A recent proposal by the Beijing government to exercise greater control over Macau’s multibillion-dollar casino industry first caused shock waves, then panic. The result, a massive stock selloff, resulted in the loss of $18 billion in value in a single 24-hour period.
Bloomberg News called the proposal “just the latest move in China’s grand plan to transform (Macau’s) $24 billion economy,” with a sharp pivot away from its dominant industry.
The public has been asked to weigh in on a list of nine proposed changes through October 29. Meanwhile, Macau’s Big 6 casino concessionaires—whose licenses to operate will expire next June—are wondering what it all means for their investments.
In recent years, the national government has assumed greater control of the casino industry and its patrons by limiting ATM cash withdrawals, installing facial-recognition software at those machines, and considering the use of digital currency to better monitor transactions. It’s also cracked down on junket promotions on the mainland and cross-border travel by the Chinese for gambling purposes. It has called for the diversification of the local economy so it would rely less on gambling and more on global tourism and nongaming industries.
“What the government wants and what Beijing wants is to have a lot more nongaming,” said Allan Zeman, chairman and an independent director of Wynn Macau Ltd. “The border will kind of disappear. Macau will become a much bigger place, so gaming is just one part of a city that will have a lot more.”
Ahead of the license expirations in June 2022, the government may exert pressure on casino operators to underwrite non-casino ventures, particularly on nearby Hengqin Island.
Last Tuesday, Macau’s Gaming Inspection and Coordination Bureau (DICJ) met with operators to discuss the proposed changes. As reported by Inside Asian Gaming, investors were “spooked” at some of the proposed amendments, including one that cut the current 20-year licensing terms in half.
In addition, the government has proposed placing a representative at each gaming operation to directly supervise operations, possibly in a board capacity; reviewing any hired personnel of gaming concessions, junket operators and associated companies to ensure they’re suitable; and approving or rejecting the payout of dividends.
It has also proposed raising the minimum share capital required of gaming companies, and increasing the portion of gaming concessions that must be held by a permanent Macau resident. Current law requires that at least 10 percent of a gaming entity’s share capital be held by a “managing director” who is a permanent resident.
In the concessionaires’ favor, the DICJ conceded that it needs a strong gaming sector to ensure sufficient tax revenues. “Gaming tax should be considered very cautiously as it is relates to Macau’s financial income, economic development and social welfare,” said Secretary for Economy and Finance Lei Wai Nong. “The government has no specific prerequisite on the number of gaming licenses although it needs to maintain a certain scale to ensure tax revenue. But it (the number of gaming concessions) should not expand without limitation.”
Casinos now generate nearly 80 percent of Macau government revenues and 55.5 percent of its GDP, down from a high of 63 percent in 2013. The city’s casinos employed more than 108,000 people in 2019, or one-fifth of the local workforce.
At last Monday’s consultation, Rui Cunha, secretary-general of operator SJM Resorts Ltd., said the company would appreciate clarity on the minimum share capital topic and the locals’ shareholding topic. Galaxy Entertainment senior vice president of public relations, Buddy Lam Chi Seng, also mentioned those subjects.
Ku Mei Leng, chief-of-office of Macau’s Secretary for Economy and Finance, replied that the government did not have any “predetermined positions” on the topics, as it was still gathering opinion from the industry regarding proposed changes to Macau’s gaming law framework.
According to Bernstein Research, the session lasted an hour out of the two and a half hours scheduled for the meeting and was largely “uneventful, as expected.”
The government explained the nine main points set out in its draft proposal and all six operators “expressed their broad support for the plans.”
Ben Lee, gaming analyst with iGamiX, theorized that stricter government supervision may be a way for Beijing to ferret out illegal gambling promoting on the mainland. he said operators enlist “an army” of casino hosts and marketing executives to pitch gambling on the mainland, in violation of the law.
“They use WeChat, phone, and social forums to contact their clients in China and promote gambling. They carry MICE business cards, they attend trade shows around China … they’re out there meeting players face to face under the guise of MICE marketing or resort marketing. The insertion of someone into the structure of casinos will theoretically allow them to dig out these sorts of activities and report them.”
He warned that if Beijing manages to suppress those promotions, most premium mass business in Macau could simply disappear. “Basically they’ll have to rely on them coming into Macau under their own steam, no encouragement, no solicitation, they come when they want to. You can probably rule out 80 percent of their business.”
Lee told Bloomberg that Beijing also may be dismayed to realize that U.S. operators like Wynn, MGM and Sands are so firmly entrenched in a Chinese territory. “From Beijing’s point of view, how did we let the American operators end up with 50 percent of such a dominant industry that is such an important part of Macau’s landscape? So this is the first opportunity they have to reset the table.
“There is chatter here locally in Macau that this is part of a long play to reduce the value of the shares and to dampen speculative trading of casino stock. Since four to five years ago there’s always been chatter on the ground that American concessions were already advised to dilute their equity and to date none of that has happened. This is possibly the outcome of ignoring that advice.”
Another analyst noted the wave of proposed amendments may be a way to make Macau “more Chinese.”
In an editorial on Nikkei.com, William Pesek wrote, “This losing streak is a long time coming … As part of President Xi Jinping’s crackdown on, well, everything, Beijing is tightening its grip on the world’s biggest gambling hub. Macao’s going-bust moment is a tantalizing microcosm of how Asia’s casino bubble was always destined for failure, even without Covid-19.”
