Macau is finally on the road to a post-pandemic recovery. Gaming revenue is on track to exceed $24 billion for 2023. That will be the most generated by the casinos in Macau since 2019. The gap is still considerable, though. The gross gaming revenue in 2019 was $35 billion, which was down from the $37.6 billion in 2018.
All jurisdictions in the United States have not only recovered since the pandemic, but have also set GGR records. In fact, the recovery here started in the middle of 2020 and has continued ever since. Macau had started on the road to a recovery, but then China tightened down for a second round of COVID restrictions. It took three years before China opened its doors and lifted the restrictions on public gatherings and travel. China has 1.4 billion people and is the home of 70 percent to 80 percent of the customers for Macau’s casinos. Without Chinese gamblers Macau is simply an overbuilt would-be casino-resort community.
Macau does not have to go without. For the moment, the Chinese are back. The media narrative regularly tracks the revenue and compares it to 2019. However, it is an arbitrary comparison and the comparisons are made to “mass gaming revenue,” leaving out the VIP revenue. In fact, the very year is arbitrary. Revenue in 2018 was higher, but even that pales in comparison to 2013 when total revenue hit $45 billion, 70 percent of which came from VIP gamblers. The next year, China began its crackdown on corruption and crime. The crackdown hit VIP gambling in the solar plexus.
The VIP segment dried up and VIP revenues have shrunk from that 70 percent to 24 percent in the third quarter of 2023. With over a billion people as a customer base, the loss of VIPs and the addition of more and more mass gamblers will probably work out, though It won’t be simple. The casinos invested billions and billions of dollars building resorts that appealed to high rollers. But they have also started to design, remodel, and build properties that attract a much wider audience. The Chinese government wants the casinos to act as an attraction for an international tourism market.
In January, the casinos entered into new 10-year license agreements with the government of Macau. Over the next 1o years, the casinos have agreed to invest $15 billion in the city, 90 percent in non-gaming amenities and activities. The casinos have also agreed to redevelop six specific historic districts of Macau; the intent is to bring back the charm of a Portuguese trading colony. The government plans are long on rhetoric, but short on details, including costs.
The gaming operations in Macau collectively already have nearly $25 billion in debt and the new investments will add to that. The profitability of the individual operations is not the concern of the government of Macau or China. They are interested in building out their master plan for Macau, the Greater Bay Region, and the Belt and Road. Macau is just a steppingstone on that path. Meeting the Chinese objectives is a tall order, one that no one seems to know exactly how to fill.
The biggest problem is Macau has been one dimensional for the last 20 years. People go there to gamble. Meetings, conventions, entertainment, and special events have at best been five percent of the revenue pie. The government wants that to rise to 30 percent within 10 years.
The second problem has to do with competition. China, Korea, Japan, the Philippines, Europe, and the United States have all of those things. Penetrating that market will not be as easy as the government thinks. Even if the casinos in Macau could focus exclusively on China, it would be a daunting task.
But the operators are trying. They are experimenting and learning. There are or have been ping-pong tournaments, car races, Harry Potter exhibits, Korean pop stars, art shows, dragon-boat and fireworks competitions, conventions, international chefs, and exotic boutique hotels. There are holiday festivities galore and soon the 25th anniversary of the return to homeland celebrations. Nothing has been too small or, indeed, too large. There is something unique happening virtually every week, if not every day.
The question is not one of intent, willingness, effort, or investment; the question is whether any of those things being thrown at the wall will stick and produce enough cash to pay for the investments. The answer will be years in coming. In the meantime, the effort is becoming very visible; it certainly will be visible to any visitor. Those little events keep adding to the menu and if the trend continues, the accumulated product may just be enough to fulfill the goals of license renewals. It is beginning to seem possible.
