The explosive growth of the casino industry in Macau may be threatened as the government of Macau ? the Chinese gambling Mecca ? is considering ways to impose restrictions on age, number of tables and locations of casinos.

Yesterday, government officials of Macau met with six major casino operators including Las Vegas Sands (LVS) and Wynn Resorts Ltd. (WYNN) and a casino jointly operated by MGM Mirage (MGM) and local businesswoman/tycoon Pansy Ho, concluding that limitless expansion of the Macau gambling sector may be harmful to the society. Significant expansion of the gambling business in Macau has encouraged corruption, addiction and prostitution in that area.

The government is considering regulations like raising the entry age limit for casinos to 21 years from 18 years, limiting the number of tables per casino and modifying zoning laws to compel slot machine halls away from residential areas and into commercial zones.

Macau has become an attractive destination for the casino companies such as Las Vegas Sands, Wynn Resorts and MGM, who are investing billions for expansion on this island. Macau has survived the economic downturn relatively well. It has generated HK$105.6 billion ($13.5 billion) of gross gaming revenue in 2008, more than double the revenue generated by the Las Vegas strip. Also, visa restrictions had recently been lessened by Beijing to allow mainland tourists to visit Macau once a month rather than twice a year.

Last week, Wynn Macau has experienced a strong debut in the Hong Kong stock exchange. Wynn sold 1.25 billion shares or a 25% stake in its Macau business, which represented the Hong Kong’s second-biggest IPO of the year. Las Vegas Sands is also planning an IPO of its Macau assets in late November or early December.

We think that such regulations will pose a threat to casino operators in Macau , though oversupply may be limited in the region.

Pending further development, we continue to hold a Neutral recommendation on the shares of Las Vegas Sands, Wynn Resorts and MGM Mirage.

Zacks Investment Research
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