Macau’s casino investors are feeling very unsure and uneasy about the potential of the industry as it readies itself for what is being described as a “crackdown” from the Chinese authorities. Macau is often described as China’s version of Las Vegas and it is a very lucrative industry. But now that public consultation is about to begin, the stocks have reacted in a very negative way – falling as much as 24%.
This public consultation will take place over 45 days, when the Chinese authorities will be examining the casino industry closely and making the decision as to whether they should take a larger role in supervising it. While the plummeting stocks may not have been a huge surprise, it’s certainly not a welcome turn of events for Macau.
Casino Gaming Firms Holding Their Breath
It’s clear that those firms in the casino industry are watching the developments very closely and are feeling quite anxious about the upcoming public consultation. On this past Wednesday alone, a whopping $18bn was lost by the top gaming firms. That’s no small number, and it certainly has some people going into panic mode.
Some of the hardest-hit gaming firms include Melco Entertainment, Sands China, and Wynn Macau. Each of these firms watched as their stock valuation tumbled by up to 1/3 on that same day. They’re now watching the news closely and hoping for it not to drop much further, but there is no guarantee how the consultation will play out.
What’s At Stake in the Public Consultation?
In terms of what’s at stake in this public consultation, it’s a lot – and that’s putting it mildly. The idea of even more supervision is an awful lot to digest. The consultation will be looking at a few key areas which include:
- Better regulation
- Employee welfare
- The number of licenses granted
- Daily supervision by government officials
For gaming firms, this can result in a loss of control or at least a fair number of impediments to deal with. And while this week’s losses were certainly startling, they weren’t a surprise.
It was only this past June when the authorities moved to increase the number of inspectors by doubling the amount. These inspectors were tasked with supervising the industry very closely and on a tight leash. Of course, this wasn’t exactly welcome news to gaming firms, and the thought of increasing the regulations even further is proving to be a bit much.
Fears on How It May Affect the Bottom Line
So, what’s driving the fear and causing the market to plummet? Gaming firms are worried about what this increase in intervention and authority might mean for the bottom line. The pandemic had a huge effect on the casino industry, causing profits to sink dangerously low. Even now as tourists and gamers start to return to the casinos, it still hasn’t reached pre-pandemic levels. Currently, the casinos are reporting revenues that are more than 50% less than they were in 2019, which is significant.
The gaming firms are hoping to see that eventually happen, but the threat of more authority by the government puts everything in question.
Macau is extremely dependent on the revenue that the gaming industry brings in, as it accounts for 55% of the GDP in the city and 80% of government revenue. It also happens to be the only place players can go in China to gamble. Even if you look at the industry from a jobs perspective, last year it employed over 82,000 people. It has a substantial impact on the economy.
Back in 2019, Macau enjoyed gross revenue that came in around $36.7 billion and was largely driven by the casino industry. When comparing that to Las Vegas, the gross revenue was four times higher in Macau.
What Specifically Is Being Discussed?
Not all the details are known yet, but so far what people do know is that the government of Macau is looking at using its representatives to work right in the licensed casino to be on-hand, watching and overseeing things at all times. There will be particular attention paid to underground banking (which the government wants to criminalise) and keeping a watchful eye on operations.
There is also a looming deadline fast approaching, which is June 2022. This is the date that the big gaming companies will see their licenses expire. Rather than simply renewing them, they will need to bid to receive another license.
Some senior market analysts believe these extra authorities will result in much small profit margins, which will harm the top casinos.
Other items up for discussion include how profits of shareholders are distributed and gaming concessionaires specifically for those who are permanent residents.
It’s Not Just the Gaming Industry Facing Potential Crackdown
In terms of tighter authority and crackdowns, the gaming industry is hardly alone. The Chinese government has also beefed-up crackdowns and attention on its private education providers, technology firms and many other businesses.
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As industry experts, major casinos, investors and the public all look to see what will happen to the industry in Macau, one thing is painfully clear and that’s the fact that anything can happen. This public consultation will be nothing short of enlightening, with many hoping they are spared the worst of things.