Steve Wynn, chairman of Wynn Resorts' (NASDAQ: WYNN) Wynn Macau, told reporters earlier this month of plans to spend $4 billion on a second casino in Macau. A brave plan to announce at a time when Macau's casinos are beginning to feel the China slowdown. In 2008-2009 when China experienced an economic crisis the government responded with a $585 billion stimulus. A portion of that money made its way to the casinos in Macau. The same type of economic stimulus package is not in the cards this time around, though. And Macau's casinos are beginning to feel it. The recent growth rates are minimal compared with the growth rates the casinos have experienced in the past.
Las Vegas Sands (NYSE: LVS) also operates casinos in Macau. Along with Wynn, they also have plans for expansion in Macau amidst the slowdown. Both companies realize that Macau is not immune to the latest global economic turmoil. Macau's casinos are currently experiencing the slowest rate of growth since the post-Lehman meltdown. As well, this slowing growth also comes at a time when China's economy is losing momentum. Many of the high rollers in Macau's casinos make the short trip from China to test their luck at the tables. Their lenders are getting more conservative, though, in extending credit to gaming partners.
MGM (NYSE: MGM) also operates several casinos in Macau along with Melco Crown Entertainment (NASDAQ: MPEL). Wynn, Sands, MGM, and Melco Crown operate the majority of the casinos contained within Macau's borders. Each company has experienced a better rate of growth in Macau than they have in Las Vegas. The Chinese are very superstitious making gambling a highly profitable industry in Macau, the only place near China where gambling is legalized. These companies have placed their bets in Macau and are standing behind them.
However, most optimists say that the good times are not over yet. They attribute May's year-over-year weakness in part to an essentially robust May in 2011 and in part to a shorter Golden Week holiday this year. For the most part, the optimists claim that the long-term fundamentals remain intact and expect double-digit revenue growth to resume in the near future. After all, Macau is the only place in China with legalized casino betting and well-known as the world's top casino hub.
In the short-term, however, Macau's casino business is showing signs of fatigue. There is a confidence gap between earnings estimates and how far prices have fallen. For the long-term investor this makes the sector an attractive bet. For the short-term investor the negative currently outweighs the positive outlook. Although growth from high rollers is expected to keep slowing, the mass market crowd and slot revenue growth will more than make up the difference. Gambling is considered a vice, and people love their vices in times of economic upheaval.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.