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Casino Stocks Fall as China Mulls Tougher Macau Casino Rules

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The Gaming industry’s road to recovery from the coronavirus-induced blues seems to have hit a roadblock. With reports of tougher Macau casino regulations and a fresh surge of coronavirus cases, the U.S. casino companies having operations in Macau are left facing a double whammy.

Per a macaubusiness.com report, the public consultation for a fresh gaming law will run from Sep 15 to Oct 29. General public will have five sessions, while members of the sector will have one session. Issues including the number and duration of casino licenses, and supervision requirements will be discussed. It is worth mentioning that the current licenses will expire in June 2022.

The revised gaming law suggests removal of the current sub-concession system. Other suggestions include choosing of government representatives to oversee gaming operators and the creation of a new illegal deposit crime. Notably, gambling generates nearly 80% of the Macau government’s revenues and 55.5% of its GDP.

Macau’s Secretary for Economy and Finance, Lei Wai Nong said, “After 20 years we can see that the sector reached a considerable scale so we need to assure its scale, but we need to consult the opinion of the residents. We do not want to propose a limit on the concessions we want only to say that a certain scale maintains.”

Following the news, stocks including MGM Resorts International (MGM - Free Report) , Melco Resorts & Entertainment Limited (MLCO - Free Report) , Wynn Resorts, Limited (WYNN - Free Report) and Las Vegas Sands Corp. (LVS - Free Report) ,) which generate a significant portion of their revenues from Macau, declined 3.9%, 5.9%, 10.9% and 9.8%, respectively. In the past year, the Zacks Gaming industry has increased 14.6% compared with the S&P 500’s growth of 35.6%.

Earlier, Macau Gaming Inspection and Coordination Bureau (“DICJ”) had increased gaming inspectors by more than double. The number of inspectors increased to 459 from 192. In recent years, Macau has heightened scrutiny of casinos to clampdown on corruption in China. This compelled Macau officials to impose restrictions on high rollers to stop billions of dollars from being siphoned off illegally from mainland China to Macau.

The government had also put a withdrawal limit on each ATM transaction to stem the recent increase in overseas ATM withdrawals. While these policies might be helpful in the long run, they are likely to restrict gaming revenues in the near term.

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Coronavirus Woes Persist

Traffic has been a major cause of concern for the gaming industry since the coronavirus pandemic hit last year. Although the industry has been witnessing gradual improvement in visitations, a resurgence in COVID-19 infections might hurt the industry again.

China's health authorities announced that fresh COVID-19 infections have increased by more than double in the southeastern Fujian province. Officials are enforcing measures like travel restrictions to curb the spread of the virus. We believe tougher Macau casino rules and coronavirus woes will continue to hurt the casino stocks.