US gaming operations in Asia face pressure from several different directions including massive revenue losses from the Covid-19 pandemic. Added to that is the intensifying row between the US and China plus a worrisome US government investigation into money-laundering in Las Vegas Sands’ Singapore operations.
Arguably no industry in Asia has been hit harder by the coronavirus crisis than entertainment, and no entertainment sector has been hit harder than gaming – by quarantine rules, the need for health declarations and entry bans against foreign citizens and consumer risk avoidance. From empty massive gaming parlors in the Pasay area of Manila to the highlands above Kuala Lumpur, where Genting has been hard hit, recovery is expected to be slow as neighboring countries open gingerly.
The six major US gaming firms in Macau are among the hardest-hit and face additional troubles. Among those troubles – for all of the gambling palaces – is that restrictions into Macau from Hong Kong and China are likely to remain in place into July, according to analysts from Bernstein Research. The provision allowing residents to cross the Macau-Zhuhai border for official reasons has been suspended because of the high number of applications.
The steep deterioration in US-China relations, coupled with the savage impact of the coronavirus outbreak, poses serious threats to foreign firms engaged in the Macau gaming industry,” warned a report by the Hong Kong-based Steve Vickers and Associates, a specialist political and corporate risk consultancy with particular expertise in the Asian gaming industry. “Assumptions of ‘business as usual’ are misplaced. After all, Beijing will surely ask why US-controlled casino companies should profit mightily at the expense of China’s gamblers.”
Macau gaming revenues, which rose from US$14.9 billion in 2009 to more than US$37.85 billion in 2019, have plummeted, according to the Vickers report. Gaming revenues fell by 97 percent in April, followed by 93.2 percent in May to just US$220.9 million. Overall, first-quarter revenues have fallen by 49 percent.
Las Vegas Sands, which is listed on the New York Stock Exchange, operates five casinos in Macau, which since the former Portuguese enclave passed back to China in 1997 has evolved into by far the gaming company’s most profitable operation.
However, the company, doing business in Macau as Sands China, is more vulnerable than others to Beijing’s displeasure, since its Macau gaming license is due for renewal in 2022, and with diplomatic relations between the US and China deteriorating almost daily, Beijing could be looking for new ways to irritate US President Donald Trump outside of upping the ante in the trade war between the two which was initiated by the US in 2018. With a tenuous first-phase trade settlement in place, neither side wants to escalate the tensions.
However, with Sheldon Adelson being a staunch Trump supporter and a donor of hundreds of millions of US dollars to Trump and the Republican party, there is already a good chance that China will shortstop the Sands’ Macau license if the current political climate continues, according to Eric Coskun, director of casino projects at IGamiX, a Macau gaming consultancy.
Adelson, the founding chairman and chief executive officer of Las Vegas Sands, thus faces potential collateral damage from Trump’s hostility towards China. In late May, for instance, Trump announced plans to punish China for pushing a controversial national security law upon Hong Kong.
Separately, Sands’ Macau business may be affected by a money laundering investigation of its casino in Singapore. The US Department of Justice (DOJ) is investigating Marina Bay Sands, Sands’ Singapore casino, for alleged breaches of anti-money laundering regulations, Bloomberg reported on June 4. Marina Bay Sands declined to comment. Las Vegas Sands did not answer Asia Sentinel’s questions.
“As Sands is based in Vegas and the subpoena came from the US Justice Department, any findings of wrongdoing will have some repercussions in the US. However, this may just put Sands over the edge in Macau,” said Coskun.
“I think the conflation of the Singapore, Macau, and US matters into one overall issue is a bridge too far,” said Steve Vickers, CEO of Steve Vickers and Associates, a Hong Kong-based political and corporate risk consultancy with special emphasis on gaming. “The Singaporeans are very thorough in their anti-money-laundering supervision (which is a very good thing), but in the bigger picture, I really don’t think the current Singapore probe is a game changer. Nor is it massively threatening to their other operations – unless something highly unusual and unknown surfaces. We have no such indication at this time. However, I do appreciate it’s an election year in the US.”
Nonetheless, Coskun said that if Marina Bay Sands is proven guilty of money laundering, it will “definitely give Beijing the official reason to find Sands unsuitable to renew its Macau gaming license in 2022,” provided Trump is re-elected in November.
Macau contributed 60 percent to the US company’s consolidated adjusted property earnings before interest, tax, depreciation and amortization (EBITDA) for the 12 months ended September 30, 2019, while Singapore contributed 30 percent and the US contributed 10 percent.
Moody’s rates Las Vegas Sands as Baa3, the lowest investment grade, with a negative outlook.
Gambling addiction and the prevention of crime are the main drivers of high social credit risk in the gaming sector, said a Moody’s report on June 10. Gaming companies can be directly or indirectly affected by government efforts to reduce crime through anti-money laundering practices and other measures, Moody’s said.
“Social risk from regulation in Asia is highest in Macau, which remains susceptible to potential economic and policy outcomes in China that could negatively affect gaming and tourism,” the rating agency warned.