The latest restrictions in Macau were supposed to be in place for one week, but were later extended for another week, until Friday.
His team predicts gross gaming revenue will drop by 98% this month compared to July 2019 – before the pandemic hit – assuming casinos reopen next week.
According to an analysis by Goldman Sachs, Macau’s broader gaming industry would be burning between $113 million and $260 million a month this spring.
“It’s very quiet here,” said Ben Lee, managing partner of IGamiX, a Macau-based consultancy, adding that local small businesses have effectively become a “death knell” due to the new lockdown.
The economic lifeblood of the city
Macau, a tiny territory of about 600,000 people, is the only place in China where gambling is legal.
There have been calls to change this model. In January, the International Monetary Fund warned of Macau’s “overreliance on the gaming sector,” which it said has come under scrutiny during the pandemic.
“The main driver of growth over the past two decades…has all but come to a halt as tourism has dried up,” it notes, pointing to the urgent “need to diversify the economy.”
This sector is so important that sometimes it even seemed to be immune to the rules of “zero Covid”. During previous lockdowns, authorities have particularly refrained from shutting down shiny facilities, Li said, even if that meant workers would have to sit in empty casinos “chasing away flies.”
“The Macau government is very, very reluctant to close casinos, even when all other businesses have been ordered to close,” he added. “Why? Because the staff can still get paid.”
Now officials are facing more pressure to live up to China’s tough stance on the virus, especially as Macau battles its biggest Covid outbreak since the start of the pandemic. The city has reported about 2,000 new cases since June, when the latest outbreak broke an eight-month streak of no infections.
Another factor affecting business lately, Lee said, is that officials have made it clear to casinos that they shouldn’t lay off workers.
While the unofficial decree helped protect people’s livelihoods, it added to the financial strain on companies. Payroll typically accounts for 20% to 25% of operating costs, Li noted.
This is, of course, exacerbated by the recent drop in traffic. In the report, Daiwa analysts said it was necessary to assess the liquidity of Macau casino operators, “against the backdrop of [a] zero income environment.
The crisis is causing headaches for executives abroad.
Both Sands and Wynn recently asked their owners to help them weather the storm with loans secured by each of their US parent companies, Bernstein analysts said.
But the new restrictions also come at a particularly challenging time, as casino operators are soon expected to apply for a new license to continue operating in Macau, Li said.
He added that the process requires significant evidence of liquidity — in fact, hundreds of millions of dollars in cash.
So while businesses are already tight on funds, “the parent companies of these highly leveraged subsidiaries should invest in subsidiaries in Macau, [and] they have to carry that burden in the States or wherever they are,” Lee said.
Despite the turmoil, Li doesn’t expect any operators to miss their chance to challenge the new licenses. Companies have already incurred large “sunk costs” in Macau, he said, pointing to some that recently renovated properties or made other major investments shortly before the pandemic.
“They can’t afford to leave because if they leave, they won’t have anything.”
– Sean Deng in Toronto and Lauren Lau and Akanksha Sharma in Hong Kong contributed to this report.