The Macao casino market recovery continues to falter, as gaming revenue for September rose only 32% over the month before, which had been the lowest amount generated all year long.

With the neighboring Guangdong Province reimposing travel restrictions on visitors to Macao after a flareup of new COVID-19 cases, the ability of integrated resort operators such as Las Vegas Sands (NYSE:LVS), Wynn Resorts (NASDAQ:WYNN), and Melco Resorts & Entertainment (NASDAQ:MLCO) to resume their growth trajectory will be severely impaired.

Roulette wheel.

Image source: Getty Images.

When the chips are down

Monthly gaming revenue came in at 5.88 billion patacas, Macao's local currency, which is the equivalent of about $733 million. While that's up from the 4.44 billion patacas generated in August and is 166% above last year's 2.21 billion patacas, it was below expectations and marks the second-lowest monthly total in 2021.

Now a handful of new COVID cases has provincial authorities on the mainland cracking down on travelers to Macao. Anyone who visits the gambling capital must show proof of a negative test for COVID-19 within 24 hours of leaving, and then must quarantine for two weeks, which will serve as a deterrent to tourists visiting the city.

The restrictions follow a massive three-day testing operation of city residents, the second such mass testing program in two months. The action resulted from positive COVID tests for four guards stationed at Macao's quarantine jails, where COVID-positive tourists are remanded. Three of the guards had worked the floor that held a recent Turkish tourist who had tested positive for COVID. 

Macao monthly gaming revenues chart, showing drop since March 2021.

Data source: Macao Gaming Inspection & Coordination Bureau. Chart by author.

A big bet going bust

Las Vegas Sands is ailing under the protracted restrictions and inability of visitors, either from the mainland or from foreign countries, to visit Macao.

In an update to investors, Sands reported gaming revenue in July and August rose 516% and 179%, respectively, compared to last year. But the respective revenue of $265 million and $148 million will still be far, far below the $3.2 billion it generated in the third quarter of 2019.

Sands noted that tourists who arrive in Macao are making full use of its facilities, but the travel restrictions are wreaking havoc on its ability to generate revenue. 

It was Sands, of course, that sold all of its Las Vegas properties so it could go all-in on Asian gaming markets. 

That's certainly a broader geographic region than just Macao, and Sands does have one resort in Singapore, but it has withdrawn from the license lottery underway in Japan and Japan's market looks like it will be dramatically smaller than originally believed anyway. Opportunities in Cambodia, Malaysia, the Philippines, and Vietnam may also be limited and will take years to develop even if Sands chooses to enter. That makes Macao its biggest revenue generator -- and its big bet on this market looks like a loser at the moment.

China is a risky place to do business

Yet Wynn Resorts isn't much better off, as it has long relied upon Macao for nearly three-quarters of its profits. While its second-quarter operating revenue doubled year over year to $990 million, it's still reporting losses. They may have narrowed to $131 million from $637 million the year before, but that was for the quarter that ended in June, and Macao's gaming results have been anemic at best since then.

Melco Resorts & Entertainment, Galaxy Entertainment, and SJM Holdings are also suffering as they are primarily or only serving the Macao market. With Beijing also wanting to exert even more control over casinos operating there, breaking up the concessions, limiting their length, and otherwise cracking down on the money flowing through Macao, it's not a time to be investing in casinos there.

Bet on growth at home

Macao was a lucrative market for gaming companies for two decades, but the coronavirus pandemic has upended the party, an opportunity the Chinese government is using to exert greater control and influence over the casinos.

Betting on a rebound any time soon may indeed be a gamble, and investors might just want to put their chips on casinos operating in Las Vegas or other regional gambling markets not named Macao.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.