Why Macao’s Casino Stocks Jumped on Friday

What happened

The casino industry got a bit of good news on Friday as officials in Macao move closer to finalizing concession rules for 2022 and beyond. Current licenses to operate casinos run out in June of this year, so there’s urgency to get licenses renewed and there were some indications that big changes may be coming, which didn’t end up being the case.

Melco Resorts & Entertainment (NASDAQ: MLCO) was the biggest mover after jumping 16.9% early, Las Vegas Sands (NYSE: LVS) wasn’t far behind with a 16.1% gain, Wynn Resorts (NASDAQ: WYNN) jumped 9.7%, and MGM Resorts (NYSE: MGM) was up as much as 4.9%. The stocks were up 15.9%, 13%, 7.5%, and 0.2% respectively at 11:50 a.m. ET.

Image source: Getty Images.

So what

Given that current casino licenses run out in a few months, there’s a lot of urgency in figuring out what new rules will look like. Macao’s government has taken public comment and is now recommending rules to the legislature that look fairly similar to what we have today. Here are the highlights:

  • The number of casino concessions will be capped at six, keeping the number of operators flat.
  • Duration of casino licenses was cut from 20 years to 10 years with a three-year extension option.
  • A requirement for local ownership of firms was increased from 10% to 15%.
  • There will be a public float cap, or limit on the percentage of a company that can be owned by the public, at 30%. This will apply to the Macao subsidiary, not the U.S. parent companies of Las Vegas Sands, Wynn, or MGM.
  • Taxes are expected to remain unchanged for gambling activity.

Even bringing a little bit of certainty to the market is welcome news and that’s why stocks are up big today. This doesn’t change the fundamental weakness in Macao’s gambling market though, which continues to struggle from restrictions related to the pandemic.

Now what

The next unknown is what the cost of these licenses will be and it’s expected that an auction will take place before June. But knowing that the number of concessions won’t be cut down from six and tax rates aren’t likely to change is seen as good news.

While the market likes this news today, let’s not forget that Macao’s gambling revenue is off sharply since the pandemic began and there’s a long road to recovery. That will be just as important as keeping gambling licenses, so these companies aren’t out of the woods yet.

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Travis Hoium owns MGM Resorts International and Wynn Resorts. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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