Personal Finance
LVS

Don't Worry, Macau's 600% Visa Fee Hike Won't Hurt Casinos

Macau skyline at dusk.

Macau just hiked the cost of its transit visas by 600% and casino investors have to be wondering if Las Vegas Sands (NYSE: LVS) , Wynn Resorts (NASDAQ: WYNN) , and MGM Resorts (NYSE: MGM) -- which just opened its oft-delayed new gaming palace in Cotai -- will be affected.

In short, is this a new backdoor crackdown on gambling in Macau, similar to the one launched in 2014 that sent the region into a downward spiral?

Macau skyline at dusk.

Image source: Getty Images.

Getting crowded

According to the Macau Daily Times , transit visa fees jumped from 50 renminbi to 340 renminbi, or about $8 to $54 at current exchange rates, a surprising decision since it came in the middle of the Chinese New Year, a time when mainland tourists to Macau typically surge.

The Macau Government Tourism Office says over 500,000 visitors came to the peninsula for the lunar new year celebrations in the first four days of the holiday, a 10% increase over last year. It also noted over 70% of the visitors were from the mainland, or some 354,000 visitors, an 18% increase from 2017.

Beijing has been pushing the district to remake itself in a more family-friendly way, adding additional forms of entertainment beyond just gambling. Although the casinos early on hit the government's target to have mass entertainment account for 9% of total revenues by 2020, the return of VIP gamblers has been largely responsible for the growth the resort operators have enjoyed over the past year.

Wynn reported in January that earnings nearly tripled to $1.40 per share, beating estimates of $1.36, while net sales jumped 30% to almost $1.7 billion, primarily as a result of its two Macau resorts that account for 60% of its total revenues. Las Vegas Sands also reported similarly strong results , as did Melco Resorts & Entertainment , which like Wynn, primarily caters to high rollers.

And it's for that reason that casino investors can be put at ease over this new fee increase.

Chart of Macau gaming revenues and growth rate.

Data source: Macau Gaming Inspection & Coordination Bureau. Chart by author.

Abusing the system

The transit visas are used by travelers from the mainland who are passing through Macau airports on their way to another location, typically some international destination. However, the visa allows the holder to layover for as long as a week in Macau before traveling on. They can do the same thing on the return trip. Mainland Chinese can also apply for as many transit visas as they like, so it's been reported that many would use the visas to get around other rules that limit the number of trips to Macau to twice per year.

Beijing merely tolerates the proliferation of gambling in Macau, the only place it is legal to do so in China, without actually encouraging it. In 2016, a number of employees from Australia's Crown Resorts (NASDAQOTH: CWLDY) were arrested for improperly marketing its casinos in Macau. You can advertise amenities at the resorts, but you're not allowed to actually mention gambling.

The Macau Daily Times , however, dismisses the notion the new visa fees are being used to deter gamblers, particularly VIPs who would have no problem paying the higher costs. Because the fee hikes are only at ground-based entry points and not for those who fly in, which would be more likely if it was targeted at the high rollers, it's likely aimed at a different traveler.

Rather, it suggests the new policy is geared toward cracking down on transient workers, such as those individuals like "junket staff, illegal POS peddlers and sauna or spa workers who are unable to gain work visas to ply their trades," who the paper contends abuse the system. They come in, perform their work for two weeks at a time with a quick layover in between, before returning home to apply for another visa.

There have been a number of policy changes over the past year or so that have caused investor concern the Chinese government would kill its golden egg-laying goose, including limiting the amount of money that may be withdrawn from Macau ATMs at any one time, fingerprinting all foreigners entering the country, and banning smoking at gaming tables. None has had that effect yet and gaming revenues surged 36% in January to 26.2 billion patacas, the local Macau currency, or about $3.2 billion, and last year gaming revenues soared 19%.

There may be a time that Beijing does finally put its foot down, and even the cumulative effect of its actions might have a deleterious impact on casino revenues, but investors shouldn't worry that the extraordinary increase in fees will alone lead to another decline.

10 stocks we like better than Wynn Resorts

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Wynn Resorts wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of February 5, 2018

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 .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

LVS MGM WYNN

Other Topics

Stocks

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More