Chips are Down in Macau for America’s Casino Kings

Nisha Gopalan
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Chips are Down in Macau for America’s Casino Kings

(Bloomberg Opinion) -- If any worsening of the trade war leads China to call for a boycott of U.S. companies, America’s casino kings will be sweating.

Three American companies — Las Vegas Sands Corp., founded by Republican Party donor Sheldon Adelson; Wynn Resorts Ltd.; and, to a lesser extent, MGM Resorts International — rely on their positions in the casino hub of Macau to thrive. With their two-decade-old licenses expiring in the next four years, they need Beijing and Washington to stay on good terms.

Combined, the three account for half the gaming revenue in Macau, according to Bloomberg Intelligence analyst Margaret Huang. Given that Macau is the only part of China where gambling is allowed, the city’s fortunes could collapse if Beijing were to limit the flow of mainlanders, who comprise 90 percent of the former Portuguese enclave’s gamblers. That happened when China cracked down on corruption and extravagance four years ago. Alternatively, Beijing could bend the ear of Macau to increase the presence of Chinese operators — so that when the territory’s six licenses come up for approval, it would allow a seventh player, insist on local partners, or even scrap the Americans’ licenses.

That risks a shift of power in the territory back toward the family of Stanley Ho, for decades Macau’s gambling kingpin. Three of the territory’s licenses are controlled at least in part by his family: Ho’s original company SJM Holdings Ltd.; Melco Resorts & Entertainment Ltd., with his son Lawrence Ho as chairman and chief executive officer; and MGM China Holdings Ltd., whose co-chairman and second-largest shareholder is Stanley’s daughter Pansy Ho. A fourth, Galaxy Entertainment Group Ltd., is run by Hong Kong’s third-richest man, Liu Che-Woo.

Losing a hold over Macau is no small thing. Macau’s gross gaming revenue at $33 billion last year is three times what it was in 2007 and five times that of the Las Vegas Strip. Wynn, whose founder Steve Wynn stepped down as chairman earlier this year after a sexual harassment scandal, makes as much as 70 percent of its Ebitda from Macau. Sands make about half and MGM around 17 percent from the semi-autonomous Chinese city.

Even so, the risk of the Americans becoming smaller players is mitigated by the fact that the gambling hub’s future isn’t so clear. While November gross gaming revenue rose an analyst estimate-beating 8.5 percent, and the world’s longest sea bridge linking Macau with Hong Kong and the mainland city of Zhuhai is now set to bring more punters, China’s high-rollers will inevitably hit the tables less as the country’s economy slows.

Threats to Macau’s preeminence are also building. The Chinese province of Hainan, which got the go-ahead to set up an e-lottery and horse racing in April, is unlikely to be allowed full-fledged gambling. But Japan is a different story. The country legalized casino gambling in July and is set to pick three cities to host casinos that could open by 2025. Sands, MGM, and U.S.-listed Melco are speculated to be front-runners. If the climate in Macau darkens for U.S. investors, they might be glad of that refuge.

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Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

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