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Macau Looks Beyond Gambling as the Take From the Tables Slows

The entrance to the Sheraton Macau casino. Macau is looking at ways to make its economy less reliant on casino gambling.Credit...Thomas Lee for The New York Times

MACAU — Macau had been on a hot streak.

Over a span of 10 years, the Chinese territory reshaped itself from a sleepy Portuguese colony into the world’s largest gambling destination. A flood of money from the increasingly wealthy mainland washed over the city and its residents, and the casino industry now dominates the economy.

But this autumn, gambling revenue dropped precipitously, by nearly 20 percent in November from the same month last year. The stocks of casino operators have slumped after Beijing announced that the Chinese police would be cracking down on the flow of illicit money through the territory.

That move came ahead of a visit by President Xi Jinping of China, who arrived in Macau on Friday as part of the city’s commemoration of the 15th anniversary of its handover from Portuguese to Chinese control.

Macau is taking a hard look at how to wean itself off its heavy reliance on gambling. Casino resorts are using diverse approaches — like Shrek-themed breakfast buffets for families and boxing title fights — to attract mainland Chinese visitors who will spend at least some of their vacation money away from the tables.

“There’s an opportunity for Macau to attract a new breed of customer, one which is looking for a more holistic experience,” said Aaron Fischer, a gambling analyst at the brokerage firm CLSA.

Beijing has openly pressed the Macau government to diversify into a “family-style entertainment zone” with less reliance on gambling.

“The dominance of one industry can lead the city to prosperity, but it also can lead to its demise,” Li Gang, director of the Central People’s Government Liaison Office in Macau, said this last week.

It is a message for casino operators as well, as several gambling concessions will come up for renewal beginning in 2016. One of the main criteria for the assessment of casino operators will be their development of nongambling facilities.

Nongambling revenue at the resorts now accounts for 10 percent of revenue at most, compared with 60 percent in Las Vegas, Mr. Fischer said.

For Macau, the Vegas model of an all-inclusive holiday destination in which gambling is only part of the experience is increasingly appealing.

On the first day of the Macao Gaming Show last month, Maria Helena de Senna Fernandes, director of the Macau Government Tourist Office, played up the territory’s charms outside the casinos.

“We want this type of exhibition to allow people from all over the world to learn more about Macau,” Ms. Fernandes said. “It doesn’t have to be all about gaming.”

But gambling has been a cash cow that last year injected more than $45.2 billion into the economy of this city of half a million people. The gambling sector accounts for just over 80 percent of Macau’s economy, Carlos Siu Lam, an associate professor at the Gaming Teaching and Research Center at Macao Polytechnic Institute, estimated.

But Chinese gamblers, particularly the high rollers, have been staying away. The shift has been driven by anticorruption measures, a slowing Chinese economy and a lack of confidence in junket operations — in which middlemen act on behalf of the casinos to attract big spenders by arranging their travel and handling their gambling credit.

Fitch Ratings predicts that Macau’s economy will shrink 1 percent in 2015 and warns that weakness in the V.I.P. market may spread to ordinary visitors. The city government’s budget for next year is based on little change in tax revenue from this year — suggesting that zero growth is expected.

“Short term, we are quite bearish” on the Macau market, said Mr. Fischer of CLSA.

Transforming Macau, though, won’t be easy.

Softness in the V.I.P. segment of Macau’s gambling industry has made the mass market more important. Millions of middle-class mainland Chinese with disposable income have plenty of options for gambling in South Korea and several Southeast Asian countries.

The large lower end of the mass market may have been priced out of the casinos, with the minimum bet at some tables doubling since last year to more than $250, Mr. Fischer said. There is also a generational fault line: older, hard-core gamblers who tend to play baccarat, and lots of it, and younger travelers who view gambling as only one part of their experience in Macau.

Macau’s short supply of land will also constrict growth..

“We believe Macau is a tourism story, and without more hotel rooms, then Macau can’t grow the overnight visitor market,” Mr. Fischer said. Macau’s casino operators have around 16,000 hotel rooms, compared with 160,000 hotel rooms in Las Vegas.

The older gambling district of the city — home to the Grand Lisboa, whose owner is the Sociedade de Jogos de Macau, and to the first casinos opened by Las Vegas Sands and Wynn Resorts — is all but built up. A newly developed area known as the Cotai Strip is where Macau’s future is being developed

The strip is abuzz with construction. A wave of eight large-scale casino resort is to open starting in the middle of next year, along with the second phase of the Galaxy Macau.

By the end of 2015, Las Vegas Sands will open its fourth property on the Cotai Strip — the $2.7 billion Parisian Macao, which will feature a half-scale Eiffel Tower replica. Shortly after, Melco Crown Entertainment’s Studio City Resort is expected to open, followed by the $4 billion Wynn Palace. Expansion is underway at the Sands-owned Venetian resort, currently Macau’s largest. Near the Venetian, a Chinese state-owned construction company is building the $2.9 million MGM Cotai.

The central government has also earmarked the adjacent island of Hengqin to partly relieve Macau’s land shortage.

All of these mega-resort projects — with their casinos and nongambling features like hotels, restaurants, retail and entertainment — will require tens of thousands of employees. That suggests that government action on easing immigration and a ban on foreigners working certain jobs on the casino floor will probably come sooner than later. Immigration is a sensitive issue in tiny Macau, and allowing foreigners to work in the gambling areas of the casinos is likely to upset local labor unions.

“We simply don’t have enough of a work force, so we need to import workers,” Mr. Siu said. “But the question of how to do this in a socially acceptable way is something that needs discussion and compromise.”

On Saturday, Macau’s head of government, Fernando Chui Sai On, will begin his second term. A new secretary for economy and finance, Lionel Leong Vai Tac, will be charged with overseeing the gambling industry. Mr. Leong has been quoted by the Macau news media as saying he favors relaxing labor import restrictions.

More significant, Mr. Chui’s inauguration will be attended by Mr. Xi, the president. Given the effect of Mr. Xi’s anticorruption campaign on Macau’s gambling and the amount of political weight he can throw behind new initiatives, whatever is said over the weekend is likely to ripple through the industry and guide future development.

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