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Howard Stutz

Stutz: Soccer won't fill Macau's cup

11 June 2014

The high-end gamblers who frequent Macau’s ultraritzy private gaming rooms are more interested in whether Cristiano Ronaldo can lead Portugal into the World Cup finals than knowing the next card to come out of the dealing shoe.

Maybe it has something to do with Macau’s 400 years as a Portuguese colony.

Whatever the case, gaming analysts believe soccer will outweigh baccarat in Macau from Thursday to July 13.

In other words, the Macau gaming market will crater as gamblers spend more time watching on TV the world’s best soccer players in Brazil than betting.

Just kidding. Not really.

Instead of taking in $4 billion a month in gaming revenue — 61.5 percent of what Las Vegas casinos collect in an entire year — Macau’s casino market will collect only about $3.5 billion in each of the next two months.

How will Sheldon Adelson pay the rent?

On Monday, several Wall Street analysts downgraded Macau’s gaming prospects over the next few months, offering pessimistic opinions on gamblers showing up at the casinos while the World Cup plays out.

By downgrade, the analysts mean the rate of gaming revenue growth will be around 5 percent above last year’s figures.

Macau casinos produced a record $45.2 billion in 2013. Through May, gaming revenue is up 15.8 percent over the same five months a year ago.

No one is really crying poverty.

Wells Fargo Securities gaming analyst Cameron McKnight said the World Cup would distract gamblers.

Union Gaming Group principal Grant Govertsen produced 13 different reasons why Macau’s casinos will see a gaming revenue slowdown. He downgraded his view of the entire sector.

Govertsen’s “Hold” rating covered the stocks of Adelson’s Las Vegas Sands Corp., Wynn Resorts Ltd., and MGM Resorts International — the three Nevada-based companies operating casinos in Macau.

Investors panicked.

On Monday, shares of MGM Resorts, Wynn Resorts and Las Vegas Sands lost 2 percent to 3 percent of their value.

The trend sort of continued Tuesday. Shares of Wynn fell $1.18, or 0.50 percent, to close at $197.87 on the Nasdaq. MGM was down just a penny, or 0.04 percent, to close at $24.52 on the New York Stock Exchange. Meanwhile, shares of Las Vegas Sands increased 19 cents, or 0.26 percent, to close at $73.03 on the New York Stock Exchange.

So much for the big sell-off.

In the first quarter, the three companies credited their casino operations in Macau with driving company results. Las Vegas Sands collects 65 percent of its overall revenue from Macau. For Wynn Resorts it’s closer to 80 percent.

The bulk of MGM Resorts’ quarterly results come from Las Vegas, but the company’s MGM Macau provides a quarterly dividend payment the company brings home for reinvestment on the Strip.

All three casino operators are building multibillion-dollar resorts to open in 2016 on Macau’s Cotai Strip.

Any hint of bad news from Macau requires the use of defibrillators in casino company boardrooms and investment houses.

Despite the negative news surrounding reduced revenue figures, analysts were quick to point out their worries are just short-term. Even with a smoking ban on casino floors throughout Macau looming in October, Wall Street is not writing off the market.

Other factors, such as the Chinese economy, travel concerns from the mainland into Macau and continued crackdown on the use of certain bank payment cards in casinos, could leave the rest of 2014’s gaming revenue somewhat unsettled.

“We remain positive on the longer-term Macau secular growth story,” McKnight said. “However, 2014 could be choppy due to a potential slowdown in (high-end play) driven by decelerating credit growth and a softer macro-environment.”

Govertsen, who is based in Macau, told investors his 30-page research report was his most negative commentary in three years.

“We have remained bullish on the Macau sector since establishing a presence (here) in early 2011 and are unwavering believers in the long-term story,” Govertsen said. “However, we don’t see any upside catalysts over the near-term.”

Like McKnight, Govertsen said Macau’s market blip may be short-lived.

However, the slowdown could drag out until the newest hotel-casinos on the Cotai Strip open, starting with Las Vegas Sands’ $2.7 billion Parisian, which will be first to market.

“It is important for us to point out that this market view does not reflect our long-term view,” Govertsen said. “It could take several months for sentiment to improve and shares begin to again reflect the notable secular growth story that is Macau.”