An unnamed Macau casino executive recently told local media that government officials may be demanding too great an investment from the city’s Big 6 gaming concessionaires. As a condition of their new 10-year concessions, which began January 1, the operators were tasked with investing millions in non-gaming attractions.
The city reopened its borders January 8, shortly after the new concession terms began. Since then, the recovery of gross gaming revenues (GGR) could activate a government requirement that operators increase by one-fifth their financial investment in non-gaming amenities and international tourism.
As reported by GGRAsia, the Big 6 — Wynn Macau, Sands China, MGM China, Melco, SJM and Galaxy — allotted a total of US$13.47 billion for non-gaming and overseas marketing.
The executive, who spoke on condition of anonymity, said the casino companies are being asked by Macau authorities to perform services beyond the scope of their expertise in gaming and hospitality, such as helping to advance medical tourism.
He added that gaming operators’ bottom line could suffer if extra non-gaming investments “do not effectively contribute to income,” directly or otherwise. “For most of the operators, it will be relatively more effective for them to deploy such funds to reduce their debts, and therefore lower their respective interest-payments burden and as a result, enhance their dividend payout capacity,” the executive said.
“From where we stand now, I would say that the amounts we already allocated to entertainment and MICE (meetings, incentives, conferences and exhibitions) events and the like are sufficient under the circumstances, and the priority now should be to build more rooms and facilities for visitors to the integrated resorts.”
In August, Macau Chief Executive Ho Iat Seng said GGR could reach MOP200 billion (US$24.75 billion) next year, more than the MOP180 billion ($US22 billion) benchmark that would trigger the extra investment under the concession rules. The maximum 20 percent extra on nongaming and overseas marketing could mean an additional investment of up to MOP21.74 billion (US$2.7 billion).
Andy Choy, former Macau gaming executive, now managing director of Choy Consulting Services of Hong Kong, spoke in favor of the new investments in general, telling GGRAsia, “There’s no denying Macau sorely needs more non-gaming amenities and events to help attract visitors from different demographic groups beyond the core gaming enthusiast.
“Given the sheer size of the Chinese market, there are undoubtedly untapped segments of potential customers who have yet to visit Macau.” He agrees that the city “has a shortage of hotel rooms” as well as “inadequate transportation infrastructure to grow (the tourism market) to its full potential.”
And Aras Poon, associate director at S&P Global Ratings, told the news outlet that the “investment commitment under the concession” should be “manageable given the expected cash flow recovery for the rated issuers.”
He pointed out that concessionaires can “spread the commitments over the 10-year term of the new concession. We expect our rated issuers to see their EBITDA (earnings before interests, taxation, depreciation and amortization) recovering to at least 80 percent of their 2019 levels in 2024. This should help them restore credit metrics to closer to 2019 levels by 2025, while funding the capital-expenditure and shareholder-return requirements.”
Gaming law expert António Lobo Vilela told GGRAsia that more non-gaming in Macau would be “welcome” and the market could never have “too much” of it. But he said casino operators are also being asked in some instances to invest in areas where they “don’t have expertise.”
“Casino operators…are required to develop tasks that are public in nature which the government should directly pursue,” said Vilela, pointing to “health tourism” as an example.
According to Inside Asian Gaming, the other industries include meetings and conventions, innovation and technology and modern finance. He said it makes more sense for operators and the government to concentrate on “the Macau airport expansion project.”
“The government and the casino operators could have implemented a project to take full advantage of Macau’s privileged position with Southeast Asia consumers and reduce its dependence on visitors from Mainland China. A gaming operator-led negotiation with established airlines could quickly boost scheduled flights or even the start of a new airline to serve Macau,” he said.
Ryan Ho Hong Wai, of the Center of Gaming and Tourism Studies at Macau Polytechnic University, likened the cooperation between the gaming industry and other industries to the development of Middle Eastern markets.
“Oil companies in the Middle East help develop other industries by using the capital gained from oil to ensure the sustainable development of the local economy,” Ho told GGRAsia. He added, “These industries should absorb resources and talents from other regions and the globe, rather than only relying on the resources of the concessionaires.
“Even though concessionaires own a great number of resources in promoting the development of non-gaming elements, other industries should develop their own resources in the long run.”
The government wants to reduce Macau’s reliance on gaming as an economic driver, it wants to reduce the contribution of gaming to the SAR’s gross domestic product (GDP) by 11 percent in the coming years, from 51 percent in 2019 to 40 percent by 2028.
