Sometimes the house loses

14 days and 14 nights... betless

Such was the clamour to get into the Sands Macao on opening night in May 2004 that many of the casino’s doors were ripped off their hinges. The scenes this week in the former Portuguese colony couldn’t have been more different. All 41 of Macau’s casinos have been ordered to close their doors. The world’s gambling capital has effectively gone into hibernation.

Blame the coronavirus, which has been wreaking havoc across the region since spiralling out of control in Wuhan in Hubei province about 900 kilometres to Macau’s north.

Suddenly, what has made Macau into such a golden ticket for the gaming firms – an inexhaustible flow of gamblers from mainland China (who make up seven in every 10 of its visitors) – is looking more like a fatal flaw in its business model.

In fact news of the virus had been hammering the sector for days, with a drop of more than 80% in visitor numbers over the Chinese New Year holiday week – traditionally the busiest time of the year – at the end of January.

But with 10 infections reported in the few days that followed, the Macanese authorities took the draconian step of shutting down the gaming sector completely, instructing the casinos to shut up shop for fifteen days from February 5.

Fitch Ratings is predicting a $3.3 billion hit to cashflows across the six main casino operators as a result, torpedoing American gaming giants like Sands Corporation, which generates more than 60% of its sales in Macau. Wynn Resorts is also losing $2.5 million a day as a result of the shutdown, Fitch calculated.

At least the casinos have strong balance sheets, pointed out Charlene Liu, Head of Gaming Research at HSBC. But she warned that it’s too early to bottom fish on gaming stocks, which often overshoot on the downside. It’s also unclear whether the casino closures could be extended into next month. Even if the gaming resorts reopen on schedule, gamblers may still stay away if travel seems risky. The economic aftermath of the epidemic could mean they tighten their spending as well.

After the SARS outbreak in 2003 Macau’s casinos quickly motored back into profit. But that was at a time when China’s economy was looking more robust (Macau’s economy isn’t in the best of health either, following a 3.2% contraction last year). An even bigger reason for the rapid recovery in 2003 was the launch of a new visa scheme allowing the Chinese to visit as individuals, rather than in larger groups. It isn’t going to get the same kind of boost once it gets the all-clear signal this time.

Macau’s border with China hasn’t been closed completely, because thousands of people move between the city and the neighbouring municipality of Zhuhai for work every day. It also depends on the mainland for its supplies of daily necessities. However, it was a brave decision to chill the lifeblood of the local economy (the casinos provide about 85% of taxes).

In other direct action to counter the coronavirus threat, Macau’s legislature passed a law requiring passengers on public transport to wear masks, and government officials have been touring urban areas with loudspeakers, urging residents to stay indoors whenever they can.

The lockdown seems to be working, with no new cases of infection reported over the last week. Macau’s chief executive Ho Iat-seng has also earned plaudits for ordering an emergency supply of surgical masks as soon as the coronavirus was reported in the city, as well as implementing a rationing system that has made it easier for local residents to buy them. “All the masks in Portugal have been snapped up by us,” Ho told reporters this month.

That contrasts with nearby Hong Kong, where long queues have been forming at pharmacies rumoured to have new supplies of masks (the number of infections in the city rose this week to 53). There has also been panic buying of food and toilet paper at supermarkets.

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