China’s gambling centers on long losing streak in Covid-19

In August, gross gambling revenue in Macau fell to the equivalent of $554 million, its lowest monthly total this year and a far cry from the $3 billion pre-pandemic monthly average for 2019. Macau’s August gambling spending also fell by almost half from July after some residents returning from the mainland tested positive for the delta version of Covid-19, dealing another blow to the gaming hub’s efforts to recover.

Casinos in Macau – the world’s largest gambling market by revenue – have been a major revenue source for US-based operators such as Las Vegas Sands Corp., Wynn Resorts Ltd. and MGM Resorts International. In March, Las Vegas Sands struck a multi-billion dollar deal to sell its iconic Venetian resort and other Las Vegas properties, placing the majority of future development on its properties in Macau and Singapore at stake.

But chips are off for the former Portuguese colony since February 2020, when the city began to impose strict restrictions on travellers, as Macau’s biggest source of high rollers was the coronavirus spreading across China. China has since brought its case count down to near zero, but the number of visitors to Macau is still far less than it used to be.

On August 24, the Macau government eased travel restrictions for visitors from China’s neighboring Guangdong province. Visitors will now have to provide a negative COVID-19 test for the past seven days instead of the previous 48 hours – a change that could encourage more people to travel. Shares of US-based casino operators and their Hong Kong-listed units jumped on the news.

For more than a year, China has allowed some quarantine-free travel to Macau, but the gambling hub still maintains stringent border restrictions with Hong Kong, which has historically been another big source of tourists.

According to a research note from Jefferies last week, the recovery of visitation and gambling revenues will be gradual and “it may take until 2022 for normal activities to resume in Macau.”

Macau’s slow recovery stands in stark contrast to the rebound in Las Vegas, the world’s other gambling hub. In Nevada, gambling revenue has increased in recent months – despite the spread of the more contagious Delta variant across the US – due to increased demand, increased air travel and fewer pandemic restrictions.

Casino officials say they are confident about Macau’s eventual rebound and have expressed support for the government’s strict COVID-19 responses, which have kept case numbers low. But the travel restrictions come at a cost to the casino.

With a population of 685,000, the gambling enclave has been successful in controlling the virus, according to government figures, with only 63 cases of infection reported and no deaths. Both mainland China and Macau have adopted a zero-tolerance approach to COVID-19, where even a small number of infections can trigger a rapid and large-scale response. Macau ordered mass testing for its residents in early August, after a family of four became infected with the Delta variant.

Before the latest outbreaks posed new threats to the city, there were signs of bright days to come. The casino hub tasted its fit recovery in May, when a five-day holiday in mainland China drew visitors and gaming revenue climbed 24% from the month before, reaching its highest level since the pandemic began .

In a recent call with analysts, Wynn Resorts chief executive Matt Maddox said the company was encouraged by the strong demand seen in Macau over the May holiday period. But, he said, the idea that the so-called VIP segment of customers—the wealthiest high-rolling gamblers—could revert to previous levels, “wasn’t going to happen.”

Wynn Macau said its net loss in the second quarter narrowed to $116.6 million from $352 million a year ago. Hong Kong-listed MGM China Holdings Ltd reported net revenue of $311 million in the second quarter, more than nine times the amount reported a year ago, but still down 56% from the same period in 2019. Sands China Ltd’s second quarter loss narrowed to $166 million from $549 million a year ago.

Casino operators also face uncertainty regarding the government’s six Macau casino licenses, which are due to expire in June 2022. Casino operators are awaiting word from the government on how—and when—the new licensing process will take place in light of the pandemic and local elections in September. According to industry executives and analysts, the government may delay the process and extend existing licences, also known as concessions.

China’s sweeping regulatory crackdown this year has rattled global investors, from e-commerce players to ride-sharing businesses, to dozens of internet-technology companies. This week, China issued rules banning youth from playing online video games during the school week and limiting play to just one hour on Fridays, weekends and holidays.

Macau’s casinos have so far remained out of the crosshairs of regulators. Still, President Xi Jinping’s anti-corruption campaign in recent years has forced Macau to move away from the high-rollers and orient itself towards luring mass-market tourists.