The gambling sector Macau Special Administrative Region took a brutal hit to its value last week over licensing reforms. Now that the initial panic has receded, Macanese casino stocks are bouncing back.
The initial concerns were over a lack of transparency in the way that the licensing renewals would work. The six "concessions" — the term for Macanese casino licenses — hit the auction block when they are due to renew. The current 20-year concessions will expire in June 2022, and Macau is prepping for the gold rush.
There were several aspects of the renewal process that caused concern for Macau's poker rooms and blackjack halls.
These concerns caused a collective drop of 23% according to Bloomberg's index of Macau's gambling sector. The U.S.-based firms took the hardest hits. Sands China got the worst of it, losing 33% in value. Sands Corp has been focusing most of its market presence on Macau after divesting its Vegas assets.
Firstly, hints from the government suggested that the 20-year span would be significantly reduced. Since this story first broke, SJM's analysts have placed their mean guess at 10 years with significant error bars.
Secondly, there would be a 45-day overhaul of regulations that might end up being tougher — to placate Beijing — and require non-gambling related investment in Macau — to placate the population.
A new government post may be created for each concession. This post would provide greater oversight to the casino operators. Even more concerning was the possibility that the government would have to approve all payments to shareholders.
Recovering fast
These concerns fit in with wider changes to the economic climate in Macau. Junket crackdowns, the digital renminbi, and the pandemic have all shifted Macau's business world sometimes for the better, but not always.
"The casino issues are a continuation of what’s been a pretty big crackdown," Jason Ader told Bloomberg. Ader used to work on the Las Vegas Sands Corp board. "There’s a debate over whether China is even investable right now. You never like to see increased regulation, increased taxes, restrained movement."
Macau isn't just the Vegas of the East, it is one of the tentpole economies for the casino industry as a whole.
There are currently six firms that hold concessions. These six firms are: SJM, Melco, Galaxy Entertainment, Wynn Macau, Sands China, and MGM China.
These are some of the biggest names in gambling. Wynn and MGM's properties dominate the Vegas landscape. Sands recently set about divesting its U.S. holdings in order to focus on the Far East. SJM, Melco, and Galaxy are Asia-based companies with integrated resorts from Cyprus to Manila.
When Macau rubs out 23% ($18.4 billion) of its casino industry's value overnight, there are a lot of nervous-looking suits in Vegas.
Those suits can probably switch back from Ativan to cocaine as the news on the revamped concessions isn't looking nearly so bleak as was first expected. The index as a whole has risen 4.3% from last week's lowest point, and shows signs of continued growth.
MGM China is currently recovering fastest with a 7.3% rise.
This is to be expected.
The Macanese authorities know better than to mess with the hands that feed them. It may be hard work balancing the interests of the SAR, Beijing, and the industry bods, but that is the Governo's job.
Macau's COVID sucesses
Macau has managed to keep a firm lid on the pandemic while still managing an impressive economic recovery. The SAR has recorded 63 cases and zero deaths.
When four visitors tested positive for the Delta variant, Macanese officials had all 700,000 people in the SAR tested in a matter of days. Macau maintains strict border controls with a limited white list of countries and areas from which visitors can arrive. Plus, all these visitors must show recent negative COVID tests.
While this puts a limit on the number of visitors, it has allowed Macau to keep the casinos open.
It will be a slow return to normal for Macau after COVID. But the rules on concessions are likely to have much further reaching consequences than even the pandemic.
Featured image source: Flickr by Global Reactions used under Creative Commons license.
