Fairfax media reported this morning that gaming revenue in Macau fell by 48.6% in the month of February – the biggest single fall since 2004 and the ninth straight month of revenue declines.
Given that lead investor Melco Crown Entertainment reported a 20% decline in net revenue for the three months to 31 December 2014, shareholders in that company could be in for another ugly update in a few months' time.
This of course affects Crown Resorts Ltd (ASX: CWN), which owns a 33% stake in Melco Crown, and earns a fair portion of its earnings from Macau.
Crown Resorts earned $321 million in 'normalised' profit, or $201 million in 'statutory' profit in the six months to December 31, depending on which set of figures you prefer to use.
Either way, the reported (statutory) profit of around $85 million from Macau is a sizeable contributor to earnings, and investors are right in wanting to investigate further.
Given that the decline in Macau revenue is thought to be due to a crackdown on corruption, it poses an interesting conundrum for shareholders.
On one hand, it could be a temporary interference and gambling will resume more or less normally once the Chinese government relents.
It is probable that a large number of punters have been scared off by the crackdown. Let's be honest – even law abiding citizens find it hard to get excited about being caught up in a police investigation.
On the other hand, corruption (the 'reallocation' of public funds and/or bribery) is counterproductive to society and it is fairly safe to say that most nations want to stamp it out.
If Macau revenues are driven by corruption, then the idea that the Chinese government might just get bored after nine months and cease its investigation – simultaneously leaving enough corruption behind to instantly restore gambling revenues to their former levels – sounds pretty silly.
It is basically impossible to tell which of these two competing viewpoints is closest to reality, so investors are best sitting tight for the time being.
One thing you can CAN hang your hat on is the fact that Crown is a strong business with a number of opportunities.
In fact Crown's two main casinos – Melbourne and Perth – are both larger than the Macau venture, and still growing, while a number of other ventures like Sri Lanka and Las Vegas have some potential.
Less than a year has passed since Macau revenues started falling, and that is also far too early to determine if the business has gone bad or is just going through a rough patch.
So if you're a shareholder, don't panic sell, and if the revenue decline is enough to turn you away from a purchase of Crown shares then make sure you check out The Motley Fool's FREE Top Stock for 2015 report.