The Big Drop in Gambling Income: Can Macau Diversify?

By Akon Liu Yiying, Summer Li Shengmei, Yvonne Gong Xiaojing

(Casinos. Shops. Feasting and revelry. As night falls, dazzling neon lights up the sleepless city - Macau, the world’s gaming mecca. However, under the glamorous surface lurks unrest and turbulence. For the past nine months, Macau’s casino revenue has dropped dramatically. Are the good times coming to an end?)

 Casino Lisboa, Macau

Macau is facing a crisis. The territory’s economy depends on gambling, with more than half the government’s tax income derived from gaming. In recent months, however, those revenues have dropped dramatically. In Feb 2015, gaming revenue declined by 48.6% compared with the same period last year. 

The main reason appears to be China’s anti-corruption drive led by President Xi Jinping. Among the targets of the campaign have been corrupt Chinese officials who have brought large sums of money to Macau to gamble away in the casinos’ VIP rooms. These rooms offer gorgeous views, luxurious decoration, and high-quality service., and entertain guests prepared to bet large sums of money.

Is it serious? And what happened to their casinos’ VIPs?

The gaming revenue for February was the lowest record in history - the first time since March 2011 when the monthly gross revenue dropped below 20,000 million Macau patacas ($250 million). “The slump in Macau’s gaming industry is very serious,” said Grant Govertsen, the principal analyst of Union Gaming Research in Macau. “The profits of the casino operators are declining rapidly.”

   Grant Govertsen

“As for now, the decline mainly relates to VIP customers,” said Lawrence Fong, a professor at the University of Macau. Fong added that the VIP gaming revenue has long been the major source of income for most casinos, noting that it has been deterred by the anti-corruption drive with the number of big-time gamblers, including some high ranking officials, dropping significantly. 

Indeed, approximately half the revenue from VIP rooms has disappeared, according to Govertsen. Some of Macau’s VIP gamblers were surely on the target list of the anti-corruption drive. 

And the VIP gaming, especially at baccarat VIP tables (the most popular VIP game at most casinos) also dropped. According to government, the revenue of baccarat VIP tables declined by approximately 10.9% from 2013 to 2014. 

       The Galaxy Macau Casino VIP Room

“The slump in Macau is nothing more than collateral damage of the PRC anti-corruption drive,” Govertsen said. “While we believe that some of the VIP customers who are no longer coming to Macau will, indeed, eventually return, it could be quite some time before this occurs.”

In addition, in order to target illegal funds through gambling, especially those funds circulated by the VIP gaming rooms, the Chinese government has also restricted the use of Union Pay, the only domestic bank card permitted in China. This move has further depressed the consumers’ gaming consumption, including other consumption. Union Pay Card is accepted in 141 countries and regions around the world, including Hong Kong and Macau. It could be used as an agent, converting luxuries into cash for gambling. 

The Cascading Effect of The Gambling Slump

With the gambling decline, sales of luxury items in the casinos have also been affected. In the Sands Cotai Central casino, a sales person at Tudor watch shop said the sales of watches priced at over HKD 100,000 (12901.64 in US$) have declined significantly, compared with the previous periods. However, sales of watches below HKD 100,000 have remained the same. Rolex has had a similar experience. 

Even so, visitors from mainland China remain the main force of luxury consumption. “60 to 70 percent of consumers are from mainland China,” said a sales person at Yves Saint Laurent in Sands Cotai Central. At the door of the Chanel shop, people still wait in a line to purchase luxury items. And LV is still patronized by many mainland consumers. 

Louis Vuitton in Sands Cotai Central

Gaming revenue in Macau is closely connected with the government revenue. Once gaming revenue goes down, government revenues decline with it. This means that resources for other services have been affected. To reduce costs, the casinos have changed a number of policies. Free shuttle buses used to be a major feature of Macau’s casinos. However, some big casinos, including the Lisboa, now make shuttle buses to the border with mainland China available only to those who have gambled or have acquired membership cards.

Venetian Shuttle Bus

Other basic services have also been affected. Macau university student Claire Ding expressed surprise about charged for the luggage deposit at the Venetian Hotel, because it has been free for many years.

Baggage Service in Venetian

U.S. Investors are the biggest loser?

Las Vegas Sands, Wynn Resorts and MGM Mirage - the big American players who entered Macau after the former Portuguese colony liberalized its gaming industry in 2002 - have also been affected. 

“The impact on the American casinos today is no different than the impact on the non-American casinos,” said Govertsen, “As far as we can tell, all of the casino operators are being treated the same.”

Wynn Macau

“Anti-corruption in mainland China is just a political move. It is not directly aimed at Macau gambling industry, not to mention American casinos,” Professor Fong said. 

However, Liu Shih Ding, a professor of the University of Macau, noted that the outflow of money to foreign companies is an issue the central government was definitely concerned about. “It relates to national financial security in some ways,” he said. 

“The U.S. casino operators already have experienced surviving a very negative operating environment (Las Vegas during the economic crisis in 2008/2009). We believe the U.S. casino operators are actually better suited to operate in a difficult environment,” said Govertsen. “The Chinese operators have never been through such a tough period before.”

