The UK’s Chancellor of the Exchequer George Osborne says that the UK economy faces a “cocktail” of threats from recessions in Brazil, Russia, turbulence in the Middle East, not to mention China’s falling stock market and currency.

The problem with China is that analysts do not trust the figures. They certainly blindsided me in my 2015 predictions for Macau. But this week there was one statistic that really stood out – the Chinese lottery figures. Hitherto the growth has been exponential. The Welfare Lottery showing 28% CAGR from 2009 to 2014.

China’s total November sales of official lottery products decreased by 10.2 percent year-on-year, according to data from the country’s Ministry of Finance. Monthly sales for the official lotteries in mainland China have now declined for six consecutive months.

In November 2015 Welfare lottery sales decreased by 6.6 percent year-on-year, to RMB 17.0 billion, while Sports Lottery sales declined 14.4 percent to RMB 13.6 billion.

Combined lottery sales in the first 11 months of last year amounted to RMB 333.8 billion, a year-on-year decrease of 3.6 percent.

Measure that against Camelot’s performance 2008 to 2011 the height of the Great Recession we see a positive 4% CAGR. A stark contrast to China’s declining lottery sales. Lotteries are the most resilient of all the gambling businesses so I have to conclude that the recession in China is real, and people are hurting.

Paul Krugman, the celebrated Nobel Prize winning economist, wrote in the New York Times (8th January) that the Chinese situation ‘looks fairly grim – and new numbers reinforced fears of a hard landing’. George Soros has compared the current situation to a re run of 2008.

On a brighter note Krugman suggests things will not be that bad – nasty in China, just turbulence elsewhere. But admits he is guessing, and hopes to be proven right.

Where does all this leave the gambling industry? In the UK the Chancellor still has a budget deficit of 5.7% of GDP and if the economy worsens the deficit will grow, causing a call for more tax revenue. The UK gambling industry needs to carefully consider its situation in the run up to the budget in March 2016. Direct tax increases on gambling would be unthinkable bearing in mind what the industry suffered in 2015. Even so, if direct tax increases on gambling can be avoided in 2016, tax increases elsewhere will cause the consumer to be worse off and spend less.
In the USA the Nevada Gaming Control Board reported that 271 casinos showed a loss of US$661.8m on a 3% rise in revenue (to year end June 30). The net loss narrowed from 2014’s loss of $743.7m. But if we are at the peak of the current cycle the 2015 figure is nothing to be too pleased about. Clearly some consolidation on the Las Vegas strip is overdue and will be more prescient than ever because the Chinese baccarat players are not going to be present in the same number in 2016 as they were in 2014/15.

Gillian Tett of the Financial Times drew attention last week to the demise of hedge funds. These masters of the universe have decided to throw in the towel because events have become so unpredictable caused by capricious government intervention. This was followed by a note from RBS to its clients advising them to “sell everything” and prepare for a “cataclysmic year”. The future has never been so cloudy!

by Warwick Bartlett