COVID devastates Macau casinos

21 July 2022

By I. Nelson Rose

You know you are in deep trouble when one of the leading newsletters in your industry discusses the “silver lining” in being shut down: “Macau Casino Closures Provide Some Relief from Cash Burn.” Asia Gaming Brief

Macau casinos have so few gamblers, in fact, so little revenue of any kind, that the government finally ordering them completely closed is a small blessing. At least this way, the casinos do not have to keep paying salaries to dealers who have no patrons.

But, of course, it’s not exactly good news for casino employees.

Note that some Macau casinos are still paying their staff, even with no revenue coming in. However, even the most formerly profitable casinos cannot keep this up for too many months. At least the American-owned casinos can funnel money from the U.S. or Singapore for a while, until their shareholders rebel.

The problem is COVID, or rather the Chinese over-reaction to the disease. It has now become apparent that COVID is a pandemic only for the unvaccinated: If you get your shots and boosters, and you aren’t extremely elderly or obese or otherwise already at risk, there is almost no chance you will end up in a hospital, let alone die.

Residents of Macau are already 90% vaccinated. But the Special Administrative Region (“SAR”) has only one hospital for the general population. And China has a frankly ridiculous zero-tolerance system. Beijing literally wants to eradicate the disease completely. An impossible goal, given that the virus is constantly mutating.

What does this mean for the industry? The timing could hardly be worse.

Macau closed its casinos for 15 days when COVID first hit in early 2020 and never recovered. Even after the Macau government let them reopen, their main source of customers, the Chinese Mainland, put one- and two-week mandatory quarantines on any resident who visited the SAR.

I taught a class in International Gaming Law at the University of Macau in May 2020. Or, should I say, I Zoomed a class. Half of my students were in Macau, but the other half were on the Mainland because the University was teaching every class remotely.

I asked one of my Macau students to visit the technically open casinos for me. He went to one of the larger ones in the city. Where there would previously have been 1,000 – 3,000 gamblers, he counted 27. That’s literally 27 patrons playing slot machines and baccarat.

Of course, there could have been a few dozen more in the high-roller suites.

What makes the situation so critical, is that the bidding process for the new concessions cannot really be postponed much longer. And the present casino licensees and the satellite casinos and junket operators who technically fall under those concessions are also running out of money.

I am still confident that the present six concession and sub-concession holders will all be renewed. However, Beijing could use this disaster to allow in a Mainland company with loads of cash – perhaps a favored defense contractor? – to take over one of the six licenses.

As for the more than 40 satellite casinos, their time is coming to an end. Many are presently run by unlicensed third parties, on a revenue-sharing basis. Even if they are allowed to continue, there will have to be more oversight by the actual concession holders, and management fees rather than revenue sharing.

The junket industry has mostly already been demolished. Junket operators face not only COVID and scandals, but continuing strong opposition from Beijing. The People’s Republic of China hates the billions of dollars in cash that flows out of the Mainland through Macau. And it has made it clear that it will use all its power over Macau and the border to make it stop.

As for the long-term prospects for Macau casinos, including those owned by Western companies . . . more, next blog.