Macao Nightmare: What We Know About the Future of Gambling There
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Gambling stocks with exposure to Macao's once-thriving market are down double digits over the last five trading days. Melco Resorts, Las Vegas Sands and Wynn Resort have been the hardest hit because they generated most of their revenue in Macau before the pandemic began. MGM Reserves has two resorts in the region as well, but most properties are in U.S., so it's been spared the worst of the market crash. Caesars Entertainment is trading higher because it doesn't have a presence in Macaon.
The government is considering new restrictions on gambling companies in Macao. The government wants to see more mass-market tables and non-gambling revenue. It's possible that new rules will have little impact on Macau operations. However, it could be bad for a region that was once a cash machine. The best-case scenario for gambling stocks is that the status quo holds. i.e. they will become great growth stocks coming out of the pandemic.
There are three gambling concessions in Macao. The term of concessions was 20 years for initial concessions with an expectation for five-year renewals. There are local ownership levels and level of supervision by the government. Companies can pay dividends to U.S. owners of Macau subsidiaries.
There is a Chinese crackdown on businesses and consumers in Macao. The government has put rules on activities it doesn't approve of or sees as vices. Macau is one of the "One Country, Two Systems" regions, like its neighbor Hong Kong. There is the risk that China will exert more control over Hong Hong and restrict businesses there.
I own shares of Wynn Resorts and MGM Resort in Macao. I think there's a significant risk to the casino business in the country. If the regulations the government puts in place are light, we could see a rapid recovery in casino stocks.
