China targets casinos in Macau — taking US casinos down with them

Another week, another sector take-down by the Chinese government. This time, China’s going after Macau casinos — and US casino operators are being hit with them.

What’s the big deal? Macau is China’s casino hub, surpassing Vegas in gaming revenue. And with casinos banned elsewhere in China, Macau is where the country goes to gamble.

• In 2019, Macau, with a population of only 640k, brought in over 39 million visitors.
• The growth in the region led to large investments from global casino operators.

But with China emphasizing equality, the gambling hotspot drawing in China’s wealth and money laundering activities has become a target of China’s regulatory crackdowns.

Most of the 6 big casino operators’ licenses are expiring in 2022 and China just outlined potential changes to gambling laws, hinting at:

• China potentially capping the number of licenses it gives out.
• The government could send a representative to supervise casinos directly.

It’s bad news for casino operators that loaded up on debt to build lavish casinos. Losing operating licenses could shut them down, sending stocks crashing.

And who gets licenses? Politics would probably play a role. Given the deteriorating relationships between US-China, US-owned casinos could draw the short end. Some, which make up to 70% of sales from Macau, are feeling the pain. In the past 2 days:

• Wynn Resorts (NASDAQ:WYNN) is down 16%.
• Las Vegas Sands (NASDAQ:NYSE) is down 11%.

No industry is safe: Gaming, e-commerce, private tutoring and real estate were all targets of China’s regulations in 2021. Following the playbook of these industries, the casino industry could be in for months or even years of pain.