Gambling revenue in Macau fell 4.5% annually to $2.2 billion in July, according to the Macau Gaming and Inspection Coordination Bureau. However, that decline was a notable improvement from an 8.5% drop in June and beat expectations by a full percentage point.
Analysts expect the sector to finally post a positive month of growth in September. Las Vegas Sands (NYSE:LVS) CEO Sheldon Adelson also noted during last quarter's conference call that the company was "seeing the first signs of stabilization" in Macau -- a comment which lifted shares of Sands, Wynn (NASDAQ:WYNN), and MGM Resorts (NYSE:MGM).
But before investors rush to buy shares of these stocks, they should recognize a growing threat to the west in Laos -- the 39-square-mile Golden Triangle Special Economic Zone, which was built on the Laotian border with Thailand and Myanmar. The zone is a joint venture between the Laotian government and Hong Kong-based Kings Romans Group, which signed a 99-year lease for the land in 2007. The zone, which is packed with Chinese gamblers, has been described as a "semi-lawless" zone where gambling, prostitution, and illicit trades which are banned in Macau flourish.
It's basically what Macau was like before the Chinese government regained the territory in 1999, cracked down on crime, and cleared the way for big U.S. casinos to move in. Considering that President Xi's crackdown on corruption is frequently cited as a reason for Macau's slowdown, could Macau's pain actually be the Golden Triangle's gain? Let's examine what makes this region tick, and whether it's a threat or opportunity for Macau players like Sands and Wynn.
Viva Laos Vegas
The Laotian government holds a 20% stake in the Golden Triangle SEZ, but Al Jazeera reports that the region is essentially an autonomous zone which operates like a Chinese territory. The majority of its visitors are from China, Mandarin is the lingua franca, casinos operate on Beijing time (an hour ahead of Laos), and the Chinese yuan is widely accepted.
In the past, wildlife boutiques sold illegal items like ivory, tiger skins, tiger meat, and tiger bone wine. The Laotian government shut down many of those stores after the Environmental Investigation Agency issued a scathing report calling the zone a "lawless playground" and an "illegal wildlife supermarket."
The man who runs Kings Romans Group is Zhao Wei, who previously ran casinos in Macau and Mong La, a gambling enclave on the Myanmar side of the Golden Triangle. Zhao's proposal to the Laotian government was to turn the Golden Triangle, an area tainted by the heroin trade, into a major tourist destination with casinos, nightclubs, ecotourism, and an international airport. However, critics noted that the flagship Kings Romans Casino could be a front for laundering drug money in the region, and it's unclear where the billions of dollars used for its construction are actually coming from.
Is the Golden Triangle a threat to Macau?
At first glance, the Golden Triangle seems like the ideal gambling haven for affluent government officials and business leaders in China who don't want to raise red flags with their gaming habits in Macau.
But on closer inspection, the region's growth probably won't hurt Macau for three simple reasons. First, Kings Romans' planned international airport is nowhere near complete, while Macau has an international airport, a ferry link to Hong Kong, and shuttles to the major casinos.
Second, the Golden Triangle's numbers are nowhere close to Macau's. Al Jazeera reports that Kings Romans' flagship casino hosted "hundreds" of Chinese visitors weekly, while Sands' Venetian Macau hosts well over half a million visitors per week.
Lastly, the seediness of the Golden Triangle will likely keep many high-rolling VIPs -- who generated 9% of Sands' Macau profits over the past 12 months -- far away. President Xi has expressed his desire to see Macau pivot away from gambling and toward family entertainment, which indicates that Macau casinos might generate fresh revenue streams with new family friendly shows and venues, as Las Vegas casinos did in the 1990s.
But it could be a long-term opportunity...
While the Golden Triangle in Laos isn't a near-term threat to Sands, Wynn, or MGM, all three casinos might benefit from expanding into that "lawless" territory in the future, just as they did in Las Vegas and Macau. Wynn and MGM, in particular, might consider expanding into these frontier territories to escape the shadow of Sands, the market leader in Macau.
Laos and Myanmar are both tiny economies compared to China and Thailand, but that could change over the next few decades as demand for lower-cost labor increases across Asia. Therefore, casino operators might eventually look toward the intersection between Laos, Myanmar, and Thailand on the Mekong River as a "golden" opportunity for long-term growth beyond Macau.