The clock is ticking for casinos in the world’s largest gaming market. The licenses of Macau’s six operators expire in June, two decades after the Chinese city opened its gaming industry to foreign investment. That’s creating the possibility that new players may enter the market in 2022 and other operators could lose their place at the table.

The deadline couldn’t come at a worse time for the city’s casino operators, still suffering from a dearth of customers because of China’s border shutdowns aimed at walling out the coronavirus. Macau’s gaming revenue in 2021 was $10.8 billion, down 70% from its pre-pandemic level, as several Covid-19 outbreaks led the Chinese government to temporarily suspend quarantine-free travel between the city and the mainland from late September to mid-October. Currently, residents in nearby Hong Kong need to quarantine for two weeks upon entering Macau, and the door remains shut for visitors from the rest of the world.

Meanwhile, Macau’s casinos are subject to heightened scrutiny as the government cracks down on high rollers and overhauls legislation governing the industry. Police in November arrested Alvin Chau, chief executive officer of Suncity Group, one of several operators of so-called junkets. Extending credit to high rollers, these have long drawn Beijing’s ire for helping clients transfer money out of China. Chau confessed to establishing overseas gambling platforms and carrying out illegal virtual betting activities, police said. Suncity’s publicly traded arm, Suncity Group Holdings Ltd., which doesn’t operate the junket business, has said its operations could be “adversely affected” if it loses Chau’s financial support. The company runs overseas casinos, travel and hotel services, and property development. Chau, who’s resigned as the company’s chairman and shut his privately owned junket operations in Macau, couldn’t be reached for comment.

Chau’s arrest sent shock waves throughout the city’s gaming halls, with experts predicting casino operators would need to reduce their reliance on a relatively small number of wealthy customers. Targeting Suncity was “a death blow to the junket industry,” Sanford C. Bernstein analysts led by Vitaly Umansky wrote in a research note.

A shakeup of the “VIP” gambling sector—which accounts for about $3 billion in annual revenue, one-third of the city’s total gaming return—will bring Macau more in line with President Xi Jinping’s “common prosperity” campaign, meant to demonstrate that his government is reducing inequality.

Heightened state oversight marks a shift from decades of tolerating Macau’s role in enabling capital flight, says Steve Vickers, CEO of Hong Kong-based risk consultant Steve Vickers & Associates. “Billions of dollars have been funneled out of China in stark noncompliance with capital control regulations, and the big beneficiaries have been the casinos,” he says.

It’s unclear whether some or all of the current operators will receive new licenses or how long they will last. Macau officials revising the city’s gambling laws are considering proposals to mandate increased local ownership of casinos and to empower government representatives to supervise operators and approve dividend distributions.

Especially vulnerable to policy shifts are MGM China Holdings, Sands China, and Wynn Macau. These affiliates of American companies typically send substantial dividends home, making Macau the major profit engine for their parents. Both Wynn Resorts Ltd. and Las Vegas Sands Corp. got more than 60% of their revenue from China in 2019. But U.S.-China relations suffered in 2021 as Washington responded to news of Chinese persecution of Muslim Uyghurs in the Xinjiang region. President Joe Biden expanded a blacklist of Chinese entities in December, preventing them from accessing key U.S. suppliers and technologies, and banned Americans from investing in more Chinese technology companies, including drone leader DJI and the country’s largest artificial intelligence firm, SenseTime Group. He also launched a diplomatic boycott of Beijing’s Winter Olympics and signed bipartisan legislation banning goods made with forced labor in Xinjiang—a law that China’s Foreign Ministry spokesman called “vile.”

For Chinese officials eager to show their displeasure with Biden, casinos with U.S. parents make easy targets. Las Vegas Sands, majority owner of the Macau subsidiary and operator of a large casino in Singapore, last year agreed to sell its Las Vegas properties for $6.25 billion so it could focus on its Asian businesses. “Asia remains the backbone of this company, and our developments in Macau and Singapore are the center of our attention,” CEO Robert Goldstein said in a March statement announcing the sale.

With Macau’s government yet to announce legislation to govern the industry, the mid-2022 deadline may slide. Macau Chief Executive Ho Iat Seng has said current rules allow the extension of licenses if an updated gaming law isn’t ready before the expiration date. His government in December released results from public hearings on license renewals; most participants favored maintaining six operators. Most respondents also supported local officials’ proposals to increase local ownership and government supervision of the casinos.

Many analysts therefore say a final deal may largely maintain the status quo. “We believe operators will still be allowed to distribute dividends after satisfying some reasonable investment thresholds,” Morgan Stanley analysts wrote in a Dec. 13 report.

That doesn’t mean there won’t be changes. To continue operating in the city, American-owned casinos may need to dilute their holdings and offer local partners stakes of as much as 20%. That would result in them “keeping more of their profits in Macau” rather than sending them back to the U.S., says Bloomberg Intelligence analyst Angela Hanlee. Still, dilution would at least ensure that the Americans keep a piece of the action.