Meltdown in Macau

Not so long ago, Las Vegas residents held unfavorable views of gaming corporations that expanded outside Nevada and the United States. The narrative held that casino companies were amassing profits made in Las Vegas, then, instead of investing them here, were creating jobs elsewhere while eagerly subjecting themselves to higher gaming tax rates.

Some of that thinking changed when the U.S. economy tanked in 2008 and nearly wiped Las Vegas off the map. If gaming companies did not have properties outside Nevada, they wouldn’t have survived the Great Recession. In fact, the Strip would look much different today if casinos weren’t raking in absurd amounts of cash on the other side of the world, in Macau, China.

Las Vegas Sands Corp., Wynn Resorts Ltd. and MGM Resorts International all have properties in Macau, the world’s largest gambling destination by a landslide. And all three are building newmultibillion-dollarhotelsonMacau’sCotaiStrip.Asreported by the Review-Journal’s Howard Stutz, Las Vegas Sands, which owns The Venetian and The Palazzo on the Strip, gets about twothirds of its revenue from its four Macau casinos. Which makes what’s happening in Macau a real problem. Mr. Stutz reported this week that Macau had its 12th straight monthly gaming revenue decline, and that more declines are forecast. The Chinese casinos collected $2.5 billion from gamblers in May — nearly three times what Nevada’s casinos win in a month — a drop of 37 percent when compared with May 2014.

The Chinese government is regulating Macau’s casinos with a heavier hand, from limits on table games to a crackdown on corruption and money laundering to visa restrictions. The drop in gaming revenue is hurting the stock prices of Las Vegas companies, even as their performance on the Strip improves.

“It is increasingly clear to us that there are no silver bullets that are going to change the weak revenue trajectory [in Macau],” Goldman Sachs gaming analyst Steven Kent wrote last month, saying the decline was “much more than everybody feared, and we do not see a turnaround for months, possibly quarters.”

The sky isn’t falling. But Las Vegas might not be able to count on Macau to prop up the Strip when the next recession hits.