As expected, on June 21 Macau lawmakers passed the city’s new gaming laws, with some provisions of that law taking effect almost immediately, on June 23. The new framework coincides with an uptick in Covid-19 infections, yet another roadblock to recovery of the city’s chief industry.
According to Sanford C. Bernstein analyst Vitaly Umansky, due to Beijing’s strict zero-Covid policy, “Visitation into the city will be severely limited—perhaps being almost completely blocked—and revenues are set to plummet close to zero for at least the next week, and quite likely several weeks.” The total number of inbound tourists last Tuesday was just 330, down 99.7 percent from 2019.
City officials ordered government services, schools, public parks and most businesses closed down, although the casinos were permitted to remain open, even though there would be no customers.
“There is no plan to close casinos for the time being,” said Leong Iek Hou, of Macau’s Center for Disease Control and Prevention. “The government will close venues based on scientific risk assessment.”
The lockdown forced all Macau citizens and visitors to once again turn up for Covid 19 testing, to ascertain how widespread the current infection is.
Even so, with the latest outbreak, some gaming operators “may need to get capital injections either from capital markets or controlling shareholders” to ride out the revenue drought, said Umansky. For the second time this month, Bernstein Research cut its forecast for June gross gaming revenues (GGR), and now expects numbers to be down 91 percent from pre-pandemic levels. Citigroup’s George Choi slashed his projections for July by two-thirds to 3 billion patacas (US$370.8 million). Moody’s also chimed in, saying that new restrictions on visitation to the city “again highlight the risks of a slow and uneven recovery, which is credit negative to all operators in the gaming sector.”
According to Macao News, the new gaming law “seeks to regularize rather than revolutionize the city’s premier industry and financial backbone.” It fixes the tax on GGR at 40 percent, though the city’s chief executive may reduce it by up to 5 percentage points for operators who attract customers from foreign countries. It provides for up to six concessions and concession terms of 10 years, which may be extended by three years in certain circumstances.
A previous draft of the law required that the city’s satellite casinos be located on real estate owned by the gaming concessionaires, but that policy was later relaxed. Now third-party management companies may continue to run satellites on behalf of gaming concessionaires, but don’t have to own the buildings in which they are located. The management companies will no longer be allowed to share the revenues of the satellite casinos with the respective gaming operators. Instead, the operators will pay those companies a management fee.
Not surprisingly, the current operators, all assured of winning new concessions, hailed the passage of the bill. Galaxy Entertainment Group said it was “encouraged by the passing of the bill” and that it will “fully prepare itself for the tendering process for the new gaming concessions, and work together with different stakeholders to create a better future.”
Melco Resorts & Entertainment said the new law “refines the relevant legal framework and promotes the sustainable and healthy development of Macau’s gaming industry for the benefit of the Macau community.”
Melco added that it “will continue to promote economic diversification to further strengthen Macao’s position as a world center of tourism and leisure.”
MGM China expressed “sincere gratitude to the Legislative Assembly and Macau SAR government for their efforts in accomplishing the passage of the gaming law smoothly and successfully.”
The U.S.-based company added that it “will continue to unswervingly support the relevant plans of the Macau SAR government to promote economic diversification, and fully support Macau to further consolidate its position as a world center of tourism and leisure.”
Sands China President Wilfred Wong said his company “is once again very grateful to the SAR government for carrying out extensive consultations throughout the entire legislative process, which led to a consensus among the general public.”
Wong continued, “Sands China will comply with and abide by the provisions of the new gaming law to contribute to the healthy and sustainable development of Macau’s gaming industry.”
SJM said the new law provides “clear guidance for the healthy and orderly development of Macau’s gaming industry, to pave the way for the long-term prosperity and stability of the city.”
SJM also said it “has been earnestly preparing for the tender process and is confident in the company’s continued future presence in Macau, in contribution to reinforcing Macau’s positioning as a world center of tourism and leisure.”
Wynn Macau said it’s “pleased that the amendment has been approved and we would like to express our appreciation to the government and the Legislative Assembly for the very efficient process and collaborative engagement with all of the stakeholders.”
Wynn added, “We look forward to working closely with the government as the amended law is introduced and to contributing to the continued healthy and orderly development of the industry.”
Under the law, there are no longer subconcessions—all operators are now on an equal concession basis. The new law also reduces the concession term to 10 years, down from the previous 20.
For all the upbeat statements, Macau has some tough times ahead. As reported by Asia Gaming Brief, gaming stocks dropped on news of the latest Covid outbreak, and JP Morgan has turned its focus to cash burn. “It goes without saying the knee-jerk reactions will likely be very negative, but we admit it’s probably too late to downgrade the stocks here,” the institution wrote in a note. It calculated that, sans revenues and with no additional capital infusion, Wynn Macau, MGM China and Melco Resorts & Entertainment have up to two years’ of liquidity. Galaxy Entertainment Group could be comfortable for about 60 months.
“Under this harsh stress test,” it added, “SJM and Sands have the shortest liquidity runway of nine months until March 2023.”
Bernstein agreed that the new outbreak, “coming on the heels of a softer GGR environment since early this year due to travel restrictions following outbreaks in China, will add pressure on operators’ liquidity … but all operators should have access to ample liquidity to weather the storm.”
The gaming licenses of the Big 6 concessionaires were originally due to expire June 26, but operators were granted six-month extensions to December 31, paying just under $6 million each for the grace period.
In a memo on June 22, Moody’s projected Macau’s 2022 mass-market gaming revenue will reach “around” 40 percent of 2019 levels, then improve to 80 percent in 2023, with “full recovery” in 2024. It did not anticipate “any significant recovery” in VIP revenue because of the “regulatory crackdown on junkets.”
Moody’s added that it expects all six concessionaires to win new licenses. “Failure to renew any existing concessions will pose substantial risk to Macau’s government finances,” it wrote, “because of the significant amount of taxes and employment the industry generates.”
