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Published: 15:21, July 14, 2022 | Updated: 13:26, July 15, 2022
Macao casinos take a hit holding out for new licenses
By Reuters
Published:15:21, July 14, 2022 Updated:13:26, July 15, 2022 By Reuters

In this March 5, 2019 photo, visitors take photos outside the Wynn casino resort with a view of the Grand Lisboa (top C) casino resort building in Macao. (ANTHONY WALLACE / AFP)

HONG KONG – In the glitzy dealing rooms of Macao's silenced casinos, the house is down billions of dollars, but can't afford to fold its hand in the world's biggest gambling game.

A COVID-19 outbreak has meant full-scale closure for Macao's six casinos. Even prior to their closure on July 11, analysts estimated the casinos were burning through some $600 million each month because of COVID restrictions.

Gambling centers around the world like Las Vegas, a sixth of Macao's size in revenue, are cranking up business as years of COVID curbs fade. But Sands China, Wynn Macau, MGM China, Galaxy Entertainment, SJM Holdings and Melco Resorts face zero revenue for the near future in locked-down Macao and their operators' contracts expire at the end of this year.

ALSO READ: Macao to use more casino hotels as COVID medical facilities

They (casinos) have to play the long game. It's just a matter of recovery when it starts again.

Alidad Tash, managing director of gaming consultancy 2NT8.

Having invested billion in Macao over the last two decades, they are soaking up losses as they prepare to bid for new licenses by next month in a business that generated $36 billion in revenue in 2019, the last year before COVID curbs slammed the sector.

"They (casinos) have to play the long game. It's just a matter of recovery when it starts again," said Alidad Tash, managing director of gaming consultancy 2NT8.

"The sad part is that it's going to be years until business comes back to where it used to be."

Desperate to get new licences – and soldier on financially in the meantime – the casinos are in some cases seeking loans from US parent companies. They are also trying to showcase their role in society in Macao, where the industry accounts for more than 80 percent government tax income, by not firing tens of thousands of staff with no gamblers to deal cards to or otherwise serve.

READ MORE: Macao shuts popular shopping mall to contain COVID outbreak

Not legally required to pay staff during a mandated closure, casinos have nevertheless continued to do so. Operators have also tried to burnish their social responsibility credentials by supporting local businesses and offering use of their hotel rooms for quarantine.

Zero revenue

The closely watched casino licence rebidding process comes amid Macao's worst coronavirus outbreak, with the government shutting down casinos for the first time on Monday in more than two years and locking down the city.

Casinos have had close to zero revenue since mid-June when the latest outbreak began and are expected to have little to no income in coming months, analysts say. The sector had already been reeling since the start of the pandemic with revenues tumbling 70 percent in 2021 compared with 2019 to $10.8 billion.

Macao casino shares have also sunk dramatically – between 21 percent and 76 percent – since 2020.

ALSO READ: Macao seals off landmark Lisboa hotel after COVID cases found

Excluding money set aside for rebidding – $600 million – SJM has about one month left in cash reserves if casinos remain closed, according to DS Kim, analyst at JP Morgan in Hong Kong, who expects the company to tap its parent STDM for a HK$5 billion ($637 million) loan.

Sands China on Monday said it secured a $1 billion loan from parent Las Vegas Sands to support its working capital. That would give Sands enough liquidity to keep going for 15 months, said Kim.

Similarly Wynn in June announced a $500 million loan from its Las Vegas parent.

High stakes

The Macao government has rewritten the gaming law to strictly control casino operators, including the right to terminate a contract for reasons including public interest. It also raised the taxation rate payable to 40 percent from 39 percent, and halved the duration of casino licences to 10 from 20 years.

Since 2002, the casinos have paid more than $160 billion in taxes to the Macao government, helping make the densely packed city of more than 600,000 people, one of the richest in the world.

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