Macau is an island off of the China coast and since the 16th century it has been home to a robust, albeit illegal, gambling environment. In 1847 the Chinese government legalized gambling on the island, establishing it as a main economic driver to the area.
Over the next hundred or so years the Chinese drifted in and out of various states of legal and illegal gambling status. In the 1960s the current gambling legislation was established and specific licenses were extended to a limited number of gambling houses. These license holders held monopoly positions for the last 40 years! Over this time, Macau became known as the “Oriental Monte Carlo.”
Just to give you an idea of the impact gambling has on the area . . . the tax revenue represents more than 30% of the government budget and the industry employs 10,000 local residents. Now that is what I would call an influential industry! A few years ago, the government decided to open up the licensee process and suddenly the US based casinos like the Wynn Resorts (NASDAQ: WYNN) and the Las Vegas Sands (NYSE: LVS) had the opportunity to submit proposals to build and own casinos. The MGM Mirage (NYSE: MGM) is currently planning two developments in the area! Now you may ask yourself, major casinos like these already have operations is places like Las Vegas and Atlantic City, why is Macao so important?
One simple reason . . . actually 3 billion reasons. China has more than 3 billion residents that live within a short flight of Macau; compare that with the 250 million that live in the United States. It quickly becomes apparent that the potential market is 12 times the size of the US. This is a great opportunity for investors as the casinos will continue to develop the Macau area. Building on the strong interest the Chinese have in gambling, the long term growth potential is enormous. Over the next few months you will see the government issue license to many of these “global” casino operators, and with the business potential in this area alone, any positive news should materially impact these stocks!