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Located in a small corner of a giant country, it's home to a series of massive casino resort hotels. Millions of visitors flock there every year in the hopes of winning big money, having the time of their lives -- or both.
Las Vegas? No, Macau. This Asian enclave has been -- until recently, anyway -- a red-hot market for gambling and associated tourism over the last decade, and it's helped fill the coffers of more than one U.S.-based operator.
China's Turn at the Table
Like nearby Hong Kong, Macau spent several centuries as a colony of a European nation before being handed over to the Chinese government in 1999.
Macau's gambling scene, which stretches back to 184, since 1962 had been controlled by one company -- privately held STDM -- under license from the Macau government.
One of China's first significant moves as Macau's new overseer was to change that situation once the license expired. In 2002, it opened the casino market to competition.
In a very short time, several American companies that had grown rich from their operations in Las Vegas won Macau concessions via subsidiaries, typically in partnership with Asian concerns. These were Las Vegas Sands (LVS), MGM Resorts International (MGM) and Wynn Resorts (WYNN), joined by Hong Kong-based operator Melco Crown Entertainment (MPEL).
Showing Their Hand
Among those companies, Las Vegas Sands was the quickest to establish itself in Macau, opening its Sands Macao resort in 2004.
The company built aggressively, rapidly establishing a commanding presence in Cotai (a government land reclamation project in the enclave), christening its stretch of properties there the Cotai Strip. Three of the company's four existing Macau resorts are on the Strip, and it's building another.
The Cotai Strip is getting as crowded as its Las Vegas progenitor. In addition to the existing Las Vegas Sands properties, the stretch is also home to Melco Crown's City of Dreams and Studio City, plus the Galaxy Macau, operated by Hong Kong-listed Galaxy Entertainment.
Both Wynn and MGM (currently operators of one resort apiece in Macau) are, like Las Vegas Sands, busy constructing new projects on the Strip.
Streaky Performance
At first, those companies must have felt like the lucky winners at the blackjack table. The broader Chinese economy grew powerfully, and as a result the money started to roll into Macau. From 2009 to 2011 alone, gaming revenue leaped from 121 billion patacas ($15 billion in today's dollars) to 269 billion patacas ($33 billion).
Along the way, Macau began to loom larger in importance for the concession holders. Ironically, Las Vegas Sands' net revenue from its Macau resorts now far eclipses that from its Las Vegas holdings -- $2.3 billion versus $381 million in the company's third quarter.
But like a gambler laying a big bet on a single play, Macau's casino players are playing a risky game --and that action isn't so hot these days. The Chinese government recently cracked down on corruption, with a major part of that effort directed at the rather loosely controlled VIP segment of the Macau casino market.
As a result, high rollers have been spooked away from the table, and their loss hurts. Macau's gaming revenue fell by 2.6 percent on a year-over-year basis in 2014 -- the first annual decline since the concessions were issued. Worse, the enclave experienced a 30 percent year-over-year drop for December.
This trend has badly impacted the share prices of the U.S.-listed casino operators active in Macau. Las Vegas Sands' stock lost 27 percent of its value across 2014, while Melco Crown did even worse (down 37 percent). Meanwhile, Wynn saw a 25 percent drop, and MGM declined 10 percent.
Down, but Not Out
So is it game over for these operators and their pet Asian market?
Probably not. Although the VIP segment has taken a hit, there is plenty of potential in the mass market -- the casual gamers who don't concentrate on high-stakes play. In spite of the crackdown, total visitor numbers continue to grow, advancing by 15 percent year over year this past November.
The Cotai Strip properties tend to cater to the mass market. The sprawling resorts there feature a great many non-gaming activities, with retail outlets and conference facilities bringing in money.
Considering that, we can expect that once the Macau casino industry pivots away from VIPs, the overall casino business there will halt its slide and return to its former healthy growth. And the market's big players -- particularly those busy Western companies -- will again take a big share of the winning action.
Motley Fool contributor Eric Volkman has no position in any stocks mentioned, and tends not to be successful when gambling. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. Looking for a winning play for your portfolio? Check out The Motley Fool's one great stock to buy for 2015 and beyond.