Casino city Macau in flux as China squeezes high rollers

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HONG KONG (AP) — The game has changed in Macau.

The Asian gambling capital's winning streak is cooling after a decade of red hot growth that transformed the city from a neglected former Portuguese colonial outpost into the world's No. 1 casino market.

A flood of money from mainland China boosted Macau casinos, both local and foreign owned, which now rake in about seven times more than those on the Las Vegas Strip. But the tide has turned as the Chinese economy slows and President Xi Jinping's high-profile corruption crackdown deters high-rolling mainland gamblers from lavish spending on baccarat and other games of fortune.

Casino revenue fell for the eighth straight month in January, declining 17.4 percent over a year earlier, according to data released Monday. Last year, revenue from the city's 35 casinos fell 2.6 percent to $44 billion.

That marked the end of a decade of supercharged growth which began when the government of the Chinese territory ended a 40-year casino monopoly, opening the door to foreign operators such as Sheldon Adelson. Analysts and government officials forecast the contraction will last until mid-year.

Macau now faces the tough task of pivoting to a new model of growth, as dictated by Beijing. The authorities want to wean the city off so-called VIP high-rollers: wealthy patrons wagering staggering amounts in smoke-filled private rooms brought over from China by junket agencies. The junket middlemen facilitate travel and help clients get around China's capital controls by lending them money to gamble.

Instead, the focus is now on family-friendly resort developments to attract China's burgeoning middle class. Junkets are reportedly consolidating as funds dry up amid the crackdown while casinos are busy adding theme rides and boxing matches to resorts as they prepare for Macau's new reality.

"There's a big chunk of that (VIP) market that's simply disappeared largely in the wake of the anticorruption crackdown," said Grant Govertsen, an analyst with Union Gaming Research in Macau.

"The challenge for the operators this year and next and beyond will be trying to find out what does the customer want other than the table game," he said.

Xi, who visited Macau last month to mark the 15th anniversary of its handover from Portugal to China, reminded leaders of Beijing's wish to pursue "appropriately diversified and sustainable economic development."

He said that "certain deep-seated problems formed over the years have surfaced" and called on Macau authorities to step up its governance.

Earlier this month Macau police carried out one of the city's biggest ever prostitution busts, arresting 102 people including Alan Ho, the nephew of Stanley Ho, the aging billionaire who held Macau's sole casino license for four decades. Local media outlets published photos of Alan Ho taken away in handcuffs by plainclothes police.

The arrests startled Macau because the ring had operated blatantly for years out of the Ho family's Hotel Lisboa, where Alan Ho worked as a manager, leading many to believe it had tacit support. Judiciary Police said the syndicate had 2,400 prostitutes on its books and "illegal earnings" of $50 million.

"We were all surprised because they were in a group of people that usually the government doesn't dare to touch, but I guess it's a direct response to Xi Jinping's instructions," said Jason Chao, one of the leaders of the Macau Conscience activist group.

Xi's warning also underscored fears that Macau, population 630,000, faces increased social tension over rising inequality as pay for residents, many of whom work in casinos, fails to keep up with costs, especially housing. Casino staff held an unprecedented series of strikes last year to demand better salaries and working conditions.

Wages have tripled since 2003, said Eric Sautede, a former professor at Macau's University of St. Joseph, "but if you look at everything else it's times 10, times 11."

"If you look at the profits of the casinos," he said, worker disgruntlement "was bound to happen." Sautede was fired from the university in June for his views critical of the government.

Macau's transformation is set to accelerate over the next three years, putting more strain on labor and resources. Eight casino resorts are scheduled to open along with big infrastructure projects including a light rail system and a 30-kilometer (19-mile) bridge to nearby Hong Kong and Zhuhai on the mainland.

The new casinos on the Cotai Strip, Asia's version of the Las Vegas Strip, include significant non-gambling attractions aimed at drawing a more wholesome class of visitors.

U.S. billionaire Sheldon Adelson's Las Vegas Sands Corp., for example, will launch its $2.7 billion Parisian resort, complete with replica Eiffel Tower, in 2016. Melco Crown Entertainment's Studio City project, opening later this year, is a Hollywood-inspired gambling and entertainment complex with a Batman virtual reality ride.

It'll take years for Macau's to complete its transition, but when it's done, "ultimately everybody wins," said Govertsen.

"The government gets to say, Hey, Macau has been cleaned up, there's a lot less VIP, there's a lot less corrupt influence," he said. "And there's something for the average Chinese guy now."



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