The region reported its first case of Covid in January 2020, but once-crowded casinos have yet to recover. This is why analysts say not to bet on Macau long term.
M.acau continues a serious losing streak.
Macau, once known as the ‘Las Vegas of the East’, was humbled by the pandemic despite having three times the revenue of Sin City in 2019.
China’s Special Administrative Region (SAR) reported its first case of Covid on January 20, 2020, and the government’s response has been swift. Due to China’s Corona Zero policy, Macau’s casinos were closed for a short period of time, and borders were soon closed to non-residents. Annual gambling revenues fell by 80% as Macau, including nearby Hong Kong, was effectively shut off from the rest of the world. The region reported just $7.55 billion in 2020, compared to the year before when the gambler lost his $36.3 billion in casinos in Macau. Revenue last year was still down 70% ($10.83 billion) compared to pre-pandemic levels.
The real Las Vegas, on the other hand, has been given far better hands. Blessed with a solid recovery, gambling earnings last year he was $11.44 billion, up 10% from 2019. All in all, Nevada has had an amazing winning streak, reporting gaming revenue above her $1 billion for the 17th straight month.
Despite a deadly and highly contagious virus and stringent government restrictions from China, Las Vegas is now king of the casino industry. Brendan Bassman, managing his partner at BGlobal, a consulting firm focused on gaming and hospitality, said Macau’s healthy casino economy was historically three times bigger than his in Vegas. says. Vegas’ current pecking order is due to a truly incredible circumstance.
“Like Macau is back, so is Las Vegas, it’s only a matter of time,” says Bussmann. “We are at the point of collapse, but there is only one place to go and that is up.”
Casinos in the former Portuguese colony are now open and functioning, but Asia’s gambling capital is far from recovering. China’s Covid policies remain a threat to the gaming industry. The last time the government closed casinos in Macau was on his 12th in July. “Macau remains a conundrum as to when it will fully reopen,” Bussman said. “One more to close”
Rob Goldstein, CEO of Las Vegas Sands, which has five properties in Macau, including The Venetian, said on its June earnings call that the company hasn’t lost faith in the island, which accounted for 59% of EBITDA in 2019. Told. .
Explaining that the share of tourists is at 16% of pre-pandemic levels, Goldstein said, “We are very optimistic that if visitation in Macau resumes, it will be above pre-pandemic levels. “We welcome the opportunity to invest additional billions of dollars in Macau. We continue to believe that Macau is currently an excellent market for additional investment.”
Founded by late billionaire entrepreneur Sheldon Adelson, Las Vegas Sands has invested $15 billion in Macau since opening its first casino in 2004. Londoner Macau, complete with replicas of the Houses of Parliament and Big Ben, Londoner Court and Grand Suites at Four Seasons Macau. The company also operates the Marina Bay Sands Casino in Singapore after selling his Las Vegas property to Apollo Global Management, Inc. and his VICI Properties Inc. affiliate in February 2022 for his $6.25 billion. The company is essentially an Asian gaming company.
Chad Beynon, managing director and equity analyst at Macquarie Securities, expects Macau gambling revenue to recover to 2019 levels by 2024. His home monitoring day in October. Historically, most visitors came by ferry from Hong Kong, which is about an hour’s boat ride. “[The quarantine rules] It was very restrictive and had no value,” says Beynon. “Macau is a day market, most people take the ferry and come back at night. It’s like going from Manhattan to Staten Island.”
While the timing of recovery is uncertain, the gaming license renewal process adds further uncertainty to the region. All licenses expire at the end of 2022. week. All six current operators were expected to receive renewals, but Genting Group, a Malaysian gaming and cruise company run by billionaire Rim Kok Thai, submitted a last-minute bid. wall street journal.
All three Western companies may not renew their licenses now, sending a powerful protectionist message that could daunt other US-based Chinese investors. “The incumbent will say that the six concessionaires have done everything they were asked to do in terms of hiring local residents and building what the government wanted them to build, especially Western companies. ‘ says Benyon. “They have spent billions of dollars building what the government wanted.”
It remains unclear when Macau will recover until some licensing and tourism issues are resolved. Dan Wasiorek, a senior equity analyst at Morningstar who covers the gaming and hospitality industries, said Macau is likely to feel more pain before it rebounds. “Going into 2022, I think most people following this space thought we would see some recovery, myself included,” says Wasiorek. “We’ve seen the opposite. This year, it’s actually going to be a drop-off.”
Macau remains a good long-term bet, analysts say. Wasiorek explains that if Macau recovers, he will provide investors with a double-digit return on capital compared to his mature market, Las Vegas, which has a single-digit average return on investment. Wasiorek expects a recovery by the end of 2024 or perhaps he’s by early 2025, but that has a lot of potential downsides. “There could be a myriad of reasons why that prediction is incorrect,” he says.
Despite the dramatic recession, Wasiolek believes two factors remain a safe bet for Macau. The short-term is “very uncertain” and the long-term outlook “remains bright,” he said. “We just have to wait for China to come back to life and things return to normal,” he says. ‘Macau will rise again’