Macau Plans Sharp Turn from Gaming Economy

Macau is getting serious about a pivot away from gaming to underpin the city’s economy. At a government policy address last week, Chief Executive Ho Iat Seng (l.) laid out a goal to draw 60 percent (versus 14 percent in 2019) of total GDP from non-gaming. As a result, Macau operators have pledged to reinvest billions in their properties over the next 10 years.

Macau Plans Sharp Turn from Gaming Economy

In his government policy address for 2023, Macau Chief Executive Ho Iat Seng made it clear that the city will proceed with its plan to move away from a gaming-centric economy toward one that also relies on healthcare, finance, technology, sports and culture.

As reported in Macau Business, Ho said each of the four industries should contribute at least 15 percent of the city’s gross domestic product (GDP), for a total of at least 60 percent.

Historically, casinos have been the backbone of the local economy; prior to Covid-19, gaming contributed up to 80 percent of GDP on an annual basis and employed one-fifth of the city’s working population. Since the pandemic, limits on travel and periodic casino shutdowns have caused a drastic decline in revenues and employment and has operators burning cash to maintain their businesses.

In 2019, for example, gaming revenues came to MOP$112.7 billion (US$14 billion), and kicked in 86 percent of all government taxes. By contrast, in the first 10 months of this year, gaming accounted for just MOP35.7 billion (US$4.423 billion), down about 40 percent from the previous period.

Ho added that Macau’s fabled gaming industry remains vital to the city and will keep going strong. In the past, he has said that “the proportion of gaming in Macau’s GDP should not be less than 40 percent.”

In his November 15 address, Ho reaffirmed that view. “Gaming is always the main source of our economy,” he said, “and once made up for about 60 percent to 79 percent of the city’s GDP. This figure is adjustable. When there is a goal, we then start to cultivate the development of each sector.”

He added that three straight years of decline doesn’t mean the end of Macau gaming. The Big 6 concessionaires, who now await results of the license retender, have generated “colossal revenue” for the special administrative region in the past 20 years, Ho noted. “I can only say that we are confident, whether you believe it or not.”

Meanwhile, Macau’s Legislative Assembly will decide by “mid-December” on regulations to govern the city’s junket industry, which provides high-value customers to city casinos.

Legislator Chan Chak Mo, head of the committee assessing the bill, informed the news outlet that individuals may no longer be licensed as junkets; only companies. In another proposed requirement, junket firms would have to demonstrate that they hold MOP10 million (US$1.24 million) in ready capital, along with a bank guarantee. In addition, each Macau junket would only be permitted to work with a single concessionaire.

Chan said a list of junkets and their casino partners will be available to the public. Local government data indicates that 46 such operations are now licensed in Macau, though it’s unclear how many are active.

The bill’s current draft also includes a provision about joint liability for VIP business by casino operators and their junket partners. Chan added. “The law provides that the concessionaire is jointly and severally liable for the activities of the gaming intermediary in the casino, but the definition of what constitutes an activity in the casino is very broad,” he said.

As described in the legislation, “A junket, its directors, agents and employees accepting deposits or chips from others in a casino must exchange the deposits or chips with the concessionaire and record the transaction, and the concessionaire will be jointly and severally liable.”

The junket bill is expected to go to legislators in mid-December and pass by the end of the year. Likewise, gaming concessions are expected to be announced by the end of December. Seven bidders have lined up for six 10-year licenses. Six are incumbents: Wynn Resorts (Macau) S.A., Venetian Macau S.A., Melco Resorts (Macau) S.A., MGM Grand Paradise S.A., Galaxy Casino S.A. and SJM Resorts S.A. The newcomer is GMM Ltd., a unit of Malaysian casino operator Genting.

Pressed by reporters to name the likely winners, Ho said, “I don’t comment on speculation. I can’t even make presumptions about what the earth or space looks like tomorrow.”

He did say that gaming operators will be bound by corporate social responsibility to avoid mass layoffs amid ongoing economic uncertainty. He also said Macau will continue to “insist on the Covid-zero policy, this is a certainty. Hong Kong has used a more relaxed policy, but there has been no growth in visitor arrivals. The problem of visitors is a global one, not just for Macau.”

Finally, Ho said, “We will strictly monitor the new concessionaires’ compliance with the commitments made in the contract, including the development of non-gaming projects, increasing non-gaming elements and strengthening the development of the overseas visitor market.

“We will also ensure the healthy development of the gaming industry in accordance with the law.”

To accomplish these goals, Macau casino operators hoping to be relicensed to operate in the city have pledged to invest about 100 billion patacas (US$12.4 billion) in new investments to help diversify their offerings.

The investments are a requirement of the local government, which will award six new 10-year licenses in the Chinese special administrative region (SAR), the only place in China where gaming is legal.

According to Reuters, Sands China and Galaxy may spend $2.4 billion each to upgrade their properties. The four other incumbents, including Wynn Macau, MGM China, SJM Holdings and Melco Resorts, are expected to spend about $1.9 billion each.

The wild card is a seventh contender, GMM Ltd., a unit of the Genting Group, which has no assets in Macau at this point and would be starting from scratch. The last-minute bidder unsuccessfully applied for one of the six original licenses in 2000, which will expire by the end of the year, and submitted a last-minute bid in September of this year.

According to a recent report in the International Business Times, Genting would be “a good fit given they are the only operator of the applicants with a strong background in theme parks.”

Ben Lee, founder of Macau gaming consultancy IGamiX, told the publication, “There is a chance they can topple one of the incumbents. They think so, too, otherwise they wouldn’t have laid out a HK$10 million ($1.27 million) buy-in bet.”

Genting operates casinos in Singapore, Malaysia, the United States and the U.K., all with plenty of non-gaming attractions. Their track record in that regard would be seen as a plus by the Macau government, which is under orders from Beijing to move beyond its historic reliance on gaming as an economic driver.

In comments made last Monday, JP Morgan analyst DS Kim said the reported investments commitments are not onerous but “very reasonable.” The amount is only about a third of the US$35 billion that the six operators have invested over the past 10 years, but suggests one big renovation or development project plus some flagship events or shows over the next decade.

“This level of investment should be gladly accepted by the six incumbents,” Kim continued. “The question, however, remains for Genting, which does not have any assets in Macau. This means it will have to acquire existing assets and commit to additional capital expenditures if it receives the concession.”

Despite the threat from GMM, JP Morgan expects the six incumbents to prevail, “while the only feasible scenario for Genting would be via equity investments or via a joint-venture structure.”

The new 10-year license terms are poised to begin in January 2023.