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Forget the idea that gambling is "recession proof". Las Vegas was among the first to start reporting drastically declining revenues and layoffs long before any "Wall Street Bailout" was declared necessary. For the Asian casino industry, the forecast may be far more bleak.
Time Magazine had this to say about the situation with Asia's casino sector:
If they built the casinos, the gamblers would come. That was the idea, anyway. Since a 40-year gambling monopoly ended in 2002 and the Sands Macau, the first foreign-operated casino in Macau, opened its doors two years later, that has certainly been the case. Over the past four years, the casino giants of the tiny Chinese territory, including Sheldon Adelson, Steve Wynn and Stanley Ho have enjoyed sky-high growth rates and billions of dollars in revenue.
But in the wake of the faltering global economy, Macau is not such a sure bet anymore. The problem is that some of those giants embarked on overzealous building sprees - since 2004, the number of casinos in Macau has more than doubled to 31 - and now the global credit crisis is threatening to topple at least one of them. Adelson's company, Las Vegas Sands, has undertaken an aggressive expansion plan over the past few years, winning the bid to build the $4.6 billion Marina Bay Sands casino-resort in Singapore and developing a $743 million casino-resort in Pennsylvania, among other projects. The credit crisis has left the overextended company in danger of defaulting on $5.2 billion of loans secured by its Las Vegas operations. Last week, the company said it would work towards completing the Marina Bay site, but Singapore's government is making backup plans to enact if the Sands fails to raise the necessary funds to complete construction. Then, on Nov. 13, the cash-strapped company announced that it would layoff up to 11,000 construction workers in Macau, after its decision to suspend work on part of the Cotai Strip - a $12 billion undertaking. On Thursday, Las Vegas Sands' share price closed at $5.58, down 95% from its peak last December.
The postponement of the Sands' Cotai Strip project may not be end of the bad news, according to Gabriel Chan, a Credit Suisse gaming analyst in Hong Kong. While operators are still making profits, the Sands isn't the only one that may have difficulty finding cash to finance its newest developments. Chan says the Galaxy Entertainment Group, which is building the Cotai Mega Resorts in Macau, is also likely to run into trouble. Any additional job cuts will further kindle discontent among blue-collar Macanese workers, who have long complained about losing construction jobs to less expensive mainland workers.
The report goes on to point out how earlier this year, Macau's government had already started to hit the brakes. In April, Macau's Chief Executive Edmund Ho announced that no new gambling licenses would be issued to additional operators, and that current concession-holders would not be able to apply for additional gaming tables or slot machines. That set a limit on future building, but Beijing was also concerned about the volume of mainland tourists frittering away their money at the tables in Macau - the only place on Chinese soil where gambling is legal.
