Forecasted 4% Decline in Asia’s Gaming Revenue

November 15, 2008

The dazzling lights that decorate the tiny Chinese territory of Macau are threatening to dim during 2009.

Since the opening of the Sands Macau in 2006, Asia’s Las Vegas, as it is popularly referred to, has enjoyed one of the biggest gambling booms in history. Macau alone has taken in billions of dollars in gambling revenue surpassing the revenues of both the Las Vegas Strip and Atlantic City combined. Wages nation-wide rose by two-thirds and the unemployment rate fell by half. This was due mostly in part to gambling taxes, which accounted for three-quarters of the government’s revenues. By 2007 the economy had skyrocketed 27% bringing the employment numbers in the gaming sectors to 69,000.

Things were looking up for China as a whole nation until the faltering global economy stepped in and took over. The trickle down effect of the economic downturn forced Edmund Ho, Macau’s CEO, to halt the issuance of new gambling licenses to prospective Operators and existing Operators were banned from applying for new gambling tables and slot machines. This meant that construction will be greatly affected. At the end of 2006 Macau’s land-based casinos had doubled to 31 but this number may be reduced by 2009. The Las Vegas Sands, which also owns the Sands Macau, has already announced that it will layoff up to 11,000 construction workers in Macau alone. This decision came on the heels of another decision to suspend work on one of their multi-billion dollar expansion projects in Singapore. The Galaxy Entertainment Group, which is building the Cotai Mega Resorts in Macau may also be forced to layoff workers.

Beijing, also feeling the effects of the economic crisis, began imposing stricter Visa requirements to prevent their tourists and mainland Chinese from traveling to Macau to gamble. As a result, gaming revenues dropped by 10% in the third quarter compared to the previous quarter in 2008. And as factories in southern China collapse and thousands of jobs are lost in the region, even fewer mainlanders will be heading for Macau’s tables. What this means for China as a whole is a decrease in gaming revenues by possibly 4%.

While some think that this is the beginning of China’s demise, others are hopeful that it will give the industry breathing room and time to rethink policies and strategies. The gambling industry expansion in China forced many small and medium sized business to either close or reduce their work force even more. Ho used this opportunity wisely and, in his annual policy address on November 11th, announced a $1.3 billion stimulus package of infrastructure improvements, income tax cuts, and cash handouts of roughly $640 per citizen.