Fast-Paced Macao Gambling Hub Slows Down as Casino Earnings Fall

Following the plunge in revenues, Melco Crown may quit the HK stock exchange.

The gambling enclave lost almost $100 billion of market value during the Chinese government’s clampdown on corruption. With revenues falling to 30.4% in December, 2013 ended badly for the gaming industry in Macau. This was the seventh month in a row where a steady decline in gambling revenues was registered.

Under Macanese gambling laws, Chinese citizens can legally gamble there, however since the crackdown, revenues dropped 2.6 last year to $54.4 billion. This reflects the first decrease since 2002, when amendments were made to the casino market, allowing competition and public records.

Analysts worldwide are now debating if recovery is possible for the world’s largest gambling haven. In the 12 months leading up to December 31, six Macau casino stocks listed on the Hong Kong exchange lost a total market value of $91.6 billion.

As Macau’s gaming revenues weakened during the fourth quarter of financial year 2014, market capitalisation fell by 40% for gambling moguls such as James Packer, Sheldon Adelson and Stanley Ho. Indeed gambling activity among both VIP and mass market punters in Macau has declined.

Melco Crown Entertainment co-chairmen, James Packer and Macau gaming mogul, Lawrence Ho, had to make a tough decision. Due to hitches in making a profit and not gathering enough share trades, Melco may bow out of the Hong Kong exchange it has been in since December 7, 2011.

Billionaire James Packer explained that the move to withdraw from the Hong Kong Stock Exchange, was fuelled by Melco Crown’s $7 billion loss in market capitalization over 2014. The decrease reflects a 35% fall in stock value, a shock, considering the hefty 19% increase in Melco’s value in 2013.

However, despite the setbacks, Melco Crown will stay on the NASDAQ, according to Macanese gambling news, as the casino’s shareholders are quite active. Packer and Ho both have a 33.65% stake in Melco Crown, which is owned by Crown Resorts.

Sands China loses 26 billion in 2014

Although James Packer is among billionaires hit by $100 billion Macau casino losses, he is by no means the hardest hit. Sheldon Adelson who owns Sands China, a subsidiary of Las Vegas Sands, lost revenues amounting to $26 billion in 2014.

SJM Holdings, the casino company, has also seen heavy short interest in recent weeks. Stanley Ho, the father of Mr. Packer’s joint venture partner, who owns SJM, revealed a 52 % loss in value for the company when the market capitalization dropped by $9 billion.

• Melco Crown has market capitalization of close to $14 billion
• Year-on-year decline of $44 billion in 2014
• Melco to delist its shares in Hong Kong

In his bid to eradicate corruption, Chinese President Xi Jingping had VIP and mass market punters running for cover and thus reducing their gambling activities. Jingping has also stemmed the illicit cash flow in Macau generated by debit card scams.

Mixed forecast for 2015

Analysts are in no way in agreement as to what may happen in 2015. A fall of between 4% and 9 %, or a rise of 10 %, is what is being predicted. However, there is the overall consensus that in this month there will be an eighth-straight month of gaming losses.

Praveen Choudhary, a Morgan Stanley analyst, says that with the conditions for mass market bettors worsening, gambling slot revenues should “remain flat in 2015, before growing 18 per cent in 2016, fueled mainly by new hotel rooms and steady growth in spending per capita”.

He did predict that stocks might improve this year due to “improving quarterly growth rates from the first quarter and the addition of new tables in a number of casinos. High-roller activity in Macau could also recover as interest rate cuts increase the cash available to junket operators, and an improving outlook for Chinese property buoys punters’ sentiments”.

Macau’s gaming industry depends largely on high-rollers from mainland China. However VIP gamblers have being scared off by the anti-graft campaign. Chinese President Xi Jinping, as part of his ant-corruption campaign swears to rid China of exuberant spending.