{"id":8396,"date":"2014-12-09T01:35:05","date_gmt":"2014-12-09T01:35:05","guid":{"rendered":"https:\/\/forumarchives.tmsites.net\/index.php\/2014\/12\/09\/chinas-corruption-crackdown-takes-toll-on-macaus-u-s-owned-casinos\/"},"modified":"2014-12-09T01:35:05","modified_gmt":"2014-12-09T01:35:05","slug":"chinas-corruption-crackdown-takes-toll-on-macaus-u-s-owned-casinos","status":"publish","type":"post","link":"https:\/\/forumarchives.tmsites.net\/index.php\/2014\/12\/09\/chinas-corruption-crackdown-takes-toll-on-macaus-u-s-owned-casinos\/","title":{"rendered":"China\u2019s corruption crackdown takes toll on Macau\u2019s U.S.-owned casinos."},"content":{"rendered":"


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\n\tA cannon from the old Portuguese fort points toward the Grand Lisboa hotel and casino, in Macau, China on Nov. 23, 2014. Macau, the only region in China where casino gambling is allowed, has seen its revenues drop the last six months because of Beijing’s crackdown on corruption involving government officials.<\/span><\/p>\n

\tMACAU, CHINA \u2014 On a recent night, the Venetian Macau, the world\u2019s largest casino, looked like it was hitting the jackpot. Thousands of people were testing their luck. Thousands more were shopping and watching tourists ride gondolas inside the hotel resort, just a short ferry ride from Hong Kong.<\/p>\n

\tBut looks can be deceiving. The Venetian and other mega-casinos in Macau, a special administrative region of China, are being hammered. For more than a decade, they\u2019ve depended on middleman \u201cjunket operators\u201d to lure high rollers from mainland China to this former Portuguese colony.<\/p>\n

\tYet as is now clear, many of those elite gamblers were not independently wealthy. They were corrupt government officials, trying to beat the odds with pilfered public money. And since President Xi Jinping stepped up his campaign against official corruption this year \u2013 former security chief Zhou Yongkang was expelled from the Communist Party on Friday in the latest action \u2013 gambling revenues have dropped markedly in Macau for six months in a row.<\/p>\n

\tThe downturn has cut into the profits of some of the world\u2019s biggest casino kingpins, including Sheldon Adelson, the CEO of the Las Vegas Sands Corp., which owns the Venetian Macau, and Steve Wynn, another Las Vegas billionaire with major casino investments in Macau.<\/p>\n

\t\u201cThis is not just a \u2018correction\u2019 in the market. It is much more than that,\u201d said Ben Lee, the managing partner at IGamiX, a Hong Kong gaming management and consulting company. \u201cIt is a real downward trend, and it is being driven by the anti-corruption campaign in China.\u201d<\/p>\n

\tThe decline has stunned even the most bullish promoters of Macau. Gross gambling revenue fell 23.2 percent year over year in October, the largest year-to-year decline since Macau started releasing figures in 2005. November\u2019s numbers, announced this week, showed a 19.6 percent decline in revenues from the same month last year to 24 billion Macau patacas, or roughly $3 billion U.S.<\/p>\n

\tFor the last eight months, such figures have helped knock down the stock prices of the world\u2019s largest international casino companies. From early March to Dec. 1, Las Vegas Sands stock has lost 30 percent of its value, Wynn, 28.4 percent, and MGM Resorts International, 21.5 percent.<\/p>\n

\tBeyond the impact on Wall Street, the revenue declines have revealed the quantity of pilfered Chinese-government money that moves through Macau, the world\u2019s gambling capital. For comparison, Macau\u2019s gambling revenues totaled about $45 billion last year; Las Vegas\u2019 were about $6.2 billion.<\/p>\n

\t\u201cThe actual revenues (in Macau) are probably six times that, because of the side betting that occurs in the casinos,\u201d said Steve Vickers, a Hong Kong security consultant, while speaking in April to a conference at University of California, Berkeley. A former commander in the Royal Hong Kong Police force, Vickers added: \u201cThe scale of this in my career I\u2019ve never seen before.\u201d<\/p>\n

\tCasinos took off in Macau in the 1950s, after the Portuguese granted Stanley Ho Hung Sun control of the territory\u2019s gambling monopoly. A flamboyant entrepreneur who, at age 93, has 17 children from four wives, Ho spearheaded the \u201cVIP junkets\u201d that have become Macau\u2019s business model.<\/p>\n

\tWorking through word-of-mouth and personal connections, junket operators provide mainland Chinese gamblers with ample credit, allowing them to avoid restrictions on currency leaving the country. Once in Macau, the casinos provide the VIPs with all kinds of perks, including private gambling parlors, lavish meals and other special \u201cservices,\u201d namely prostitutes.<\/p>\n

\tThe junket industry mushroomed after 2002, when Beijing allowed international casino companies to invest in Macau, three years after China had taken control of the territory. There are now more than 30 casinos in Macau, the only region of China where Las Vegas-style gambling is allowed, and they\u2019re major employers for the region\u2019s 624,000 people.<\/p>\n

\tUntil the recent corruption crackdown, government officials and their families were the bedrock of the VIP business, and they didn\u2019t come here just to gamble. Macau has long been a place where the Chinese elite could launder and transfer money overseas. Last year, a U.S. congressional report said $202 billion was laundered each year through Macau, based on estimates from a Macau academic.<\/p>\n

