months of 2021 was more than 70% lower than the one posted over the same period of time in 2019.
Although people from mainland China are already allowed to travel without quarantine since 2020, the overall volumes of tourists remain far below the levels from before the beginning of the Covid-19 pandemic, as travelers are still not able to file their visa applications online. Furthermore, the sudden outbursts of Covid-19 cases in both mainland China and Macau have further affected visitor numbers.
