Any attempts by resorts on the Chinese holiday island of Hainan to launch gambling operations would be met by an “immediate and harsh reaction from authorities” – quashing any theoretical impact on Macau’s casinos.
So says Union Gaming’s Head of Equity Asia Research, Grant Govertsen, in response to a Bloomberg report this week that up to five Hainan hotels are preparing “entertainment bars” where players can gamble real money in exchange for prizes.
According to Bloomberg, the hotels are in the process of converting their ballrooms into makeshift gaming floors where players who win at the tables will earn points that can be used like real money at local restaurants, bars and shops.
Macau’s casino stocks responded on Tuesday by falling 3.7% collectively – equal to US$4.3 billion in market capitalization – but Govertsen was quick to dispel any concerns.
“While small stakes ‘wagering’ on a small number of tables might be tolerated for a period of time in order to keep some of the resorts in the black, any small step the Hainan operators take to offer legitimate gambling will be met with an immediate and harsh reaction from the authorities,” Govertsen said, pointing to a similar Bloomberg report in April that ambitiously linked a potential loosening of lottery and horse racing laws in Hainan to the eventual establishment of casinos.
“As we noted in April, even if true casino gambling was legalized in Hainan the risk to Macau’s Big 6 is negligible. This is because there would likely be no measurable impact to mass market GGR as mass is convenience based and Hainan is simply not convenient for virtually all of Macau’s mass customers.”
This week’s report regarding “entertainment bars” follows a recent Hainan court ruling in which the Sanya Bay Mangrove Resort Hotel was found not guilty of breaking the law after being shut down in 2014 for running a small stakes gaming operation.
Addressing the Mangrove case specifically, Govertsen said, “Having visited the entertainment facility at Mangrove when it previously operated we can definitively say that its potential reopening (and the potential opening of a few other rooms inside neighboring resorts) represents no threat to Macau from virtually any point of view (quality, scale, amenities, culture, experience, luxury, customer service, and most importantly, true gambling).”
Govertsen also doubled down on his expectations of how local authorities would react to any attempt by local resorts to offer genuine casino gambling to customers.
“The government has made it clear that they have no plans to allow full-fledged casino gambling in Hainan as casinos remain forbidden per the constitution,” he said. “Keep in mind that as part of the anti-corruption campaign the government made it a point that officials shouldn’t even play mahjong given its gambling characteristics.
“We believe the court ruling that could allow prize-oriented table games does not contradict the constitution as – like Japan’s pachinko industry – it is for entertainment purposes only and is low stakes.
“We would take this one step further to say that the government of China will be paying close attention and will react quickly (and negatively for the hotel operators) should they begin to press their luck and do anything beyond low-stakes prize-oriented games; anything else would be in contravention of China’s constitution.”
Govertsen told IAG that Macau’s casino stocks were also negatively impacted on Tuesday by trade wars.
