Chinese Crackdown to blame for Macau Casinos’ Revenue Plunge

Macau casinos saw the biggest revenue plunge in their history as October gaming revenue dropped by 23.2% – beating the previous record drop of 17.1%, which happened in June of 2009. Macau’s $3.5 billion take in October is still far more than any other casino hub in the world, but the decrease brings plenty of concern for the special administrative area of China.

The chief problem behind the 23.2% revenue decrease seems to be China’s crackdown on corruption around Macau. Furthermore, this is scarring off high rollers who’ve helped drive casino revenue to record heights in previous years. “June, July, August, I think the VIP segment was suffering roughly about 20 percent decline per month,” said Hoffman Ma, the deputy CEO of Ponte 16 Resort. Ma continued telling that high rollers are spending less to avoid getting caught up in the Chinese government’s crackdown on corruption.

Beijing wants to cut down on the money laundering that’s occurring from mainland China to Macau. Because the former Portuguese colony is the only place where people can gamble in China, Macau has become the perfect place for criminals to escape the government’s strict control on financial transactions.

To stop the flow of illegal money, the Chinese government slashed the amount that people can spend using UnionPay from $820,000 per day down to $164,000. This measure was enacted after the government found that $22 billion in UnionPay transactions were made in Macau last year – despite the area being home to just 600,000 residents.

What typically happens is that people use their UnionPay card at shops and casinos around Macau. Then corrupt store owners will give them cash back, minus a small commission, without even exchanging any items. Ben Lee, managing partner of a gaming management and consulting company, describes the process as follows:

The pretext they have is the client buys a watch, they put it through as a watch sale and then the client sells it back to the retailer. The watch does not even get moved out from under the counter. It does not touch the customer’s hand.

With all of the government restrictions going on in Macau, high rollers aren’t able to move as much money in and out of mainland China. And so many of them are simply going to nearby casino destinations such as Singapore and Australia. So as long as the corruption crackdown continues, it looks like Macau casino revenue will suffer.