Big money is at stake. A top American billionaire is implicated. There are allegations of illegal activities, organized crime involvement, political corruption, blackmail, and money-laundering.
Macau is a place where glamour, gambling action, and crime still mix it up. The story is not a new smash hit mini-series drama, but it could be. Instead, this is a high-stakes, real-life, drama unfolding. It has the juiciest gossip, rumors, and mudslinging allegations, equal to any that could be made up by a Hollywood writer. It is all coming from the multi-billion dollar cash flow in the Asia gambling Mecca of Macau.
A huge amount of money flows through Macau because it has no currency inflow or outflow restrictions. The Guardian reports that Macau casinos turned over the equivalent US$44 billion in 2014. This is over four times the amount in Las Vegas of US$9.6 billion in 2014, as reported by the Las Vegas Convention and Visitors Authority. Before the recent retraction of Macau revenues, the earnings from Macau were about seven times those from Las Vegas. Revenues from Macau are down, yet still it is a much larger revenues source for American casino companies than Las Vegas.
By all accounts, until recently, Macau has been a smashing success attracting a plethora of deep pocket international investors, including those from Las Vegas, who were willing to front the costs of building new multi-billion dollar lavish casinos to get a piece of the Asian action. It was, what appeared to be, a certain bet. The biggest names from Las Vegas including, MGM resorts, Steve Wynn of Wynn Resorts and Sheldon Adelson of the Las Vegas Sands Resorts Corporation (that owns The Venetian and others) jumped right in to grab the largest piece of the Macau action they could.
The billion dollar Macau casino construction bets seemed to be well placed. After the new Macau casino openings began in 2002, the money came pouring in. Macau quickly upstaged Las Vegas in terms of cash flow. Nevertheless, not all is perfect in the Asian gambler’s paradise.
Money from High-Rollers
The Macau business plan to attract gamblers differs from the Las Vegas plan. The revenues from non-gaming activities in Las Vegas exceed those from gambling. The Las Vegas model is therefore called a “retail” model, where the average spent per visitor is reasonably modest from the over forty-one million visitors than come to Las Vegas each year.
According to Nevada Public Radio, the average spent by a visitor to Las Vegas during 2014, was US$723 each. In Macau, the target is not regular average Chinese tourists because they are not free to move around so easily. A visa is required for mainland Chinese to visit Macau. This is why in Macau; the main business is the high-rollers.
High-rollers are the biggest gamblers, playing at stakes that would make average person go into shock. One of the most popular table card games in Macau is Baccarat, where the minimum bet is US$250 per hand. In the casinos business, this type of gambler is affectionately called a “whale.”
Where there are gambling whales, there are also plenty of criminals. The earliest days of Las Vegas had a high-involvement with organized crime. The earliest days of Macau attracted the same kind of criminal elements, especially those Chinese who, according to CNN, were trying to launder criminal money and be able to move money out of mainland China.
The Chinese government restricts to flow of currency out of mainland China to an annual limit of the equivalent of US$50,000 per person. In Macau, even though it is an autonomous territory controlled by China, somewhat like Hong Kong, there are no currency movement restrictions of any kind. This currency law loophole attracted not only the Chinese criminals, but also corrupt Chinese government officials who moved the equivalent of tens of billions of US dollars out of China through Macau. This did not make the Chinese government very happy.
The Chinese Government Crackdown
The Chinese government started a major anti-corruption effort during 2013 that has been increasing ever since. New laws meant that even major Chinese officials were arrested and charged with corruption. Chinese executives and officials are extremely fearful of being charged with corruption, because the consequences in China are severe. According to Forbes, this terror is enhanced by the fact that most of the anti-corruption cases start from insider whistleblowers, who give government officials information about the illegal activities of their bosses. Brutal bosses have many disgruntled employees, so this is a great way for abused employees to get even.
The effect of the Chinese government crackdown on corruption is that it devastated the economy of Macau. Visas to go to Macau came under new restrictions and gamblers stopped going to Macau as they did before. According to CNN, the result was a severe sudden drop in the Macau economy of over 17% in the fourth quarter of 2014. Casinos in Macau are individually reporting a 25% to 40% drop in business.
This is serious bad news for the American operators of casinos in Macau. CNN also reports that stocks in American casino companies are being hammered down. Stock value in Las Vegas Sands Corp. is down 30% from last year. Stock in Wynn Resorts is down 26% from last year. Over the long-term, Macau is a good bet, but short-term, the proverbial stuff has really hit the fan.
Troubles for Las Vegas Casino Billionaires
Oh, those poor billionaires! Las Vegas billionaires are having plenty of troubles caused by the shifts in Macau.
Wynn is Losing
The challenge to the share price of Wynn Resorts (WYNN) comes at a time when a fight over positions on the board just concluded. Elaine Wynn who co-founded Wynn Resorts with her ex-husband Steve Wynn thirteen years ago was just ousted by the board. She wanted to lift the restriction on her ability to sell shares in Wynn Resorts to allow her to sell more shares and diversify her investment portfolio. She had all her eggs, which made her a billionaire, in essentially one basket of WYNN shares. She saw, a few years back, that very clearly the WYNN eggs were at risk of being broken. The board refused to accept her request. She sued.
They took a proxy vote to throw her off the board. Shareholders holding WYNN stock were unsympathetic to her cause and did not support her fight to remain on the board. So as of now, she is relegated to only having the influence of being the third-largest shareholder in the company.
Sheldon Adelson and Las Vegas Sands Corp. Charged with Alleged Illegal Behavior
Anti-corruption attacks against Chinese officials and executives are made stronger by having insider whistleblower information. Sheldon Adelson from Las Vegas now has a similar problem. Depending on what is proven in the courts, 81-year-old Adelson may be in some serious trouble.
Because Las Vegas Sands Corp. is a publicly-traded American company and in the gambling business in the United States, it is subject to severe federal and state regulatory oversight and restrictions. These American laws extend to any overseas operations that prohibit any American company from attempting to obtain undue influence, especially involving government officials of foreign governments, using bribes or other corrupt practices.
Steven Jacobs, who claims he was wrongfully fired from being the CEO of the company’s Macau casino operations, when he refused to conduct illegal efforts demanded by the company, brought a lawsuit against Las Vegas Sands Corporation. Among the things Jacob alleges is that he was instructed by the company to find blackmail type information to influence Macau government officials, that Adelson personally approved illegal prostitution in the Macau casino, and that there were direct casino ties to organized crime in Macau.
The most interesting part is that according to Bloomberg, Jacob’s lawyers are forcing Adelson to testify in the civil case. Those will be fascinating court transcripts to read, that is for sure. It will be fascinating to see how the Macau effect plays out on everyone involved on both sides.