The unprecedented two-week shut-down of Macau’s casino industry over the coronavirus could have devastating effects to the gaming enclave’s local economy as well as challenge the first quarter bottom lines of three U.S.-based casino operators.

The gaming industry employs roughly 30% of the region’s workforce and contributes 80% to Macau’s gross domestic product. The 15-day closure was ordered by the government Tuesday after two local residents, both casino employees, were confirmed to have the virus. The city had 10 cases as of Tuesday.

The shutdown only involves the casino areas. Hotels and restaurants are remaining open.

Deutsche Bank Gaming analyst Carlo Santarelli said the government urged casino operators to maintain employment levels and salaries for staff during the closure.

“We believe this event is likely to accelerate plans for construction applications coming out of the closure, in an effort to revive the economy of Macau as quickly as possible,” Santarelli said.

Macau has 41 casinos, which employed more than 57,000 full-time staff in 2018, according to the South China Morning Post.

Company reaction

Las Vegas Sands is the largest U.S. operator in Macau with six resorts, including Venetian Macau, Sands Macau, Sand Cotai Central, and The Parisian. The company collects roughly 65% of its quarterly revenues from Macau.

Las Vegas Sands spokesman Ron Reese said in email the company was cooperating with the request of the Macau government.

“The health and safety of our team members and guests remains our number one priority,” Reese said. “Our team members in Macau are the heart of our organization and we are committed to ensuring their safety and minimizing the impact of this necessary, temporary measure. The company’s existing preventative measures are being strictly enforced and will continue to be monitored and strengthened as necessary. The hotels, malls, dining, and all other facilities and services at our properties remain open.”

On the company’s fourth quarter earnings conference call last week, CFO Patrick Dumont said Las Vegas Sands had “a very robust risk management program.” However, he didn’t want to comment “specifically on the clauses of our policy and the likelihood of that type of event or the coverage that we have. But we are prepared.”

Dumont said Las Vegas Sands’ balance sheet would help the company “manage through this in the best way that we can and support whatever initiatives from the government that we need to.”

Wynn Resorts, which also collects 65% of its revenues from Macau, operates Wynn Macau, Encore and Wynn Palace in Macau.

“Our greatest concern and our top priority is the health and safety of our employees, their families and the citizens of Macau,” Wynn Resorts spokesman Michael Weaver said in a statement.

“We believe that our goals and the goals of the Macau government during this challenging period are fully aligned,” Weaver said. “We support the government’s decision to prioritize public safety and temporarily suspend the operations of all of Macau’s gaming areas, which we believe is in the best long-term interests of everyone concerned.  We will fully cooperate and comply with all government directives and recommendations.”

MGM Resorts operates two resorts in Macau, MGM Macau and MGM Cotai.

“MGM will follow the government’s directions in the fight against this epidemic,” MGM Resorts spokeswoman Debra DeShong said in a statement. “We are closing our casinos and gaming areas, while maintaining non-gaming facilities to support hotel guests in both of our properties. We will continue to work closely with the Macau government as the situation progresses.”

DeShong said the company will continue to pay its Macau employees “during this closure period.”

Stock market reaction

The stock prices of the three companies declined in pre-market trading Tuesday, but had all rebounded by the end of the day.

Las Vegas Sands was up $1.28 or 1.92% to close at $67.84 on the New York Stock Exchange.  Wynn was up $4.12 or 3.20% to close at $132.70 on the Nasdaq. MGM finished $32.26, up $1.05 or 3.35% on the New York Stock Exchange.

“Since these events are generally transitory in nature, we view this as a unique buying opportunity for Macau gaming stocks trading below historical average multiples,” Union Gaming Group analyst John DeCree said in a note to investors.

Jefferies gaming analyst David Katz said the two-week closing announcement wasn’t surprising, giving the challenges the market is facing.

“Our assumption, and we believe that of the market, is that operations ramp over time and the impact is confined to the first quarter, which may or may not prove correct, but is supporting stocks,” Katz said.

Macquarie Securities gaming analyst Edward Engel, who is based in Hong Kong, said it was unknown if the closure will extend beyond two weeks. He said the government already expects Macau to have a budget deficit in 2020 due to the closures.

“However, after running a budget surplus for four consecutive years, the special administrative region has plenty of reserves to tap into,” Engel said. “Yet, given Macau’s dependence on gaming, we believe regulators would prefer the shutdown be as short as possible.”

Macau gaming revenue fell 11.3% in January a depressed figure given the virus’ effect just as country was celebrating the Chinese New Year Holiday, often considered the busiest time in the gaming enclave.

Last week, Las Vegas Sands executives said visitation to the company’s properties was down 80% during the holiday after the government curtailed transport links with mainland China in an effort to contain the virus.

According to Bloomberg News, the two-week shutdown could result in a 50% decline in first quarter gaming revenue, according to a Feb. 4 research note by Sanford Bernstein. If casinos were to remain closed for the rest of the quarter, gaming revenue would show a year-on-year decline of over 70%.

Before the coronavirus spread, analysts were hopeful Macau’s gaming market would recover during January after casino revenues declined 3.4% in 2019, the special administrative region’s first annual revenue drop since 2016.

Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.

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