Game theory

The world’s largest gambling hub is desperate to diversify. Macau’s gross gaming revenue in 2018 was equivalent to around 70% of the territory’s GDP. Watch out for authorities using their clout to force casino operators like the $56 billion Las Vegas Sands and $16 billion Wynn Resorts to invest more in theatres, arenas and malls.

The timing is ripe with the rebidding process for concessions due in 2022. With lucrative licences at stake, the government could coerce casinos to offer more business- and family-friendly options. Beijing is also eager: China’s President Xi Jinping urged Macau to pursue diversification during his visit in December.

Other centres have used stick to force change: Japan, the Asia region’s newest gambling market, has required resorts to reserve resources for building non-gaming attractions. Meanwhile, Singapore’s licence extensions in April saw Sands and Genting agree to build a 15,000 arena, a theme park, and new business facilities.

True, casino kingpins know how to hedge a bet. Sands’ Sheldon Adelson won big by making Las Vegas a hub for events and exhibitions. These commitments add up, however. In Singapore, the two operators pledged a combined $7 billion for their expansion. Investors dumped Genting’s local stock, leaving it down almost 10% in a single day on the news.

Investors in Macau casinos have reason to worry. Although a new bridge brought more visitors to the tiny territory last year, the newcomers are not keen gamblers. Tourist numbers rose 13% in the first eleven months of 2019 but gross gaming revenue fell over the same period. Beyond the gaming floor, per capita spending also fell by a fifth in the first three quarters of 2019.

Growth is already looking more modest on the back of a domestic Chinese slowdown. In the first half of 2018, the likes of Wynn Macau and Sands China saw their adjusted EBITDA rise by more than a quarter: but during the same six months of 2019, Sands’ rose by low single digits, while Wynn’s shrank. Splurging on new ventures in a period of uncertain demand would be painful. Macau’s new tourism makeover could come at a cost for the house.