Set in the backdrop of the celebrations over the 22nd anniversary of the formation of the Macau Special Administrative Region (SAR), the government released the results of a hastily convened conference on the re-tendering of the six Macau gaming concessions. The first sessions of the public consultancy were held in September but after being delayed by Covid, the final sessions were conducted over three consecutive days in October. The government had six months to release the results, but when they were issued two days before Christmas it had analysts guessing what it meant for the re-tendering process.
For months, observers had been predicting that the expiration of the concessions would be extended beyond the June 26 deadline because of the long-lasting impact of the Covid pandemic. But many changed their tune following the quick release of the public consultancy results, even though hints were given when the October hearings were held on consecutive days.
Analysts from JP Morgan weighed in by observing that the release means the government has a “strong desire to conduct license retendering before the expiry,” according to analysts DS Kim, Amanda Cheng, and Livy Lyu.
“We now believe license retendering—in the form public bidding—could open within first-half 2022, and that it is no longer impossible for new licences to be issued before expiry,” they added.
Brokerage Sanford C. Bernstein Ltd agreed. “We still believe the government is wholly set on finalizing the new concessions prior the June expirations,” said Vitaly Umansky and Kelsey Zhu, adding ““We do not view anything in the report that raises issues.”
Morgan Stanley predicted that the government that not much would change from the current situation. “We see status quo on number of licences (six), duration (between 10 to 20 years), tax (same as before) and dividend (allowed).”
Disagreeing with most of the analysts is Ben Lee, the managing partner of iGamiX, a consulting group on Asian gaming. Lee points out those who are calling it a “re-tender” or “renewal” process are wrong. He says it is exactly like the concession process that took place 20 years ago when the concessions were first issued.
“No company is guaranteed to be given a concession,” he said, although he pointed out that the American-owned companies are most at risk, with Las Vegas Sands and Wynn Resorts being most vulnerable, because of the past dealings of former leaders, Sheldon Adelson and Steve Wynn. While both have exited their companies, Lee believes that the actions of the individual companies—and the U.S. government—may put them at risk.
“When Trump began to criticize China in 2018,” he says, “it turned the Chinese government against U.S. companies. And when Biden didn’t change the Trump policies to any great extent, the attitude of Beijing did not either, so there could still be repercussions for American companies.”
Lee says if the American companies reduce their ownership of their Macau affiliates, it could make a difference.
“You don’t necessarily reduce management control if you fall below 50 percent in your ownership stake,” he says. “And more local ownership is clearly important to Beijing.”
But since it’s an open bidding process, Lee believes there will be other participants who would be interested in one of the concessions.
“Genting will surely be a bidder,” he says. “And Hard Rock has lots of interest in international development, so they could be involved. And even though Caesars has backed away from Asian development in South Korea and Japan, the new owners might want to participate since the company was on the outside looking in during the first concession process.”
Lee says some of the secondary companies that were bidding or considering biding on Japanese IRs could also be participants.
The findings of the survey weren’t shocking, adding to the view that not much would change.
- While 44 percent of the responders expected the concessionaires would remain at six, a majority agreed that sub-concessions should be eliminated and the current six operators should be full concessions. Only 17 percent thought that additional concessions should be granted. And opinions were split over whether the terms of the concessions should be 20 years or more, or less than 20 years. JP Morgan said the government seems to be sending that message. “The government’s wording also suggests this is likely to be the case—i.e., it keeps reiterating the importance of balancing the stability of the economy and the healthy development of the gaming industry,” said the analysts.
- Local ownership was important as 65 percent of the responders said it should increase. Currently there is only 10 percent local equity in Macau gaming.
- A stunning 98 percent of the responders believe that there should be additional development of non-gaming amenities, although Morgan Stanley believed that could be “could be return dilutive” for the industry.
- A majority of respondents believed there should be more regulatory oversight of the gaming industry. Lee doesn’t believe much would change, however, and it would be acceptable to the concessionaires.