Can Macau find a way out?

Ironically, gambling, the dominant strength of the Macau economy, has now become the biggest obstacle to its future development. “Macau has been so reliant on gambling that it is virtually impossible to diversify away from this,” said Govertsen. Actually, this has been a complicated issue in Macau for a long time. From the perspective of the central government, ‘diversity’ has always been an important proposition for Macau’s development. During President Xi Jinping’s visit to Macau in December last year, it was stressed again. 

As an alternative, the Macau government is promoting the territory’s attraction as a venue for conventions and exhibitions. Faced with the strong appeal of exhibitions venues in Hong Kong and Guangdong province, Professor Fong suggested that Macau should focus on expanding conference services, given its high-class hotels and leisure services.

           The 19th Macao International Trade & Investment Fair

Some travelers say they would visit Macau to enjoy things other than gambling. Mrs. Zhang, a tourist from mainland China, said she was interested in Macau’s new entertainment projects, and they would visit Macau for its entertainment theme park. 

Akon Liu Yiying, Summer Li Shengmei, Yvonne Gong Xiaojing are graduate students in the Department of Communication at the University of Macau.

Remarkable Shrink

Remarkable Shrink: Macau desperately needs to diversify

Casinos.Shops.Feasting and revelry. As night falls, Revelry. As night falls,

dazzling neon lights light up the sleepless city - Macau, the world’s gaming mecca. However, under the glamorous surface lurks unrest and turbulence. For the past nine months, Macau’s casino revenue has dropped dramatically. Is this kind of scene in Macau comes to an end? It is a question to be answered. 

 by Akon Liu, Summer Li, Yvonne Gong

Casinos in Macau. (Photo credit: Wikipedia)

Macau is facing a crisis. The territory’s economy depends on gambling, more than half the tax income comes from gaming revenue. But in recent months, those revenues have dropped dramatically. In Feb 2015, gaming revenue declined by 48.6% compared with the same period last year.

The main reason appears to be China’s anti-corruption drive led by President Xi Jinping. The drop in gaming revenue aiming the targets of the campaign have been corrupt Chinese officials who have brought large sums of money to Macau to gamble away in the casinos’ VIP rooms. VIP rooms are the places with gorgeous views, luxurious decoration, and high-quality service. The guests who enter VIP rooms must commit to betting a certain amount of money.

Is it serious? And what happened to casinos’ VIP?

It was the new lowest record in history-- - the first time when the monthly gross revenue was lower than 20,000 million Mac au patacas ($250 million) since March 2011. “The slump in Macau's gaming industr y is very serious,” said Grant Govertsen, the principal analyst of Union Gaming Research in Macau. 

“As for now, the decline mainly relates to VIP customers,” said Lawrence Fong, a professor at The University of Macau. The VIP gaming revenue has long been the major source of income for most casinos. However it has been deterred by the anti-corruption drive. The number of big-time gamblers (including some high ranking officials) has dropped significantly, contributing to the gaming revenue decline.  

Indeed, approximately half the revenue from VIP rooms has disappeared. Some of Macau's VIP gamblers were surely on the target list of the anti-corruption drive, according to Govertsen. 

And the VIP gaming, especially as baccarat VIP tables (the main VIP play form of most casinos) also dropped. As the authority statistics show, the revenue of baccarat VIP tables had a decline with this down trend, dropping by approximately 10.9% revenue from 2013 to 2014. 

“We believe that some of the VIP customers who are no longer coming to Macau will, indeed, eventually return, it could be quite some time before this occurs,” Govertsen also said.

In addition, for targeting of illegal funds through gambling (especially those funds circulated by the VIP gaming rooms), the Chinese government has also restricted the use of the Union Pay, the only domestic bank card organization in China. It depressed the consumers’ gaming consumption including other consumption. Union Pay Card is accepted in 141 countries and regions around the world, including Hong Kong and Macau. It could be used as an agent, converting luxuries into cash for gambling. 

The Cascading Effect of Gambling decline

With the gambling decline, the saled luxury items in the casinos has also been affected. In the Sands Cotai Central casino, a sales person at Tudor watches said the sales of watches priced at over HKD 100,000 has declined significantly, compared with the previous sales. However, sales of watches below HKD 100,000 have remained the same. Rolex has had a similar experience. 

Even so, visitors from mainland China remain the main force of luxury consumption. “Almost 60% to 70% consumers are from mainland China,” said a sales person at of Yves Saint Laurent in Sands Cotai Central. At the door of the Chanel shop, people still wait in a line to purchase luxury items. And LV is still patronized by many mainland consumers. 

Gaming revenue in Macau is closely connected with the government revenue. Once gaming revenue goes down, government revenues also declined with it. This means that the budget of some items would be changed. Lin, a postgraduate student from University of Macau, was told the budget of the library in the University of Macau would decrease, due to the slump in the government gaming taxes along with the decline in gaming revenue.

To reduce costs, the casinos have changed a number of policies. Free shuttle buses used to be a major feature of Macau’s casinos. However, some big casinos, including Lisboa, now make shuttle buses to the Border Gate with XXX available only to those who have gambled or have membership cards. 

