MGM Resorts' (NYSE: MGM ) decision to push back the opening of its new MGM Cotai resort until the second quarter of 2017 doesn't bode well for the recovery many are hoping for in China's gambling oasis, Macau. Mgm casino.
The island is one of just two places where it's legal to gamble in China, but Beijing's crackdown on corruption has snared some of Macau's biggest junket operators, who fly in VIP gamblers and loan them money to drop at the casinos. The crackdown has resulted in gaming revenue dropping for 26 months straight. Coupled with a mandated change to a more Las Vegas-like experience on the new development strip of the island, Cotai, many of the region's casino operators find themselves struggling to hit it big. Earlier this year, MGM said it was delaying the resort's opening until next year's first quarter, and the latest setback is an indication that conditions haven't improved.
When Melco Crown Entertainment (NASDAQ: MPEL ) opened its Studio City casino on Cotai last October, there were high hopes that the forced migration to mass market gaming and entertainment would be profitable for the casinos. However, the new resort's performance over its first two quarters of operation have been poor, and there are more family friendly resorts coming: Wynn Resorts (NASDAQ: WYNN ) will be opening its Palace later this month followed by Las Vegas Sands' (NYSE: LVS ) Parisian in September.
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Wynn, though, was granted just 150 table games at the Palace, much less than the 250 tables both Melco and Galaxy Entertainment received for their properties. Las Vegas Sands needs to worry about how many it will be allotted as its latest earnings results showed steep drops in revenue. Sands, more so than many of its peers, is largely dependent upon Macau for revenue and profits.
MGM Resorts, though, was already expecting to delay the opening when it reported earnings in May. CEO Grant Bowie had hinted that MGM Cotai would get pushed back when he told analysts during the company's conference call, "The last part of this process really resides with the relationship between between ourselves and the government, which pushes into we believe end of first quarter, that may trickle over that."
With revenues still falling and Macau's gambling regulators adhering strictly to a quota of 3% annual table game growth, MGM Resorts may find the stakes on its Macau bet are even higher than originally believed.
Rich Duprey has no position in any stocks mentioned.
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