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Why Macao Casinos Are Tumbling for a Second Straight Day

What happened

Shares of casino operators in Macao, China, were tumbling hard for a second day on Wednesday after the Chinese government said it would begin imposing tough new regulations on the gambling halls.

Melco Resorts & Entertainment (NASDAQ: MLCO) was plunging 16% in late-day trading while MGM Resorts International (NYSE: MGM) was down a more muted 3% following a 4% decline yesterday. Melco is down 20% over two days, undoubtedly because it has greater exposure to Macao than does MGM.

Image source: Getty Images.

So what

The government recently announced it would open a 45-day public comment period on revising Macao's gambling laws. The city is the only place in China where it is legal to gamble, and despite the damaging toll the COVID-19 pandemic has taken on gambling in the region, Macao remains the world's largest gambling market.

The problem for casinos is compounded because the licenses the casinos hold to operate in the city, called concessions, begin expiring next year. It has always been something of a ticking time bomb for operators because of the way the original concessions were issued. Although it always seemed likely western operators including MGM, Las Vegas Sands (NYSE: LVS), and Wynn Resorts (NASDAQ: WYNN) would have their licenses renewed, there was the chance more operators would be allowed in, diluting their current stranglehold on the market.

Now what

Beijing has increasingly taken a hardline stance against Chinese companies that seemed to enjoy significant profitability through capitalism, first with tech companies, then stretching to financial firms and now casinos.

MGM, which still derives most of its revenue and profits from the U.S., is among the least exposed, while Sands sold all of its U.S. casinos to go all-in on Asia, particularly Macao.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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