The Casinos of Macau

What happens in Vegas is leaving Vegas

 Macau's Chinese name, 澳門, means "Inlet Gates."

Macau's Chinese name, 澳門, means "Inlet Gates."

If you were to take a guess as to the world’s gambling capital, your answer would likely be Las Vegas. Renowned not only for its glitz, glamour, and 3 a.m. Elvis-themed weddings, Sin City has a well-justified reputation for sucking in billions in gambling revenue throughout its lucrative history. But in recent years, the jewel of Nevada has been dwarfed by a much smaller, somewhat surprising rival; at one tenth the size of Las Vegas, with casinos which now rake in almost six times as much revenue as their Western counterparts, this cash machine is Macau.

The name Macau usually elicits mild recognition: it brings to mind a bird, or for the more globally-savvy, some sort of Chinese city. Macau is neither of these things.

Located across from Hong Kong on the Pearl River Delta, the newly-dubbed "Monte Carlo of the Orient" takes up 30 square kilometres, approximately twice the area of the UBC Endowment Lands. The region was a Portuguese colony for more than 300 years before being handed over to the Chinese government as a special administrative region in 1999. This differentiated designation belongs to only one other place, Hong Kong, and allows Macau a significant degree of autonomy in all matters, excepting foreign and defense policies. Since the handover, Macau’s economy has grown in leaps and bounds, hitting a record $96,074 GDP per capita in 2014.

Gambling specifically has become an integral part of the economy, making up over 50 percent of GDP. In 2002, the Chinese government broke a 40-year monopoly run by the Sociedade de Turismo e Diversões de Macau (STDM) and granted concessions to several big-name international casinos, including MGM Mirage, Las Vegas Sands, and Wynn Resorts. The policy change contributed to Macau’s rise as an international star, and its subsequent surpassing of Las Vegas in 2007 as the world’s highest-volume gambling capital.

Most of this business comes from millions of Chinese tourists who flock to the popular tourist destination each year. Macau is the only place in China where gambling is legalized, which means it has benefitted hugely from the recent rise of Chinese billionaires looking to throw money around.

Unfortunately, these massive revenues make Macau subject to serious scrutiny by the Chinese government. The region’s free-and-easy financial strictures are suspected conduits for money laundering and tax evasion by government officials, two illicit activities that have been subject to recent crackdowns. In 2014, President Xi Jinping visited Macau on his anti-corruption campaign, a move that scared away high rollers and, according to Bloomberg Business, resulted in a $75 billion loss in casino operators’ market value that year— a sum larger than Luxembourg’s entire economy. The visit had long-term results too; GDP dropped by 20 percent between 2014 and 2015, resulting in decreased stock prices for major casino operators and a general downturn in the gambling industry.

However, things began to pick up again in late 2016 as GDP growth became positive for the first time since the slump began. The first quarter of 2017 has seen a 7 percent growth rate in GDP and a recovery across the entertainment sectors of the economy. This Wednesday, Macau’s Gaming Coordination and Inspection Bureau reported $2.9 billion in gambling revenues for the month of February, a record high since the start of the two-year downturn. Renewed confidence has sparked a rise in stock prices for Las Vegas Sands, Wynn Resorts, and other major casino operators.

 Paris 2.0

Paris 2.0

But it may be too early to celebrate. Although Macau seems to be on the road to recovery, it could instead be headed for long-term difficulties. Part of President Jinping’s 2014 speech was directed to the region as whole, and amounted to a warning that Macau should diversify away from gambling revenues. Direct taxes on these transactions alone constitute 80 percent of government revenue. Macau’s two-year economic downturn not only speaks to the power of government policy on its tourism sector, but also to the sector’s serious dependence on casino customers. If gambling drops off, tourism drops off, and that presages economic hardship for a region heavily reliant on visitor spending.

With a global decrease in casino business, this seems more likely than ever. American casinos are having a hard time attracting younger customers to replace older ones. Although Macau has been relatively untouched by this issue, it could become a problem as its customers age out and younger generations remain uninterested. Baccarat comprises the majority of Macau casino revenues, but it’s a game that Chinese young adults rarely play. A recent Economist article explores this global problem in detail and mentions one potential solution to the declining customer base: perhaps when millennials get jobs and have more money in their pockets, they’ll start spending like their parents do at slot machines and card tables. But betting on the future preferences of a highly finicky generation of youngsters seems risky, even for casino owners.

Instead of hoping for a new influx of young high rollers, Macau may do better by taking its president’s advice. Non-gambling tourist attractions could draw in the generation that believes in “finding yourself” through travel. With a fascinating history that mixes European and Chinese culture, numerous ancient temples and cathedrals, a heap of glittery and tacky attractions, and restaurants that experiment with one of the world’s most renowned cuisines, Macau has potential to become the next top tourist destination. Several steps have recently been taken in this direction by foreign investors, including the construction of Las Vegas Sands’ 3000-room Parisian Macao and Wynn Resorts’ 1700-room Wynn Palace. Together, the projects cost an estimated $6.9 billion and aim to attract non-gamblers with their glamorous musical fountains, hot air balloon rides, spas, gondolas, and in the case of the Parisian, a 1.9 square kilometre children’s “play kingdom” and a half-sized Eiffel Tower replica. The hotels will also help increase the supply of accommodation, thus reducing sky-high hotel prices which have deterred many budget travellers. It seems the chips are down; all that’s left to do is to wait and see if this multibillion dollar gamble pays off.

All figures are in current US dollars, unless otherwise specified.