Chinese Vice Premier Han Zheng last week invited the business community to support the city’s amended gaming law, which he says will ensure the healthier development of the local casino sector.
The bill enables the government to set limits on gaming tables and slots in the city, phase out satellite casinos, increase the number of gaming concessions, and put an end to subconcessions. There are currently three licensed casino operators, with concessions held by SJM Holdings, Galaxy and Wynn. Back in 2002, when the current era of Macau gaming began, the government doubled the original number of operators by permitting three license-holders to issue one subconcession each. That enabled Sands China, Melco Resorts and MGM China to enter the market.
The original license terms were 20 years. The new licenses will be valid for 10 years, with the provision that they can be extended by three years. The new rules require 15 percent of the shares in casino operators to be owned by locals, up from the current 10 percent, per TheStreet.com. The effective tax rate of 39 percent will be unchanged. In addition, casinos will have to boost their capital to MOP5 billion (US$621 million), up from the current MOP200 million (US$25 million).
In welcome news for gaming operators, the government recently provided a six-month extension period before the current concessions expire and the retender begins, from June 26 to December 31. Operators must apply for the extensions, and also pay between MOP50 million (US$6.2 million) and MOP80 million to secure them, reported Radio Macau. Also, operators must provide bank guarantees of up to MOP1.6 billion, to ensure they can meet their labor liabilities if they don’t win new concessions.
The six-month grace period is “a positive for the industry in general … because at least all the operators can really plan properly,” Wynn Macau’s chairman Allan Zeman told the South China Morning Post, adding that the extension was a “prudent” and “smart move” by the government. “It’s better to have certainty than uncertainty.”
“The timeline for passing the gaming law and completing the retendering process by June was too ambitious,” agreed Daiwa Capital Markets’ analyst Terry Ng. “On the flip side, it gives the Macau government more time to ensure the amendments to the gaming law are better thought-out and more comprehensive to ensure the healthy development of the [gambling] sector over the long term.”
“As the public tender process can only happen after the gaming law is approved, and the issuance of the next concessions will take at least a couple of months, it’s unsurprising to see the government pushing out the expiry of the current term to avoid any potential issues,” JPMorgan analysts led by DS Kim wrote in a report.
All six operators have confirmed to GGRAsia that they are preparing to apply for such an extension. A representative of Melco Resorts said the company run by Chairman Lawrence Ho is “committed to participating in the extension application as well as the tendering process, and remain fully confident that Melco can remain a key contributor to Macau’s community.”
The amendment bill was approved at first reading by the Legislative Assembly and is now being reviewed, article by article, by the legislature’s Second Standing Committee.
According to the Macau Daily Times, the government reaffirmed its right to reduce the number of gaming tables and slot machines at any casino at any time and enforce the regulation of so-called “satellite casinos” to ensure they operate according to the laws concerning the ownership of the venues where they do business. Lawmaker Chan Chak Mo reiterated that all gaming venues must be under the direct ownership of the concessionaires that operate them, and that in case of the revocation, cancelation, or expiration of the concession, these assets would revert to the Macau Special Administrative Region (MSAR).
According to Chan, the government gave satellites three years to close to reduce the impact of forced closures. There are “around 20” such gaming halls in the city, Chan said, “for sure not more than 22 or 23.”
A proposed cap on gaming will let Macau Chief Executive (CE) Ho Iat Seng to define the maximum gaming tables and slot machines to be authorized in Macau, while Secretary for Economy and Finance Lei Wai Nong will have the power to reduce individual concession table numbers based on their usage as well as the revenue in gaming taxes coming from each table.
“Usage also can be taken into account to understand if the number [of tables] is enough or not,” Chan explained. “For example, if a concession has an allocation of 100 tables but in the end, the government sees those profits only coming from 50 of them, they can reduce accordingly.” He added that lawmakers will not drastically reduce the number of tables or do it “too often, as the government revenue comes directly from each one of them.
“In cases where gross gaming revenue does not reach a ceiling of earnings that will be defined by the CE, the concessionaire must pay for the difference,” Chan said, noting that the same applies when slot machines and gaming tables are not used “without justification.”
“I don’t think the CE will review the number of gaming tables and machines too often. Each of them has a 40 percent of profit-sharing to the government’s purse, so I don’t think there will be constant changes on this,” he said.
The CE also reserves the right to terminate concessionaires’ gaming license via administrative order in the event they violate national security laws. “If the security of the state and the SAR were involved, the government would use the ‘concept of uncertainty’ rather than the ‘National Security Act’ to deal with it,” Chan said.
In such a scenario, the Chief Executive would need to hear the opinions of the gaming regulator before making any final decision to revoke a casino license and provide sufficient explanation for doing so. The concessionaire involved may also appeal to the court.
According to Macau’s current national security law, which is also up for revision, criminal activities include treason, secession, sedition, subversion and theft of state secrets, among others.
Commenting on the satellite casino provision, Ben Lee of iGamiX said, “I think this is an interesting development that portends more surprises to come. This could open Macau to the Pandora’s box of opco-propco models that are prevalent in other more developed markets. Concessionaires might also be able to go asset-light, as some of the U.S. operators have done.”
Lee observed that the law is still under review and the amendments could face further revision.
