Wynn Resorts and the Macau problem

wynnWynn Resorts is one of the biggest players in the casino business, however their operations in Macau are starting to cause them a bit of a headache.

The main issue is profits – they are falling and they are falling dramatically, with Wynn’s Macau operations reporting a decline of almost 40% in the current reporting period.

What is causing the decline in Macau’s casinos?

The biggest market for the gambling destination of Macau has been inbound gambling tourism from mainland China. However there has recently been a crackdown by the Chinese government on luxury spending (possibly linked to the recent economic turmoil that China has seen). Communist Party officials have always been banned from gambling, but the recent crackdown seems to be effectively closing the loopholes that enabled high volumes of spending on luxury items.

The missing VIPs

One of the biggest revenue holes that Wynn Resorts are reporting relates to its VIP gamblers. Wynn’s Macau casino is reporting a fall in its VIP table games turnover of over 50%. Linked to the fall in VIP gamblers is the disruption that has been seen in the junket finance market. Junkets are local Macau providers of finance who could provide funding to VIP gamblers from mainland China – essential as there is a limit on how much case people can travel with. The junket finance market has recently been rocked by a number of high profile thefts and dramatically reduced profit. While the junkets are independent of the casino operators, it is an interdependent relationship that seems essential to the health of the island’s gambling sector.

What next for Wynn Resorts in Macau?

In many ways Wynn Resorts have bet big on Macau and they almost have no option but to ride out the current turmoil to see where their bet takes them. As well as their current property in Macau, they are about to open a second casino resort (costing USD$4.1bn – increasing their exposure to a casino destination that seems to have decidedly come off the boil. Further complicating matters for Wynn is new government regulation that is capping the number of gambling tables that they can instal in their new property – an attempt by the Macau government to diversify its economy away from gambling and into entertainment, a move that Wynn Resorts boss Steve Wynn has branded as ludicrous.

Despite the recent cooling of profitability of casinos in Macau, it still remains a huge gambling destination – with a turnover approximately seven times bigger than Las Vegas in the United States.

Will China come to the rescue?

Perhaps the only bright spot on the horizon is that there is speculation that the mainland Chinese government is planning to introduce supportive policies to help support the struggling casino sector in Macau. However there is no clear details on what these supportive policies might entail, so the future of Macau’s casinos and the future of Wynn Resorts seems to still be a little bit of a gamble.

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