It was a bold move by Las Vegas Sands (NYSE:LVS) to abandon its namesake city in favor of going all-in on Asia. Earlier this year, it sold the operating company behind The Venetian, The Palazzo, and the Sands Expo and Convention Convention Center to Apollo Global Management for $2.3 billion, while real estate investment trust VICI Properties bought the real estate for $4.0 billion.
It was then left with its five resorts in Macao, China, which generated 65% of its revenue in the first quarter and 41% of its adjusted property EBITDA. The Marina Bay Sands resort in Singapore accounted for the remainder of its revenue and profits. While it had pursued one of the three licenses Japan plans to issue for its new integrated resort industry, the company ultimately withdrew from the running.
Now, Las Vegas Sands' big bet on Asia looks like it's taking a turn for the worse as Macao's return to growth stumbles -- it's unclear if the region will ever fully recover to its former heyday.
Not a safe bet
Monthly gross gambling revenue for Macao casinos jumped over 800% in June, a seemingly promising step forward. Though that figure marked a rapid acceleration from the approximately 500% year-over-year growth seen in May, actual revenue was just 6.5 billion patacas ($817 million), or 37% below May's tally -- the worst monthly showing so far this year and the worst performance since Sept. 2020.
Macao is still struggling. May's numbers were elevated due to the Golden Week national holiday, which saw tourists flood to the city, but activity remains low, and the VIP gamblers many of the casino operators count on are leery of traveling there, even when they can.
Beijing has slow-rolled the easing of travel rules between Macao and Hong Kong. Although mainland travel restrictions have largely been lifted, travel to and from the populous neighboring city remains restricted.
China has also cracked down on junket operators, the middlemen who contract with resort operators to bring VIP gamblers in China to Macao's casinos. In exchange for a percentage of the money the gamblers bet, the junkets loan the high rollers money, ply them with various amenities, and put them up in specified resorts.
However, Beijing has increasingly scrutinized their operations, tightening its control over these junket operators in a bid to stem the outflow of money from China. In 2013, there were 235 authorized VIP gaming promoters, but the tighter regulation, Macao's emphasis on mass market entertainment over VIP gambling, and the downturn in Macao casino activity has seen their numbers plummet to just 85 at the end of last year, according to Macao's Gaming Inspection & Coordination Bureau. Their ranks are expected to decline even further this year.
While the latest rules from Beijing apply only to those ferrying gamblers to foreign markets (in theory benefiting Macao), it could cause many to go under as the high rollers prefer to stay out of regulators' crosshairs.
There's also the problem with China's COVID-19 vaccines, which appear to be less effective than other versions. New outbreaks could sink whatever nascent recovery may be under way.
The road back to health
Macao is still the biggest gambling market in the world. At its peak in 2006, the Las Vegas Strip only generated $569 million in monthly gambling revenue, but Sands exhibited poor timing in choosing to leave Las Vegas when it did.
The city is certainly not operating from a position of strength either, but casino executives are expecting the back half of 2021 to be comparatively better. My colleague Travis Hoium recently noted group and convention room rentals for the third and fourth quarter are running 20% higher than they were in 2019, while 2022 is up by about 15%.
Without any exposure to the U.S. market, Las Vegas Sands doesn't benefit from that recovery, and its stock reflects that. Year to date, the stock is down 14%, one the worst showings of any world-class resort operator. MGM Resorts is up 32% so far in 2021 as it derives most of its revenue and profit from Las Vegas, while even Wynn Resorts, for which Macao is also a key market, is flat, because it still has U.S. operations to fall back on.
Patience will be necessary
Yet it may still prove that the odds for choosing to go all-in on Asia were just too risky to pay off for the casino stock.