In its heyday, the money sloshing through the tiny former Portuguese colony of Macau took some beating. At its peak in 2013, Macau casino revenues hit $45bn — nearly seven times that of Las Vegas casinos combined. But the era of Macau’s unrivalled position as the destination for the cash piles of mainland gamblers may be coming to an end.
A lucrative business model traditionally underpinned the Las Vegas of Asia, a special administrative region of China since 1999. Junkets — or all expenses-paid gambling trips — for mainland Chinese high rollers to play at designated casinos was one of the territory’s core revenue generators. High rollers were able to bet multiples of their chips on the table. All this was turbocharged by large credit lines and unlicensed money exchanges.
Beijing has been increasing enforcement of currency transfer quotas and controls in recent years. Underground banks and unlicensed currency exchanges in Macau have played a key role in facilitating evasion of these currency controls, often through the junket accounts of casinos. By some estimates, ill-gotten funds channelled through Macau exceeded $200bn at its peak in 2013. Some Macau casinos also signed up mainland Chinese gamblers to their overseas platforms, where illegal online gambling brought in another revenue stream.
A key development this year put those revenues at risk. In October, a gambling crimes bill which criminalises unlicensed money exchanges — widely used by local casinos and gamblers — was passed by Macau’s legislature. This would be highly effective in enforcing Beijing’s ongoing crackdown on illicit capital outflows from China through gambling in Macau.
The move creates a formidable challenge for Macau’s casinos. Most of Macau’s visitors come from the mainland, with Chinese visitors accounting for nearly 70 per cent of the total, according to government data. Chinese high rollers make up less than 1 per cent of the city’s gamblers, but accounted for three-quarters of gaming revenue.
So far, it is quiet. This year, battered stocks of local casinos have staged a comeback after a sharp sell-off during the pandemic. Shares of SJM Holdings are up more than 10 per cent in the past year. That reflects Macau’s rising visitor arrivals — up a third in the first three quarters of this year — and growing gaming revenues, up 15 per cent in November to $2.3bn. MGM China Holdings has had a roller-coaster year to end up broadly flat.
In December Sam Hou Fai, a Beijing-backed former top judge will take office as Macau’s new leader, which could mean stricter regulatory oversight. MGM China trades at just eight times forward earnings, about half that its peers in Las Vegas. That gap is here to stay as long as mainland Chinese gamblers stay away.
