Is Macau party for Wynn, Adelson headed for trouble?

For casino titans Steve Wynn and Sheldon Adelson, the roaring Macau casino market has been a seemingly endless party of rapid expansion and record-setting profit.

Stock in Wynn Resorts International and Las Vegas Sands Corp. has rocketed, and the personal wealth of the mercurial multibillionaire CEOs has climbed into the upper stratosphere. Wynn is enormously wealthy, and Adelson ranks as one of the world’s richest men.

But is their party in the process of being interrupted?

With a hard rap at the door, the Chinese government recently confirmed its corruption investigation of former Minister of Public Security Zhou Yongkang, who also once sat as a member of the Chinese Communist Party’s esteemed Politburo Standing Committee. The investigation and fall from grace signals a new crackdown on corruption that promises to reverberate through Macau’s gaming industry, the Macau Business Daily reports. It has been reported that Macau has provided a playground for corrupt Chinese business owners and some government officials. The crackdown at least temporarily signals trouble for Macau’s VIP room and junket operators, some of whom already suffer from an image problem due to the historical connections between their money movement and lending models and Chinese Triad organized crime families.

Add to the squeeze earlier this year put on China’s UnionPay money transfer cards, which were commonly used to move money from the mainland, where gambling is illegal, to Macau’s casinos, and life has grown more complicated for the gambling kings.

The turmoil and precipitous drop in high roller play compelled Deutsche Bank to trim its third quarter forecast for Macau casinos overall. Although news of the official confirmation of the corruption probe sent Wynn and Sands stock prices downward, the stories only confirmed what astute observers have been expecting for many months: The Macau junket racket with its inherent money laundering troubles either will evolve rapidly or face the consequences. One notable scandal among several in recent months: A junket operator in April vanished and took with him an estimated $1.3 billion.

Noted short-seller James Chanos smelled trouble early in Macau. In May he warned against investing in the long term in Macau due to its money movement problems, its Triad-linked junkets and VIP play, and a long-rumored corruption probe.

“The Macau casinos have a wonderful business,” Chanos has said. “It’s taking in money from Chinese businessmen elsewhere who send it through junky companies to casinos to gamble.”

Add to that recent reports of growing protests by casino workers calling for higher wages and improved benefits, and the billionaires’ party is getting boisterous, indeed. Just this week, the Macau Business Daily reports, an estimated 2,000 casino employees marched for higher wages outside The Venetian.

Although Wynn’s reputation with organized labor in Southern Nevada has been respectful and at times even amiable, Adelson for several years fought hard to prevent the Culinary Union from organizing on his property. With casino employees taking to the streets, it doesn’t take much speculation to predict trouble ahead.

Macau, forever a smuggler’s paradise with a long history of political corruption and Triad mob influence, remains a remarkable success story in 2014. And Wynn and Adelson have ridden the crest of that success.

If their companies make it through the probe without suffering mortal wounds, Macau’s casino operators could emerge even stronger than before.

Wynn and Adelson have drunk deeply from the intoxicating champagne of the Macau gaming market.

Are their companies about to experience one hellacious hangover?

John L. Smith’s column appears Sunday, Tuesday, Wednesday, Thursday and Friday. E-mail him at jsmith@reviewjournal.com or call (702) 383-0295.