Chinese Economy Threatens Macau Gambling Resorts
Tour companies that bring Chinese millionaires to the gambling tables of Macau, otherwise known as junkets, are now facing their hardest time since 2008 and it seems that some of the smaller players may drop out of the game for good.
These operators extend credit to rich gamblers and then collect any debts in exchange for a large commission. They generally bring in about 70% of the gambling revenue to Macau. Last year, when business was doing well they accounted for $22 billion of revenues. The junket industry is vital for the success of Macau’s casinos and at present there are over 200 registered junket companies in Macau.
However, after a few months of disappointing gaming growth in Macau it seems that China’s slowing economy is hurting the gambling industry. For the first time since 2008 monthly turnover generated by China’s VIP rollers shrunk year-on-year in June.
Last month AMAX Holdings, once one of the most profitable companies in Macau’s junket industry, warned investors that its financial situation was so bad the company’s future was in doubt. As the economy weakens junket companies are finding it harder to collect debts and recycle the funds into fresh loans. According to industry experts, smaller junkets suffer more as they are less skilled at collecting debts.
The Deputy Chairman of Success Universe Group, Hoffman MA, says that he believes smaller junkets are likely to be swallowed by larger companies rather than disappear. Back in February, Neptune Group Ltd, one of Macau’s biggest junkets, said that they were looking to buy more junkets in Macau and other Asian countries. The large gambling room promoter AERL has also announced similar intentions.
It seems certain that unless there is some improvement in China’s economy, everyone connected to the Macau gambling industry is facing some tough times.