Exactly where the chips will fall in the trade (and tech) war drama being played out between China and the US is anyone’s guess.
But among the businesses seen in the firing line if Beijing's patience with Washington snaps are US casino operators in the world's richest gaming destination – Macau. With their concession contracts up for renewal as early as next year, they perhaps have more reason to fear about their luck running out.
But are these fears overcooked?
Fears of a trade-war backlash on the American casino giants ahead of the city’s gaming concession renewals in 2020 and 2022 have been heightened by the tit-for-tat controversy that has enveloped Chinese telecommunications group Huawei. Following the detention last month in Canada of the company’s chief financial officer in response to a US judicial request, a Huawei employee was this month charged with spying in Poland, a country described as a "US accomplice" by Chinese media.
But news that had broken several hours before the arrest of Wang Weijing, Huawei’s sales director in Poland, offers a glimpse into a more nuanced possible future for Macau, according to gaming industry insiders in the Special Administrative Region of China. And that is the revelation from CNBC that US billionaire investor Carl Icahn is building a stake – as yet publicly unquantified – in casino operator Caesars Entertainment Corp.
According to Carlos Lobo, a former senior adviser to the Macau Gaming Commission and ex-associate general counsel for Sheldon Adelson’s Sands China, Ichan’s gambit could be a signal that Caesars is positioning itself for a Macau move. After all, Caesers has already applied for trademark protection in Macau on behalf of its Flamingo and The Cromwell brands.
Or if that fails, he told FinanceAsia, it could be that he is seeking to push into the nascent – but hugely significant – Japanese integrated casino and resort market.
In July last year, Japan's legislature approved a long-delayed Integrated Resorts Implementation Bill, putting the country on track to open its first legal casinos by the middle of the next decade. Casino operators around the world have been salivating at the prosepct of landing one of the three licences that Japan is expected to issue. Jockeying for position among the biggest players in global gaming became more aggressive in the second half of 2018.
“I think the notion that the ongoing tech/trade war between the US and China will impact negatively on the renewal of the concessions of current US casino operators is too simplistic,’’ said Lobo, a lawyer who has worked in Macau for more than 20 years.
“Neither the Macau nor Chinese governments will be rash enough to lash out at the American casinos and risk inducing uncertainty and potential chaos," Lobo said. "In fact, this move at Caesars might just show that far from US operators being squeezed out, they might actually be in the frame for a piece of the action."
“It makes sense; they (Caesars) are the best positioned for this, and if it does not work out for Macau, they still have the Japanese market,’’ Lobo added.
TOP RISK
In a December note from brokerage Bernstein, which singled out the looming Macau concession deadlines as the No. 1 risk for the city’s three US-based casino operators – Las Vegas Sands, Wynn Resorts and MGM Resorts – analysts were quick to allay trade war concerns. Of these, MGM Resorts's gaming license comes up for renewal first in 2020, with the other two due in 2022.
“If the Chinese government chooses to take away the gaming concessions from US operators, the result would be quite counter-effective to China’s attempts to open up the country for greater foreign investment and the negative PR surrounding such an action would be detrimental," the note said.
The result would be higher unemployment, lower tax revenues and a "chaotic environment in the city", which neither the Macanese nor Chinese governments would want, it said.
Still, an unsettling 2018 saw the Bloomberg Macau China Gaming Index fall by more than a quarter as high-rolling gamblers from mainland China – who make up the bulk of Macau’s gaming revenue – curtailed spending and borrowing.
To compound this an array of gloomy economic forecasts, including research published this month by the CLSA unit of Beijing-based Citic Securities, has lowered expectations and made for undemanding valuations.
“We cannot rule out Macau getting caught up in the crossfire of US-Sino trade tensions and the fact remains if a more punitive approach were to be levied on [one] of the three American operators or even all six operators, Macau would be the biggest loser,’’ the CLSA research said.
MOVING SANDS
Some observers have even gone as far to suggest that Sands China – the money-spinning Macau arm of Adelson’s Las Vegas Sands Corporation – could be most vulnerable to trade war fallout due to Adelson’s close links to US President Donald Trump.
Lobo takes a different view. He cites the efforts Sands China have made not only to meet the requirements of the gaming concession it was granted but also the steps it has taken to heed Chinese President Xi Jinping’s clarion call to diversify the economy's overweening reliance on gambling when he launched an unprecedented crackdown on corruption and capital flight through the casinos on a landmark visit to Macau in 2014.
Late last year, Sands China was also the first casino in the city to literally “buy in’’ to the Macau government’s call for targeted poverty alleviation in China by purchasing goods from one of the hinterland's poorest areas, Congjiang County.
“There is an argument to be made that in fact, Wynn Macau could be more exposed given the previously detailed official disquiet about how much it has done to meet the requirements of the original concession agreement,’’ Lobo said.
Former chief executive Steve Wynn, who stepped down last year as allegations of sexual misconduct swirled over him, is another Trump ally.
“However, the subsequent installation of Allan Zeman – who is connected to and understands China – at the helm of Wynn Macau might be just what they need to pull them through,’’ Lobo added.
Whatever the future holds for Macau’s wheel of fortune, 2019 will be a momentous one.
In addition to the upcoming gaming concession renewals, the Year of the Pig will see the world’s premier gaming mecca mark 20 years since its return to Chinese sovereignty after 450 years of Portuguese rule, the election of a new head, and an almost certain visit to the city by the Xi.
“The smart money is on him having something of major significance to say,’’ Lobo said.
