Macau: Western investors 'were lulled into a false sense of security,' casino expert explains

U.S. gaming stocks are reacting to rising government scrutiny over the gambling industry in Macau, and one expert told Yahoo Finance that investors were slow to grasp how China operates.

"For a long time, I believe most of the investors were lulled into a false sense of security in that they were led to believe that being American operators, they're untouchable... because they've had such an outsized presence in Macau that their removal or ejection may result in a massive disruption," Ben Lee, managing partner at Macau gambling consultancy IGamiX, told Yahoo Finance Live (video above).

"But the decision... is not with the Macau partners, but essentially up north in Beijing," Lee stressed. "And the drivers for this particular outcome is more than just the local impact. It is a geopolitical issue."

On Tuesday, Macau Secretary for Economy and Finance Lei Wai Nong announced a 45-day regulatory overhaul of the local gambling industry.

Lee explained that given the tense relationship between the U.S. and China under the Trump administration, the Chinese government may have decided to push off the concession tendering process by two years "due to the fact that Beijing want to see the outcome of the last election."

And since "things have not really improved," Lee said, the authorities decided to go ahead.

The operators that are most "at risk," according Lee, are likely to be Wynn and Las Vegas Sands "because of their previous relationship with [former U.S.] President [Donald] Trump." Both companies' founders had been among Trump's largest donors.

U.S. President Donald Trump meets with China's President Xi Jinping at the start of their bilateral meeting at the G20 leaders summit in Osaka, Japan, June 29, 2019. REUTERS/Kevin Lamarque     TPX IMAGES OF THE DAY
U.S. President Donald Trump meets with China's President Xi Jinping at the start of their bilateral meeting at the G20 leaders summit in Osaka, Japan, June 29, 2019. REUTERS/Kevin Lamarque (Kevin Lamarque / Reuters)

As Beijing moves to crack down on various sectors in the Chinese economy — from education to kids playing video games to Big Tech to celebrities — Lee said that he saw three possible scenarios play out for U.S. gaming operators in Macau.

"One, they get a new concession and they get to remain in Macau," said Lee. "Two, they don't get a new concession, and basically everything reverts back to government under the terms of the old concession."

Or there could be a third scenario, "which is probably a compromise solution," Lee noted, "and that is for the American operators to be diluted out. They can still probably have the management rights to do the gaming, but they may not necessarily have a majority control."

Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected]. Follow her on Twitter @aarthiswami.

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