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What the Heck is the Deal in Macau?

Gaming revenues have been soaring in Macau, the world’s largest gambling hub and the only place in China where gambling is legal. Hefty double digit year-over year gains have been the rule, driven by newly rich Chinese high rollers and their love for betting. Their bitter losses are Macau’s sweet revenues. But something happened, and revenues are now in free-fall.

The last quarter in 2013 had been the first ever to exceed 100 billion Macau patacas ($12.5 billion) in gross revenues. And the first three months this year came in with MOP 102.2 billion. There simply was no stopping the gambling juggernaut.

But then June happened – the first year-over-year revenue decline (-3.7%) since financial-crisis year 2009, according to the Gaming Inspection and Coordination Bureau (DICJ). At the time, the debacle was blamed on the World Cup. Perhaps the Chinese were too busy betting on soccer games. VIP revenues, which made up 66% of total revenues during the VIP heydays, were down an estimated 20%, only partially offset by the rest of the gamblers, the penny pinchers, who lost 30% more than a year earlier.

July would see a post-World Cup bounce. That was the hope. But revenue dropped again by a similar amount. And the World Cup as an excuse evaporated. So the corruption crackdown in China was blamed. At the time, the investigation of Zhou Yongkang, former head of state security, was plastered all over the media, and it was blamed for scaring VIPs into suddenly taking the crackdown seriously, though others called the anticorruption campaign a convenient cover for a political purge.

Then in early August, the Taiwan branch of Macau casino operator Melco Crown Entertainment was indicted by the Taipei District Prosecutors Office for alleged violations of banking and foreign-exchange laws. A day later, it reported a 7% revenue decline and crummy earnings. And Macau’s gaming revenue dropped 6.1%. Junket promoters – commissioned by the casinos to entice VIPs to Macau with a variety of services, such as getting around China’s currency controls – were getting hammered.

In September, it got worse. The little people still flocked to Macau to hand their hard-earned money to the casinos, but it wasn’t enough to compensate for the VIPs. And total gambling revenue fell 11.7%.

Then October happened. Casino revenues plunged a record 23.2% to 28 billion MOP ($3.5 billion). The debacle looks like this:



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