Macau’s woes here to stay
By Warwick Bartlett
Wynn Resorts first quarter results give a clear indication on the direction of gaming in Macau. Revenue was down 37.7% in the first quarter of 2015 compared to 2014. EBITDA was down 44.7%. Over at Sands China the Venetian produced similar results with casino revenues down 37.1% but overall net revenues were down 33.5% because of Sands’ investment in conventions, shopping malls and other retail that has mass market appeal.

According to Bloomberg, the fortunes of China’s three richest casino owners have fallen by US$22 billion in the past 12 months as a government crackdown is causing wealthy Chinese to curtail conspicuous consumption. U.S. billionaires Sheldon Adelson and Steve Wynn have lost more than 20 percent of their net worth since April 2014 while Lui Chee Woo, the Chinese owner of Galaxy Entertainment Group Ltd., has lost almost 40 percent.
The story for everyone is the same. Without the VIPs Macau is well down on last year’s numbers. 

The mass market is holding up well, where the spend per table is higher than Las Vegas. But it is not enough to make up for the shortfall.
But that is not what the market has become used to so the shares have been sold down. After the results Wynn was down 16% on the day and 46% on the year.
The big question is when or if they will recover.
Fitch Ratings, according to the Financial Times, expect to see a recovery towards the end of the year. Presumably Fitch is counting on things getting back to normal with Beijing allowing more travellers and VIPs feeling comfortable to return to the gaming tables.
As a long term “bull” of Macau’s gaming sector I would like to believe this is so but this time round I am not so sure.
In the West we tend to adjust our timeframes to the five year business cycle and in times of volatility, such as now, executives have a tendency to think of the here and now, and certainly not much more than beyond the yearly results. Not so in China, they are prepared to plan much further ahead and long term relationships really count. 
The present fall out all began with the President of China Xi Jinping informing Macau that its economy needs to be more diversified and not so reliant on gambling. At the same time Chinese VIP gamblers returning from Macau found themselves under investigation for corruption. This served as a deterrent for other corrupt officials, they decided to stay at home and keep their heads down.
Then we have the smoking ban, first it was partial and ‘manageable’ and now there are proposals for it to occupy the entire gaming floor.
Then we have the rumour mill, which has been negative to the stock price of the listed companies.
On 19 January 2015, Howard Stutz, in the Las Vegas Review Journal said a Chinese official had hinted at a potential tax increase ahead of the licence renewals for the Macau casinos. 
The Macau Daily Times reported (23 January 2015) that Lionel Long, The Secretary for Economy and Finance Macau, declared that any eventual change to the gaming tax system can only occur after a revaluation that will happen this year. The newspaper went on to say the existing tax increase from 39% to 43% could only occur after the revaluation.
The Macau Government will receive less revenue from the casinos and, as we have seen in Europe, less revenue from gambling usually causes a tax increase to make up for the shortfall.
The casino licences are up for renewal in 2020 for Stanley Ho’s SJM and its sub concessionaire MGM China and the others in 2022. 
There is speculation that the renewal negotiation is being used by Beijing as a tool to influence the USA over fraught current commercial and foreign relations. I think this is unlikely. China is a US$17.6 trillion economy Macau is US$51.6 billion economy. Beijing has bigger fish to fry.
The theory behind a recovery and things getting back to normal was that Beijing was clearing out the old guard in Government to replace with new people loyal to the President. This had occurred on previous occasions but this time round I think it is somewhat different.
The President, I believe, is taking a stand on corruption because he has to. 
QE in the US, Britain and Europe has consequences for China. Food prices have risen in the developing world and for poor people the percentage of income spent on food is much higher than for those in the West. People are finding it tough in China and one of their main complaints is the level of corruption where issues are dealt with by back handers rather than due process of law.
Governments have to be seen to doing something. They cannot prevent food inflation, they can clamp down on graft. Besides, China wants to be seen as a serious global player amongst the G20 nations, it needs to buy food and resources to survive. Corruption undermines that process.
This time it could be different. I think casino operators are in for the long haul. I believe Steve Wynn thinks so too which is why he prudently cut the dividend payment at Wynn Resorts by two thirds. The company is carrying a net debt load of US$5.9 billion with interest payments at US$78 million a quarter.