Could This be Bad News For Industry From China?

14 October 2009

The economic turndown in the world economy has hit everyone, including the gaming industry. In Las Vegas, convention business was down 30.2 percent for the past year. Visitors to Vegas were down 3.7 percent, for 15 consecutive months for falling numbers. Room occupancy was down 6.2 percent for the last year. Add to that, MGM Mirage’s City Center project is expected to open by the end of the year, adding another 6000 rooms needing to be filled to the problem.

With all the drops in casino business in Vegas, some companies are looking to Macau, China, to help their cash flow problems. Macau has become the world’s largest gambling center, and the Las Vegas Sands, MGM Mirage, and Wynn Resorts Ltd, among others, are looking there for expansion and help. There is only one little tiny problem with this idea. The Chinese government has suggested that they may clamp down on expansion into this market. The Wall Street Journal reports that the Chinese government is considering raising the legal age for gambling from 18 to 21.

These new restrictions could not come at a worse time for these cash struggling companies. Wynn Resorts Ltd, recently held an IPO, raising $1.63 billion, better than expected, to help with the Macau operations. The Las Vegas Sands, looking at over $10 billion of debt, and has had to put a hold on its Cotai Strip development project, is looking to do something similar.

Harrah’s has recently bought a race track in Ohio, which has approved slot machines there and at another 6 race tracks around the state.

A recent study released by the Nelson Rockefeller Institute of Government stated that state tax revenues from gaming have fallen 2.6 percent in the last year. So while there is more and more gaming becoming available, the monetary return is not keeping up. Without new markets and/or a turnaround in the Las Vegas visitor trends, the future appears bleak for this segment of the economy.