Other basic services have also been affected. Macau university student Claire Ding expressed her surprise about being charged for the luggage deposit at the Venetian Hotel, because it has been free for many years.

U.S. investors are the biggest loser?

Las Vegas Sands, Wynn Resorts and MGM Mirage — the big American players who entered Macau after the former Portuguese colony liberalized its gaming industry in 2002 have also been affected.

“The impact on the American casinos today is no different than the impact on the non-American casinos,” said Govertsen, ”As far as we can tell, all of the casino operators are being treated the same.” 

 “Anti-corruption in mainland China is just a political conduct recently. It is not directly aimed at Macau gambling industry, not to mention American casinos.” Professor Fong said. 

However, University of Macau Professor Liu Shih Diing notes that the outflow of money to foreign companies is an issue the central government was definitely concerned about. “It relates to national financial security in some ways,” he said.

However, the US casino operators already have experience surviving a very negative operating environment (Las Vegas during the economic crisis in 2008/2009). “We believe the US casino operators are actually better suited to operate in a difficult environment,” said Govertsen. “The Chinese operators have never been through such a tough period before.”

Can Macau find a way out?

Ironically, gambling, the dominant strength of The Macau economy, has now become the biggest obstacle to its development.  "Macau has been so reliant on gambling that it is virtually impossible to diversify away from this,” said Govertsen. Actually, this has been a complicated issue in Macau for a long time. From the perspective of the central government, ‘diversity’ has always been an important proposition for Macau’s development. During President Xi Jinping’s visit to Macau in December last year, it was stressed again. 

Macau’s appeal as a venue for conventions and exhibitions is being fully promoted by the Macau government. Faced with the strong competence of exhibitions from Hong Kong and Cantonese areas, Professor Fong suggested that Macau should focus on expanding conference services, given its high-class hotels and leisure services. 

Some travelers say they would still visit Macau to enjoy things other than gambling. Mrs. Zhang, a tourist from mainland China, said she was interested in Macau’s new entertainment projects, and they would visit Macau for its entertainment theme park.

Akon Liu, Summer li, and Yvonne Gong are graduate students in the Department of Communication at the University of Macau.

reaction of Tian'anmen Square

CNN was then busy with preparing for Gorbachev’s visit to China with the purpose of fixing the tense relationship between China and Soviet after 30 years. The meeting between the top leaders of China and Soviet marks Deng Xiaoping’s great diplomatic success. It means that China was playing an important role in the world’s stage rather a card played the super powers. In order to celebrate this historically unusual moment, most celebration activities were supposedly held in the Tian’anmen Square, which was unfortunately occupied by tens of thousands of students protesting for democracy.

The major purpose of the students was not to overthrow the state system, but to earn official acknowledgment from the government on their patriotic and democratic movement and their responsibility of making China a better country. They demanded serious conversation with the government on the equal basis and to satisfy their reasonable requirements proposed previously.

Throughout the history of the People’s Republic of China, this act in contempt of authority in Chinese politics is definitely the most serious, drying up the patience of those tough politicians represented by Deng Xiaoping who brooked no objections. Finally, the bloodthirsty slaughter began on June 4. Tanks showed up on the Chang’an Street, opposite to the photo of Chairman Mao. An array of soldiers wielding AK-47 guns ruthlessly shot at people in crowds. Tons of innocent people died in the pursuit of the great undertaking of democracy, as the words they beheld, “give me liberty or give me death!”

I have to confess that before I read this, I did not know much about the June Four event. The first time I heard about it was when I was a freshman, but the truth was I still had no idea of what it was and how it happened. I searched online but it was totally in vain because nothing came out of it. People around me, they never talk about it. So for a long time, this event was like a chapter torn off from my text book.

It changed when I came to Macau, I remembered the first class taught by Professor Chen Huailin. Before the class began, he hand-delivered questionnaires to us about the June Four Event. And in the second class given by professor Wu Mei, in her self-description, she mentioned that she used to work at China Daily. After the tragedy happened, she felt that she could no longer live here, so she went abroad. I feel like a girl picking up shells on the seaside, starting to collect more information about the mystery which has long been kept away from me generation in the mainland China.

When I was in mainland China, I have complained about the government’s filter machine which not allows us to see things, especially when they are harmful to the administration of the central government. All the media serve for the country, reporting only good things, barring bad news. As the saying goes, “living in CCTV is like living in a paradise!" It shocked me when I learned that in U.S., the Washington Post pushed its president out of office because of the watergate event. This could never happen in China, because they always place politics in the first place and anything that could jeopardize their control will be ruled out. Barehanded students rising to stand against people in authority is nothing more than throwing an egg against a rock, awakening the conscience of other people or next generations. But the price is too big. I have always wondered that sometimes we know something is not right, but is there a better way to fix it? Like China’s educational system which has been in argument for a long time, we all know it’s imperfect or even has a lot of defects. For people in China's Educational Bureau, as senior intellectuals, they definitely are better aware of that. But nothing changes, the existing state will persist. “If you can't change it, live with it." that's what most people hold. I wish I could do something different if not now, but in the future.