BEIJING — Losing money to COVID, the American casino giants that helped make Macau the “Las Vegas of Asia” are facing a new challenge: the tiny Chinese territory wants them to help reduce gambling addiction by paying to build theme parks and other attractions.
The former Portuguese colony has remained on the sidelines of business decisions for decades and is now aligning itself with official strategy on the Chinese mainland, where foreign companies are expected to help pay for the Communist Party’s development ambitions in power, profitable or not.
The licenses of MGM Resorts, Las Vegas Sands, Wynn Resorts and three Chinese rivals that have invested billions of dollars in Macau expire in December. Rules released in early July say anyone wishing to operate over the next 10-year period must invest in “non-gaming projects”.
Casinos face even more financial pressure after being ordered to close this week, along with most other businesses, as Macau tries to control a new coronavirus outbreak. They were already operating under rules imposed at the end of June which limited the number of their employees to 10% of normal.
Financial analysts expect Americans to get licenses, but the government says bidding is open to anyone.
The territory of 700,000 people crammed onto a 30-square-kilometre (12-square-mile) peninsula jutting into the South China Sea near Hong Kong is the world’s largest gambling hub, but is under pressure Chinese President Xi Jinping’s government to rely less on its dominant industry.
Beijing wants theme parks, entertainment and conventions to attract more non-Chinese visitors. Even before tourist travel was halted to fight COVID in 2020, the mainland was trying to limit the flow of players across the fenced border that separates Macau from Guangdong province.
Macau is “determined to steer the composition of industries towards adequate diversification,” its economy secretary, Lei Wai Nong, said at a government meeting on May 31.
An added complication for Americans: Relations between Xi’s government and Washington are strained by trade, technology, human rights and other irritants. Other companies have been hit with retaliation for US tariff hikes, but Macau’s casinos have not been targeted.
“There is a high risk that at least one, or even two, will not get a new concession,” said Ben Lee, managing partner of IGamiX, a gaming industry consultancy in Macau. . “Why would 50% of such a dominant industry in Macau be given away to foreigners, especially Americans?”
The pressure for change comes as Macau faces increasing competition for potential non-Chinese players from casinos in Singapore, Malaysia and Cambodia.
Financial analysts expect MGM, Sands and Wynn to be approved for licensing because of the jobs and tax revenue they generate. Their hotel-casinos with thousands of employees rise above the narrow lanes of centuries-old downtown Macau and Cotai, a strip of land reclaimed from the sea.
Still, the risk of an established operator not receiving a license “should not be ignored,” Fitch Ratings said in a June 16 report.
Chinese competitors include SJM Holding, part of the late Stanley Ho empire, a competitive ballroom dancer and Macau’s ‘gambling king’, which had a four-decade government-granted monopoly on casinos until in 2001. SJM is run by Ho’s daughter Pansy.
The others are Melco International, run by Ho’s son Lawrence, and Galaxy Entertainment Group.
The decision to allow foreign casinos in 2002 brought a flood of cash to Macau, once best known in China for its Portuguese-style egg tarts, and billions of dollars in profits to their operators. In total, the six licensees operate 41 casinos.
Annual revenues from slot machines, dice tables and other games peaked at $45 billion in 2013. That was equivalent to $65,000 for every man, woman and child in Macau and more than triple the income of 13 .5 billion Nevada dollars in 2021.
But revenue was plummeting even before COVID arrived in 2020. Beijing was tightening controls on how often players from the mainland could visit. Restrictions have been imposed on financial transfers to Macau as part of a crackdown on money laundering and tax evasion.
In 2019, before the pandemic, gaming revenue fell 19% from the 2013 level to $36.4 billion. In 2020, it collapsed another 80% to just $7.6 billion. Last year, revenue rebounded to $10.8 billion, but that’s down 75% from 2013.
Macau’s economy, perhaps the most tourism-dependent in the world, has halved since 2019, according to government data.
The government has called on casino operators to avoid laying off employees.
Macau’s lure is so powerful that Las Vegas Sands Corp., traditionally the world’s largest casino operator by revenue, sold its namesake Las Vegas hotel in 2021 to stake everything on its six Macau properties and one in Singapore.
The company has invested around $13 billion in Macao. It’s in the midst of a $2.2 billion overhaul of one of its hotels.
Betting so heavily on Asia, however, meant Sands took the biggest hit from COVID. The company announced a loss of $478 million in the first quarter. Revenue fell 21% from a year earlier to $943 million.
Wynn Resorts Ltd. said revenue from its two Macau casinos fell, but its Las Vegas properties helped limit its overall loss to $183.3 million on revenue of $953.3 million, temporarily putting it ahead of Sands .
MGM Resorts said its first-quarter revenue of $268 million in Macau was down 76% from the pre-outbreak level of $734 million in the first quarter of 2019.
Adding non-gaming assets would make Macau look like Las Vegas, where casinos try to attract families and non-gamers with roller coasters, music, shopping malls, art exhibits and water parks.
SJM operates a zipline and indoor skydiving attractions. He dropped an earlier proposal for a Hello Kitty theme park. The mogul behind Galaxy talked about a possible “Avatar” movie-like theme park, but it never happened.
“Amusements and theme parks are expensive to run, with questionable returns,” Lee said.
Regulators need to craft investment requirements “very carefully,” Lee said. “You can’t force dealerships to invest in theme parks and zero-return entertainment unless it’s black and white.”