“Zero revenue”: Macau casinos try to recover post-pandemic

Macau’s casinos have been bleeding hundreds of millions of dollars a month during the pandemic. Now, an extended lockdown is adding more uncertainty for gamblers in the world’s biggest gambling hub.

Since last week, Macau has been under strict stay-at-home orders as it faces a spike in coronavirus cases.

Macau, a former Portuguese colony that is now ruled by China, is subject to Beijing’s “zero Covid” policy, which aims to eliminate all traces of the virus within its borders.

Macau’s last restrictions were supposed to last a week, but then they were extended for another week – ending on Friday.

In a rare move, officials said casinos would be part of the closure, marking a reversal of previous measures that kept these properties open.

That means gross gaming revenue, a key indicator of casino income, is likely to “fall close to zero” for weeks, Vitaly Umansky, a senior analyst at Bernstein, wrote in a report.

His team predicts gross gaming revenue will drop 98% this month compared to July 2019 – before the pandemic – assuming casinos resume operation next week.

Gaming is by far the most important industry in Macau, accounting for massive employment and over 80% of government revenue.

But casinos like Wynn, MGM and Sands have been hit by the effects of the pandemic, which has left the city’s borders virtually closed for more than two years.

Major Hong Kong-traded casino stocks – such as Sands China, Wynn Macau and MGM China – are down approximately 60% or more since the start of 2020.

Even before the latest restrictions, companies were losing money. In 2020, at the onset of the global health crisis, Wynn reported that it was losing up to $2.6 million a day.

This spring, the broader gaming industry in Macau reportedly burned an estimated $113 million to $260 million a month, according to an analysis by Goldman Sachs.

“It’s very quiet here,” said Ben Lee, managing partner of IGamiX, ​​a Macau-based gaming consultancy, adding that local small businesses were practically dealt with “the death sentence” by the new lockdown.

The economic strength of the city

Macau, a small territory of around 600,000 people, is the only place in China where gambling is legal.

The city, which is an hour by ferry from Hong Kong, is heavily dependent on tourists and typically earns six times as much as Las Vegas. In 2019, it attracted nearly 40 million visitors, including many from mainland China.

There have been requests to change this model. In January, the International Monetary Fund warned of “Macao’s over-reliance on the gaming sector,” which it said was underscored during the pandemic.

“The main engine of growth over the last two decades…almost stopped when the flow of tourists dried up,” he noted, suggesting an “urgent need to diversify the economy”.

The sector is so crucial that at times it even seemed immune to the “zero Covid” rules. In previous lockdowns, authorities have notably refrained from closing flashy properties, even if it meant workers would have to sit in empty casinos “killing flies,” Lee said.

The last time casinos were forced to close was for two weeks in early 2020.

“The Macau government has been very reluctant to close the casinos, even when all other commercial activities have been instructed to close,” he added. “Because? Because people can still withdraw their salaries.”

Officials now face more pressure to align themselves with China’s tough stance on the virus, particularly as Macau faces its biggest Covid outbreak since the start of the pandemic.

The city has reported approximately 2,000 new cases since June, when the latest outbreak ended an eight-month streak of zero infections.

Another factor weighing on companies lately is that authorities have made it clear to casinos that they must not lay off workers, according to Lee.

While the unofficial decree helped protect people’s livelihoods, it exacerbated the financial pressure on businesses. Labor typically accounts for 20% to 25% of operating costs, Lee noted.

This, of course, is compounded by the recent drop in traffic. In a report, analysts at Daiwa said that the liquidity of Macau’s casino operators should be assessed “in the midst of a zero-revenue environment”.

cash crisis

The crisis is causing headaches for executives abroad.

Recently, both Sands and Wynn have turned to their owners to help them weather the storm, with loans secured from each of their U.S. parent companies, according to analysts at Bernstein.

But the new restrictions also come at a particularly tricky time, as casino operators are expected to soon bid for a new license to continue operating in Macau, Lee said.

The process requires significant proof of liquidity – essentially hundreds of millions of dollars in cash, he added.

So, while the business is already overloaded, “the parent companies of these highly leveraged subsidiaries need to inject money into the Macau subsidiaries, [e] they have to carry the burden in the United States, or wherever they are,” Lee said.

Despite the turmoil, Lee doesn’t expect any operators to miss a chance to throw their hats in the ring for new licenses.

Companies have already incurred heavy “sunk costs” in Macau, he said, pointing to some that recently renovated properties or made other large investments just before the pandemic.

“They can’t afford to give up, because if they give up, they’ll have nothing.”

— Shawn Deng in Toronto and Lauren Lau and Akanksha Sharma in Hong Kong contributed to this report.