\tWhile Macau officials have disputed those figures, methods of moving Chinese money through Macau are well known. A common one is for Chinese citizens to use their government-backed UnionPay debit cards to buy gold or diamonds in Macau jewelry stores. They then sell it back on the spot for hard currency, usually Hong Kong dollars, that can be easily transferred overseas.<\/p>\n

\tAccording to a Reuters report this year, junket operators own some of Macau\u2019s casino jewelry shops, giving them a cut of the action on transaction commissions.<\/p>\n

\tIn response to reports of money laundering, Macau has instituted several new restrictions this year, which may be contributing to the decline in Chinese high rollers. Bank transfer regulations are now tighter between Macau and mainland China, and junket operators are required to provide documentation on their clients and the sources of their cash.<\/p>\n

\tMcClatchy was unable to obtain comment from Sands, the first U.S. company to open a Macau casino and now the world\u2019s largest gaming corporation. But at a trade show in Las Vegas in October, the 81-year-old Adelson said he wasn\u2019t worried about Macau\u2019s future fortunes.<\/p>\n

\t\u201cEverything is cyclical,\u201d said Adelson, a major campaign contributor to conservative U.S. politicians. \u201cIt\u2019s like gambling. Sometimes you\u2019re up, sometimes you\u2019re down.\u201d<\/p>\n

\tTo make up for the loss in high rollers, some Macau resorts are diversifying, trying to attract non-Chinese tourists and those who want to do more than gamble.<\/p>\n

\tOn Nov. 22, Macau\u2019s biggest event was Philippines boxer Manny Pacquiao successfully defending his World Boxing Organization welterweight title against New York native Chris Algieri. The fight at the Venetian drew thousands of Filipinos to Macau, and many spent the next day visiting the city\u2019s historic churches and trying their luck at gaming tables.<\/p>\n

\tAlthough similar in glitz and opulence, the atmosphere in a Macau casino is far different from that in Las Vegas. Chinese gamblers generally don\u2019t drink while playing the tables, and their preferred card game is baccarat instead of poker.<\/p>\n

\tAlthough they have a reputation for being somber gamblers, several Chinese could be seen tossing down their cards after being dealt losing hands.<\/p>\n

\tSeparate from the main casino floors are private VIP rooms. A McClatchy reporter took a peek into several on a recent weekend night, including those at the MGM, the Lisboa and the Grand Lisboa. All appeared to be largely empty, with service employees looking bored.<\/p>\n

\tSo far the drop in the VIP business hasn\u2019t hammered the overall Macau economy, although the region\u2019s gross domestic product dipped 2.3 percent in the third quarter, the first quarterly retraction in five year. Hotel occupancy rates have remained high, with rooms now more affordable for regular tourists, said Glenn McCartney, a tourism expert at the University of Macau.<\/p>\n

\tBut McCartney said the region had been slow to develop convention business and other alternatives to VIP gambling. He said the casino industry and investors would need to adjust to reduced returns after the recent boom years.<\/p>\n

\t\u201cThere will be growth, but it will be much more realistic growth,\u201d said McCartney. \u201cIt won\u2019t be a 30 or 40 percent return for investors, but something more sustainable.\u201d<\/p>\n

\tFor those investors with large bets on casino companies, a big question is whether China\u2019s anti-corruption campaign is a temporary blow or the new reality. Even Las Vegas casinos have been affected, with the Nevada gaming commission reporting this month that baccarat revenues have dropped, most likely from a decline in high-end Chinese gamblers.<\/p>\n

\tHarry C. Curtis, a New York-based gaming stock analyst with Nomura, a Japanese holding company, predicts that Macau\u2019s casino revenues will recover.<\/p>\n

\tCurtis said the government\u2019s anti-corruption campaign had spooked the nouveau riche in China, not just government officials. \u201cThey don\u2019t want to appear frivolous and spending money,\u201d said Curtis, who recently visited Macau on a research trip. He thinks the high-end segment of the business will rebound in time.<\/p>\n

\tOthers are less bullish. James Chanos, who runs the Kynikos Associates hedge fund in New York, has been advising investors to stay away from Macau casinos, citing money laundering concerns. Chanos made his name by urging investors to \u201cnot go long\u201d on investments in Enron before its infamous crash.<\/p>\n

\tIn April, Chanos caused a stir at a University of California-Berkeley conference when he said, \u201cAlthough I was long (on) the U.S. casino operators, like Mr. Adelson and Mr. Wynn, I began to really get concerned about the risk I was taking with clients\u2019 money under the Foreign Corrupt Practices Act.\u201d<\/p>\n

\tAfter those comments were widely reported, Wynn sued Chanos in San Francisco federal court in September. The lawsuit accuses Chanos of slander, although it doesn\u2019t specify which comments provoked the legal action.<\/p>\n

\tPeople who track the gambling industry\u2019s fortunes will be watching a trip later this month by Xi, the Chinese president, to Macau. Over the last year, Xi\u2019s anti-corruption campaign has surprised even the deepest skeptics, ensnaring hundreds of officials, including top leaders in the party and the People\u2019s Liberation Army.<\/p>\n

\tIn his first visit here since heading the Communist Party, Xi will be attending ceremonies for the 15th anniversary of the Macau Special Administrative Region. Curtis hopes the president will make clear that China supports Macau\u2019s gambling and tourism, even if Xi doesn\u2019t want it to be a destination for misusing government money.<\/p>\n

\tWhile Xi may do so, his trip will probably hurt, rather than help, Macau\u2019s financial troubles, at least in the short term. With the president in town, few VIPs from the mainland will want to go near Macau\u2019s casinos. Several Wall Street analysts expect December to be another disappointing month.<\/p>\n

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