Gambling Stocks Tumble as Macau Flags More Government Scrutiny
(Bloomberg) -- Casino stocks slid in the U.S. after Macau laid plans to step up scrutiny of operators and increase local ownership, signaling tighter control over the world’s largest gambling hub amid Beijing’s efforts to clamp down on money laundering and currency outflows.
The government aims to increase “direct supervising” of gambling companies to better monitor their operations, Macau Secretary for Economy and Finance Lei Wai Nong told reporters late Tuesday, without elaborating on how the proposed changes would be enacted. Officials suggested raising the shareholdings of local directors in gambling companies from the currently required minimum of 10%, according to a public consultation paper on the proposal.
Authorities also proposed increasing scrutiny on so-called junkets that service high-rollers and extend credit to them, including raising entry barriers for junket operators as well as allowing background checks. The proposed changes could be made in a long-gestating revision of the casino law, which will be passed ahead of Macau’s issuance of new gambling licenses to operators. Current gambling licenses expire in June 2022.
The specter of increased scrutiny on a sector that’s been on Beijing’s radar for some time triggered a selloff. Las Vegas Sands Corp. led the slump among gambling companies operating in Macau, sinking 9.8% to $38.71 as of the close in New York, the most intraday since March 2020. Wynn Resorts Ltd. fell 11%, Melco Resorts & Entertainment Ltd. declined 5.9% and MGM Resorts International slipped 3.9%.
China has been clamping down on activity by VIP punters in Macau for several years now over concerns that the high-stakes betting there -- which takes place in convertible Hong Kong dollars - can sometimes be an illicit channel for currency outflows and money laundering. Beijing has also cracked down on organized gambling trips to Macau, a Chinese territory, and other overseas destinations by junkets, amid a wider effort to discourage casino gaming, which is banned on the mainland.
“The development of the gaming industry has evidently driven local economic and social development, but has also created some social problems,” said Lei.
The government’s proposal also includes reviewing the number of gambling licenses and their terms. The current licenses came with a 20-year effective period. Officials will consult the industry and public for 45 days before reaching a final bill to be tabled to the local legislature.
Macau’s economy is almost entirely reliant on casinos and it’s been languishing during the pandemic as border curbs prevent Chinese punters -- its lifeblood -- from entering the city. Gambling revenue for the month of August was 82% lower than the same month in 2019.
The government has been seeking ways to weed out potential illegal activities, including the possibility of introducing a digital currency to better combat money laundering and tax evasion.
While China has been tightening its scrutiny over Macau’s gambling sector for years, Tuesday’s move comes as Beijing undertakes a widespread crackdown on business and society. Initially focused on the growing influence of China’s tech giants, the campaign has taken on a moralistic tone, targeting children’s video-game use to after-school tutoring. The Communist Party has long had a dim view of gambling, citing its impact on families and linking it to social disharmony.
Nonetheless, Chinese are avid gamblers, with the increased oversight of Macau pushing them to less regulated markets like the Philippines and Cambodia, where casinos and online gaming operations were flourishing before the pandemic halted travel.
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