By the time Hurricane Florence hit the Carolinas, it had fallen to a Category 1 hurricane: destructive, but not nearly the devastating force it was feared to be. At the same time, though, China felt the fury of a super typhoon with the power of a Category 5 hurricane slamming into the gambling enclave of Macau with sustained winds of 165 miles per hour, some 75 miles per hour faster than Florence.

Typhoon Mangkhut was the world's most powerful storm this year. Civil defense authorities ordered the closure of all casinos beginning 11 p.m. Saturday until the storm passed, only allowing them to reopen at 8 a.m. Monday.

It was the first time ever that the 42 casinos in the city were forced to close since gambling began in Macau in 2002, and analysts estimate that it cost casino operators $186 million. Although that's negligible if it saved lives, it means gaming revenues for the month are going to take a hit. Union Gaming analyst Grant Govertsen projects between 1.1 billion patacas and 1.5 billion patacas were lost (patacas are the local currency), and that comes on top of analysts having previously lowered their growth expectations for the month to as little as 4%. 

Debris from Typhoon Mangkhut in Hong Kong

Image source: Getty Images.

Riding the VIP wave

Macau has enjoyed a 25-month boom following a two-year recession after Chinese authorities initiated a crackdown on corruption that snared junket operators and caused VIP gamblers to avoid coming to the city, the only place in China where it is legal to gamble.

Casino operators partner with the junkets to fly high-rollers into Macau and have them stay at their hotels in exchange for a percentage of the money they gamble. The junkets ply VIPs with gifts and amenities, as well as loans for them to gamble with.

VIP gamblers only began returning to Macau after Wynn Resorts (WYNN -0.06%) opened its Palace casino in the Cotai district, followed by the opening of Las Vegas Sands' Venetian resort. Earlier this year, MGM Resorts (NYSE: MGM) opened its MGM Cotai after more than a year of delays.

However, gaming revenue growth in Macau has slowed this year, and many feared the city's rebound was in danger. Beijing has again taken interest in the enclave, enacting greater monetary controls on cash flowing into and out of the peninsula, as well as giving greater scrutiny to those traveling there.

A cold hand

Wynn Resorts' second-quarter earnings badly missed analyst expectations, with revenue rising only 9% to $1.6 billion compared to the 11% increase Wall Street had forecast. Similarly, adjusted earnings came in at $1.53 per share, well below the $2.03 expected. Wynn warned that the third quarter would be weak, though that was predicated on few events being scheduled at its Las Vegas properties. Still, it generates over 80% of its revenues from Macau.

Sands also reported a weak quarter, as did Hong Kong-based Melco Resorts & Entertainment. MGM is less affected by Macau since most of its revenues are derived stateside, but its new Cotai resort ended up cannibalizing revenue at its established MGM Macau casino.

With nearby Japan on course to soon allow casinos to legally operate, Macau is on edge for any sign of weakness. It did get a reprieve of sorts in August, when gaming revenues came in much stronger for the month, rising 17% over the year-ago period to 26.5 billion patacas, or about $3.3 billion. It was the highest amount recorded since last October and the most revenue booked in August since 2014.

A dour outlook

This is why the impact of the typhoon is so significant. Late in August 2017, Typhoon Hato struck the region, killing 10 people and injuring hundreds, marking the worst storm in 50 years, but authorities delayed issuing warnings to people due to concerns over how it would impact casino operators. A similar incident had occurred the year before during Typhoon Nida, which killed six.

Analysts were already forecasting much lower gaming revenues for the month even before September's gaming revenues were hit by the storm. Investors can hope that October, with its week-long national holiday, will cause them to bounce higher again, but a slowing Chinese economy may mean those casinos most dependent on the region can expect to see their run of bad luck continue.