Asian gambling markets are working hard to get back on their feet after almost a year of pandemic disruption. While losses are formidable in most cases, surprisingly almost all land-based operations — casinos, racing, lotteries, and retail wagering — have been resistant to the worst-case outcomes of bankruptcies and closures. However, two major obstacles are set to present themselves across the region over the next 12 months. Uncertain recovery from the pandemic is the obvious challenge. The other, more insidious, the problem is the burgeoning threat posed by the Chinese government to casino operations and the Asian gambling industry in general.
It’s still too early to calculate when and how gaming segments worst-affected by the pandemic will regroup, particularly casinos. Equity analysts have a range of estimates for when consistent recovery growth and a return to profitability will take hold, but the truth is that analysts are as much in the dark about the pandemic’s endurance as they were when the first reports of transmission emerged from Wuhan.
This is reflected in resounding insecurity in the earnings statements of major casino operators, even allowing for the vast cash and debt reserves that casinos in Macau and Singapore enjoy.
The prospect of smaller casino closures and consolidation in middling Asian markets such as South Korea and the Philippines remains, while the feasibility of several operations in opaque markets such as Myanmar, Nepal and Sri Lanka is anyone’s guess.
One highly troubling prospect is longer-term behavioural change on mass-market gaming floors in Asian casinos. Social distancing will likely outlast this pandemic out of an abundance of caution and in acknowledgement of the inevitability of a new, highly disruptive pathogen emerging within the decade.
On a virus and worry-free casino floor, mass-market baccarat revenue could be super-charged by back betting at popular tables. That phenomenon is now a thing of the past, as well as shoulder-to-shoulder customers at tables, at least for the foreseeable future.
In theory, high-roller spend should be less impacted by the pandemic because of the natural intimacy of the VIP room and the sheer rolling volume that Asia’s wealthiest gamblers generate.
Indeed, VIP gaming revenue has already begun to demonstrate this in some markets, but this recovery faces unprecedented pressure from the second major obstacle to the region: Beijing.
In a cruel smirk of history, the pandemic has dovetailed with the Chinese government’s most prolonged and intense campaign against gambling in living memory.
China’s campaign has expanded aggressively under President Xi Jinping from a keen domestic crackdown on underground casinos and online gambling, including regional government online lottery initiatives that were shut down.
The campaign evolved into a rebuke of Macau junket operators, high-profile and corrupt VIP gamblers and payments companies, then into reprisals against Chinese gamblers travelling overseas and the China-based agents that groom them.
Now retaliation is being prepared for overseas companies and, indeed, entire countries that offend the Chinese Communist Party regime on gaming matters.
Beijing’s extraordinary late 2017 punishment of South Korea and its tourism/gambling markets over the deployment of a US missile battery appears to have been merely the first shot in the geo-politicising of the gambling industry.
Governments that have reliably adhered to China’s regional military, trade and territorial agendas — Cambodia, Myanmar and, until recently, the Philippines — at one time could operate land-based and online gambling hubs without much protest from the Chinese leadership. Indeed, for a time, Beijing quietly tolerated gaming as a necessary foot in the door for increased investment and socio-political leverage in places like Cambodia’s Sihanoukville.
But now, even the compliant leaders of these nations have been placed under tremendous pressure to constrain or shut down gambling operations reliant on Chinese customers.
The prospect of a regulated Cambodian online industry is no more, and the Philippine online segment — by far Asia’s largest — is caught in a pincer action between pandemic damage and Beijing’s threats against Chinese nationals who work for or gamble with Philippine-based operators.
Add to this Beijing’s strict control of information technology for monitoring and punitive purposes, its tougher focus on payments channels and cryptocurrencies, and the corrosive and intimidating potential of Hong Kong’s national security legislation and the prognosis for most Asian gambling markets appears grimmer than many observers will admit.
2021 may see some progress in Macau’s concession rebidding process, a landmark event that will determine the destination of potentially hundreds of billions of dollars over the length of the concessions.
But Beijing has much more influence now over the Macau government and its gaming industry, which could be problematic for the city’s three US operators if trade, political and military tensions with Washington continue to mount after US President-Elect Joe Biden takes office.
In short, the Chinese government holds most of the cards, and now dictates the rules of the game.