In October, Macau generated $2.6 billion in gaming revenue, a post-pandemic record. Not since 2019 has the gambling hub generated that much. That is good news, but only a part of the story. In October 2019, the city’s casinos generated $3.2 billion in revenue, so there is still a long way to go to surpass 2019 for Macau. But even that is not the ultimate measure, as in October 2013, the casinos generated $4.6 billion. The media and analysts don’t talk about 2013 and haven’t in years. Before and after COVID has become the measuring stick.
That is reasonable, as COVID was a natural disaster; the pandemic closed the casinos completely and the measures implemented to control the disease hampered operations for a very long time. By contrast, the events of 2014 were man-made. In 2014, the new president of China, Xi Jinping, began a crackdown on corruption in government and business. He targeted “tigers and fleas,” large and small criminals. It had an immediate impact on the casinos in Macau where, it seems, many of those tigers and fleas gambled. The tigers were, in the local jargon, “VIPs.” The VIPs accounted for 80 percent of the gross gaming revenue (GGR). When they stopped coming to town, GGR fell off a cliff.
The VIPs have never returned and now, VIP revenue is around 20 percent of total GGR and falling. This is, in part, because Xi is still hunting tigers, as he reminded everyone recently. He now has a separate agenda. Xi, the Communist Party, and the Chinese government are pushing Macau to diversify and attract more tourists as opposed to gamblers. When the casino licenses were renewed last December, operators agreed to a 10-year plan of capital investment in non-gambling facilities, a program of rebuilding, renewing and refreshing neighborhoods in Macau, and creating events that attract a wide variety of audiences — everything from Korea entertainers to ping-pong and snooker matches.
In the latest wrinkle, Macau is getting a new chief executive, Sam Hou Fai. Sam is a former judge who campaigned on the Macau version of “law and order.” He promised to uphold the law, in particular to hold the casinos’ feet to the fire on the commitments of the license-renewal conditions. He used stronger language earlier in his campaign, threatening to reduce casinos to a minor role in Macau. Someone must have shown him the city’s financial statement, because he backed down from that position. Even at the reduced level of revenue, gaming taxes still provide 80 percent of the city’s revenue.
Although he was duly elected, Sam had to go to Beijing for formal approval. President Xi met Sam and affirmed his appointment. Xi said, “In the election, you were nominated and elected by an overwhelming majority, which demonstrates the broad recognition and support from Macau’s society. The central authorities fully acknowledge this and have full trust in you.” The majority in this case is a majority of the 400 people on the election committee. In excess of 500,000 people are of voting age in Macau, but the chief executive is appointed by a committee chosen from various sectors of society and the political system.
Whatever the method, Sam Hou Fai will be in charge. Given his background and campaign statements, there is some question about his impact on gaming. In the weeks before Sam officially assumes the office, there are two schools of thought. One school thinks he will have little or no impact. In this line of reasoning, nothing is more important than the Chinese economy; with Xi and the Party working overtime to stimulate the economy, consumer confidence, and spending, the casinos will do just fine. Not as fine as in 2013, but fine nevertheless.
The second school believes Sam will keep pushing for more diversity and non-gaming spending, which will cut into gambling revenues. In fact, some even think that Sam has some secret marching orders from Xi to reduce gambling.
Whatever the case, 2013 and its high rollers are not coming back and Macau is not looking back. The gaming operators have clear directions for the next 10 years.
Along with a new chief executive, Macau has a non-gaming business plan. Gaming revenue is going up and may reach pre pandemic levels in 2025 or 2026. From the results of the casinos that have already reported third-quarter financials, the 2024 version of gambling in Macau is still profitable and worthy of further investment. Predicting the future of Macau’s casino industry requires the ability to predict the course of China’s economy and the direction of Xi’s political agenda. The future of casinos in Macau depends on China and Chinese tourists spending freely. And lest we forget, 1.4 billion Chinese are doing the spending.
