Could mean higher taxes
Macau Secretary for Economy and Finance Leong Vai Tac says there may be a shakeup in the way the city’s gaming concessions are structured, regulated and administered. According to multiple media reports, the future may hold some kind of RFP process that may add new costs for the Big 6 and their sub-concessionaires.
In other words, gaming concession holders in the city will not be automatically renewed when their current terms expire. SJM’s and MGM’s concessions are set to expire first, in 2020, while the terms for Wynn, Galaxy, Melco and Sands China will expire in 2022.
Despite the potential shakeup, in a July 11 note analysts at brokerage Sanford C. Bernstein said, “We see a very low likelihood of an existing operator failing to have its concession renewed.” Bernstein says new rules may include higher taxes and possibly “fees up front or payable over time.”
A higher tax on mass “would not necessarily have an impact on GGR generation (and such a bifurcated tax rate already exists in some other jurisdictions around Asia),” wrote the brokerage. Macau operators now have an effective tax rate of 39 percent on GGR—all but SJM Holdings Ltd., which pays 38 percent. In the future, concessionaires may also “be required to invest capital in more non-gaming developments,” added the Bernstein team.
According to GGRAsia, some conditions actually might be relaxed. Union Gaming says the government wants to keep operators in line, on their toes and moving in the right direction—toward greater economic diversification, reported CalvinAyre.com. There’s also been some talk of a seventh licensee, reported the Asia Gaming Brief.
Speaking to reporters after a committee meeting, Leong said officials will also “seriously” take public opinion into consideration. And any proposed changes to the gaming industry law would have to be approved by the legislative assembly.
A central tenet of the current rules is Law 16/2001, which holds that no gaming concession can exceed 20 years, though the government can offer an extension of up to five years based on individual circumstances. After that, a new concession process is required along with a new public tender.
The new concessions will be granted in a “new landscape” in gaming with the growth of competition throughout the area, and more in the pipeline, noted the government. At the start of the mid-term review process in May 2015, Leong said casino operators should “do a ‘check-up’ and identify their shortcomings, and what they can do to rectify those shortcomings.”
That view was echoed at G2E Asia by Galaxy Entertainment Deputy Chairman Francis Lui, who said, “We need to keep in mind there are lower-tax jurisdictions actively targeting the highly-mobile Chinese gamblers. At some point in time, depending on the prevailing conditions, there may be a need for all the stakeholders—including the community, the legislative assembly, the government and the concessionaires—to have an open and honest discussion on how to ensure long-term competitiveness.”
Notably, some of the current expiration dates will occur before the Macau Chief Executive Fernando Chui Sai On’s second and final five-year term comes to an end, meaning a new administration will be involved in part of the process.
“We don’t expect to hear much more about the nuts and bolts of the licensing process this year or even next,” said Union Gaming’s Grant Govertsen. “Keep in mind that the license expirations will occur under the next government’s watch and we would therefore expect the next government to have an outsized say on the licensing process.”
With no answers on the horizon, “Uncertainty will continue to leave investors with questions,” said Bernstein.
