Hidden slowdown at Macaus casinos - Tuesday 31st of March 2009

Construction may have been halted at several of the new casinos and hotels under development in Macau but mainland Chinese punters still seem to be flocking to the worlds biggest gambling centre in droves.

Ive just returned from a short trip to Macau and was surprised by how busy it was given that this is the off season. I was last in Macau in 2001 and the former Portuguese colony looks very different these days, all neon lights, massive casinos and hookers.

Macaus gambling industry had been growing at a phenomenal rate until the financial crisis hit and the slowdown was more evident in the Western-owned establishments such as the MGM Grand, Wynn and Sands casinos. Whole sections on the main floors of these casinos were cordoned off and the gamblers were spread out very thinly, with hardly any punters bothering with the slot machines.

The establishments that are more popular with mainland Chinese, such as Stanley Hos uber-tacky Grand Lisboa, were much busier. At 3 in the morning, there were still large groups of people huddled around tables smoking and playing baccarat, which is the most popular game in Macau.

The real drop in revenues in Macau is largely unseen though as it has come in the VIP rooms, which are kept well away from prying eyes - not least because many of the high-rollers are Chinese government officials or executives of state-owned enterprises frittering away pilfered funds.

The VIP business is very murky indeed, controlled by shadowy junkets - middlemen who bring in the high rollers and look after their every need (food, accommodation, prostitutes and money-lending) while making side bets with them on how they will fare on the gaming floor. Industry sources told me that the VIP trade is well down on recent years, not least because of the new visa restrictions that the Chinese government has brought in to stem the flow of mainland gamblers into Macau.

Sources Ive spoken to in the Asian casino industry also tell me that they are increasingly reliant on the high-rollers and the more down-at-heel addicts as the recession-hit casual gamblers are deserting the gaming floors in ever greater numbers.

Although Macau brings in more in gaming revenue than Las Vegas and Atlantic City combined, it needs to diversify beyond this dependence on hard-core gamblers if it is to have a bright future. To do that it needs to shake off its grimy image, which will be a big challenge. Unlike Vegas, there is very little in the way of non-gambling entertainment (if you can call Celine Dion entertaining) and the smoke and prostitute-filled gaming floors would put off many a visitor.

Wandering through the lobby of the Hotel Lisboa for five minutes, I must have passed well over a hundred different Chinese working girls. Even the supposedly more wholesome Western-owned casinos have hidden saunas that double as brothels to service their VIP clientele.

I dont necessarily object to any of this activity and found it fascinating to observe. But its not going to help Macau become a destination for family holidays and it will increase the long-term pressure on the Chinese government to limit the growth of gambling in the special administrative region.

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