Stanley Ho

Stanley Ho and his STDM consortium monopolized Macau’s gambling industry (Image: http://31.cdn.bit2host.eu)

Macau is the Chinese enclave that has long been a destination for gambling tourists but over recent years the booming casino industry in the region has taken a hit.

The Gambling History of Macau

Gambling in Macau has been legal ever since the 1850s when the Portuguese government that ruled at the time introduced the activity. Since then, Macau has enjoyed a growing gambling industry that has seen it become known as the “Monte Carlo of the Orient” and it even reached a peak of being considered the world’s most popular gambling destination ahead of Las Vegas and Atlantic City.

Macau initially only offered Chinese gambling games such as Fan-Tan but casino games such as roulette, blackjack, and poker that rose to prominence in Western culture made their way over to the region at the early part of the 20th century.

Enter Stanley Ho

A huge turning point in the evolution of Macau’s gambling industry came in 1962 when the Macau government allowed a consortium of Macau and Hong Kong businessmen led by Stanley Ho, called the Sociedade de Turismo e Diversoes de Macau (STDM), to take over the monopoly rights of all forms of gambling in Macau. The consortium modernized the gambling market within Macau and improved transport links to the enclave that helped to attract more tourists to the area with a large number coming from Hong Kong.

Gambling Gets Modernized

The STDM held onto the monopoly rights until 2001 when they expired. Macau had been transferred to being governed by China in 1999 and in 2002 the new Chinese-led Macau government ended the monopoly of the gambling industry and handed out licenses to six casino operators including Sociedade de Jogos de Macau (a re-formed consortium involving members of the STDM group, also known as SJM Holdings), Las Vegas Sands, Wynn Resorts, MGM Mirage, Pansy Ho Chiu-king, and Galaxy Entertainment Group. Business boomed for the modernized gambling industry in Macau and in 2011 the leading casino operator in Macau of SJM Holdings was boasting revenues of US$9.7 billion.

Macau casinos

The future of Macau’s gambling industry hangs in the balance. (Image: http://cdn2.hubspot.net)

Too Good For Too Long

Unfortunately, this was a lucrative period for the Macau gambling industry that was set to hit a decline. As more money found its way to the Chinese enclave, forces at work beneath the surface began to try and take advantage of this increased wealth. It was soon alleged that criminal gangs and organisations were using the Macau gambling industry to launder money, fund the Triads, and hide money earned through corrupt methods.

These corruption claims have materialized due to Macau’s revenues relying so heavily on the gambling habits of the high rollers. Due to the large amounts of money being exchanged during games played by high rollers, they are never keen to gamble in the public domain and largely remain confined to private VIP back rooms. It is in these VIP back rooms that the authorities believe the key to cracking the corruption can be found. However, these VIP back rooms are not often managed by the casinos themselves. Instead they are managed by gambling junket operators who organise the games themselves. US-owned casinos state that they have complete control over what activities go on in their properties. The other casinos do not offer such a degree of transparency. It was even suggested in a 2013 report to the US congress that up to US$200 billion in revenues in Macau goes untraced through the junkets.

The Corruption Crackdown

The opaque shadows formed by these VIP back rooms and the allegations of corruption within Macau led to the government announcing a crackdown on corruption. High rollers involved in the junkets have been the target of the Chinese government with Chinese nationals now no longer allowed to take more than US$3,000 out of China at one time or more than US$50,000 in one year. Due to an estimated 80% of the confirmed casino revenues in Macau coming from the high rollers, this has had a massive impact on the region’s gambling industry figures.

At the beginning of 2015, revenues in Macau were down by a record 38.8% for April on a year-on-year basis. This was the eleventh consecutive fall in revenues for Macau casinos as high rollers have steered clear of the region due to tightened laws and regulations. The Chinese new year in February also could not deliver improved figures with revenues down 30% in 2015 compared to the same period in 2014.

Strive to Survive

A number of casinos have resorted to turning their attention to the leisure, entertainment, and business conferences side of things. There is the attitude that in order to survive, Macau must learn to adapt to the new business environment that has been forced upon its industry. The Chinese government is seemingly succeeding in its battle to rid Macau of corruption. However, the official figures might suggest the corruption is being dealt with but there is no true indication of whether the government clampdown is having any impact on the corruption going on out of sight with untraceable money. The crackdown might be putting some operators off the idea of expanding their business interests. However, the challenges set by the government crackdown has seen some operators diversify their casinos in order to survive. A process of Darwinism could well be in place in Macau right now. Those operators that are strong enough and are willing to adapt will survive. Those that fail to do so could well find their place in the Macau gambling industry eradicated. How effectively the operators adapt will hold the key to Macau’s gambling future.