Sheldon Adelson Calls For More Casinos in Macau, Despite Declining Revenues
At at news conference in New York City on Wednesday, Las Vegas Sands chairman Sheldon Adelson spoke about the collapsing market in China. In the midst of a press conference, he was asked about Macau’s falling revenues. His reply received heavy criticism from financial publications, including Business Insider’s Linette Lopez. Ms. Lopez, who works as an adjunct professor at Columbia University in New York City, wrote an article about Adelson titled “In 5 Words the World’s Most Powerful Sasino Mogul Showed He’s Living a Macau Delusion”.
For those who like to cut to the chase, those five words were: “Supply will create the demand.”
One can understand why Mr. Adelson said those words. He has a casino construction project in the works in Macau. Bankers and investors are behind that project and Adelson has to keep his supporters believing in his vision of the future. But it ignores the basic facts which exist in Macau at present.
Xi Jinping’s Initiatives
Chinese President Xi Jinping paid a visit to Macau in December 2014. At the time, he ominously called for Macau to change its economic focus. The words were clear: end the ties to organized crime and prostitution. Clean up your act, get rid of the VIP rooms, and try to become more like Las Vegas.
That is what Macau’s officials began to do in January 2015. That month, they instituted a smoking ban in the city’s casinos. Naturally, they are pushing for a Las Vegas Strip style experience for the mass market gamblers and high rollers alike. That means more shows and dining experiences. Las Vegas Strip generates more revenues from non-gaming ventures these days than it does from the casino gaming floors.
Sheldon Adelson’s Argument
Yet Sheldon Adelson continues to insist more casinos need to be built. If the casinos exist, gamblers from China and the wider Asian gaming market will continue to flock to the area.
Let’s analyze whether that is the case, first by looking at Adelson’s wider theory, and then by looking at the case of Macau in specific. Sheldon Adelson is a smart man. His business plans rest on an economic bedrock, but does that bedrock extend all the way to Macau?
Supply-Side Economics
Supply will create the demand. This is the argument those who prefer supply-side economics always make. As the argument goes, the investor class needs extra money to invest in the economy. These investments might manifest as an entrepreneur investing time and money into a new enterprise. It might manifest as a bank president extending a loan to that potential startup business. It might manifest as a Wall Street stock broker, hedge fund manager, or average investor investing in stocks and bonds.
Whatever the case, the idea is this: give people money to invest and jobs and they will drive the economy. Build it and they will come. Ronald Reagan called it trickle-down economics or Reaganomics. George Herbert Walker Bush, who was Reagan’s opponent in the 1980 Republican presidential primaries and later his vice president, termed it “voodoo economics“–then went on to become an exemplar of the philosophy.
Supply-side economists tend to call for less government regulation of the financial, manufacturing, and retail industries. They call for lower taxes, especially for corporations and small business owners. If they get more money, it trickles down to the middle and lower classes.
Demand-Side Economics
Those who fall on the other side of the argument says the trickle is too little. They argue that supply-side economics is elitist and unfair. More important, they say it is wrongheaded. A demand-side economist says that, if you give money to people who already have a surplus, some of it gets invested, but much of its gets hoarded in savings. That money is taken out of the economy, kept through conservatism and greed from doing any active good for the United States.
Instead, these people argue you should give a bigger slice of the pie to the consumers. If the middle and lower economic classes have more money, they immediately spend that money. Sure, a small percentage will squirrel that extra cash into their savings. Most are living paycheck-to-paycheck, so that money ends up being spent at Wal-Mart, Target, and Costco. A much larger percentage ends up in the economy and, incidentally, in the hands of the corporations and small businesses which the supply-siders would have funded.
There are counter-arguments, of course. Supply-side economists would argue that the money does go to corporations and small businesses, but that still leaves out the entrepreneurial startups. Thus, the economy cannot grow, because new businesses don’t get off the ground. As you can see, these can be circular arguments with point-and-counterpart. The debate has raged for 80 years, since John Maynard Keynes first began to champion supply-side economics during the Great Depression.
Sheldon Adelson’s Chinese Dreams
Sheldon Adelson obviously fits on the supply-side of things. He says, “Supply will create the demand.”
That might (emphasis on “might”) work in the United States. In China, it simply does not work that way, and here’s why.
Chinese officials in Beijing have let it be known they are cracking down on visits to Macau from the mainland. Simply put, the Chinese party members and local Macau officials are working to limit the number of visits anyone can make to Macau. Visas are being tracked. Those who try to circumvent the rules are spotted and their names are recorded. Thus, VIP gamblers are staying home in droves. It is dangerous to try to get around the restrictions, in a way it simply would not be in the United States.
Demand in an Authoritarian Regime
Supply will not create demand, because the demand is being interdicted by the Chinese government. They do not want their people gamble as much in Macau as they once allowed, and it simply is not going to happen anytime in the near-future. Building more casinos does nothing to change those facts.
The only hope casino moguls in the middle of billion-dollar projects in Macau–such as Sheldon Adelson, Steve Wynn, and James Murren–is to lure more non-Chinese VIP players to Macau. If players from Japan and South Korea and Singapore flock to Macau in great numbers, maybe that will fill up the new casinos. But Sheldon Adelson and James Murren just sent representatives to Japan to tell lawmakers there that foreignors-only casinos would never work in Japan–they wouldn’t be worth the investment.
In the end, the current Macau casino developments headed by Las Vegas Sands, Wynn Resorts, and MGM Resorts are doomed to failure. Perhaps by the time those casinos launch in 2017, 2018, and later, the Chinese government will have loosened it grip on passports to Macau. Given that Xi Jinping has many years still in office, that is not likely to happen, though.
