A recent report from Forbes has pointed out that gambling revenues in Macau during May 2015 dropped approximately 37% on year, with major casino hotels such as Wynn and Las Vegas Sands both reporting declines. The report in addition to various other market observers of gambling in the area attribute the decline to a crackdown in Beijing’s policy against corruption, stemming out officials who use government funding to gamble unchecked in China’s autonomous gambling hub. A slowdown in the China economy in addition to smoking bans is also considered attributing factors.
Smoking is one aspect but is definitely not the entire picture. While Chinese are notoriously known for smoking a lot, and most public areas in the nation allow smoking to resemble that of the US back in the 1930s, smoking prohibitions in land-based casinos only takes away a small freedom that many officials and high rollers are used to obtaining. Chinese traditionally conduct many business transactions over a relaxed setting that involves smoking and drinking, but lack of these certainly do not deteriorate them from following through, nor do they influence a gambler’s overall decision to go to Macau versus another country where smoking in public places found in Canada, the US and Australia are also forbidden.
The real issue comes down to corruption. Typically, Chinese officials are drawn to casino hubs where they are allocated casino money either from business related affiliates or from the casino itself in exchange for other favors known as guanxi in Chinese Mandarin. An official may be approached by a certain business to provide some sort of favor in exchange for money or service. Since many of these officials want to be under the radar they often take kickbacks in the form of entertainment or through other means that cannot be directly traced to their bank accounts. This includes receiving “casino funding” that could be well into the millions of dollars and is readily available for the official at a casino in which he can use to play and claim real money that is later deposited into his account.
The other possibility, and is probably the more likely, is that money is directly embezzled from state funds and used for certain “development projects” in which the officials can write off expenses. Fake receipts can be easily produced while the money is in fact spent on gambling, food and almost always hookers – a typical combination for Chinese officials that Chinese media constantly discovers either under cover or through some sort of tip off.
Both of these methods are of course highly illegal and because the government under Xi Jinping has started to further crack down on preventing this problem from exacerbating, there are now specialized units in the government that monitor officials and their behavior. This means that all funding used is becoming more and more transparent, causing the ability for officials to spend the money on dining, women and gambling to decrease.
The huge decline in Macau’s gambling scene is largely linked to this oversight, which translates into far less high rollers and an overall population that is willing to throw down huge amounts of money on gambling. Revenues are still very high at Macau casinos so we don’t feel to bad for them, but the decline is an interesting phenomenon that is expected to continue throughout 2015 and years to come.
The gambling community in China believes however that gambling transactions will be hard to trace internationally and that funding can be stored away in safe accounts free from Chinese authorities permission. This includes Canada and Australia, both of which have stringent banking policies and do not allow for international monitoring. As a result, both nations are seeing increases in Chinese tourism including at casinos despite restrictions on smoking. In a way, Beijing’s restrictions have prompted the downfall at Macau’s casinos but has yet risen opportunities for the nation to improve itself in another manner.
The trend has also given opportunities to casinos in Canada, which continues to see steady revenues in land-based gambling, according to the Canadian Gaming Association. If prepared with Chinese-speaking faculty and services, local casinos can definitely benefit from this tourism in addition to the potential high rollers coming through the area that may include officials looking to take resolve their casino itch that is no longer able to be scratched in China.
Overall, we expect to see Canada maintain steady revenues in land-based gambling from the strengthening Chinese policies while Macau will see declines in gambling revenues but nevertheless still harness stability due to the amount of visitors it has from Taiwan, Japan, Korea and Singapore. Macau is still Asia’s Las Vegas and there is plenty of money in that neck of the woods that will continue to drive casino growth, albeit slow than before.