Macau’s casino operators were just reminded, dramatically, that China is still a Marxist country.
First, the People’s Republic of China (“PRC”) became the only major nation to seek the complete eradication of Covid. The PRC has the will and power to do whatever it thinks it will take: quarantining entire cities, closing borders, and getting Macau, a not very independent Special Administrative Region, to order all casinos shuttered.
Then Macau announced that it was not only changing the rules, it was changing the game. You might have a very successful baseball club, but the government just declared you must play cricket.
On June 23, 2022, the Amendment to the Gaming Law, 7/2022, became law. The influence of the PRC was not hidden.
Rather startling for a casino law, the new first policy goal listed is the safeguard of national security and the security of the Macau SAR. Legal gambling has never before been singled out as a threat to national security. But “national security” gives the government unlimited power. So, if Macau’s Chief Executive decides to terminate a casino concession, he is no longer bound by the criminal laws.
What constitutes national security? The definition has been stretched to include economic, technological, cyber, and financial security, especially money flowing out of the Chinese Mainland. The PRC has always hated the massive amounts of cash, estimated at US$150 billion a year, much of it escaping through Macau. There is actually another new policy goal requiring casinos to prevent illegal cross-border flow of capital.
It is difficult to see how the current VIP suites can continue. Junkets are being stifled. Even promoting overseas gambling is now a crime on the Mainland.
Punishing high-rollers is exactly the goal. The Marxists who run the PRC believe that all social problems arise from conflicts between classes. The rich are to be shunned, not admired.
Marxists also believe in social engineering. The Communist Party of China, the sole ruling party of the PRC, has never been comfortable with legal gambling. So, they have decided they will use carrots and sticks to reshape the world’s largest casino market.
Even the underlying purpose of legal gaming has been changed. No longer are casinos seen as developing tourism and providing jobs. Now the policy is to use gaming to promote economic diversification. In fact, the new law is expressly designed to restrict the size of Macau’s casino industry.
The sticks include expressly empowering Macau’s Chief Executive and Secretary of Economy and Finance to decide how many tables and slot machines each casino can have. Casinos can now partner with only one junket operator and cannot share gaming revenue. Satellite casinos, also called legacy casinos, are being phased out, and also will no longer be allowed to share in gaming revenue.
The effective casino tax rate, including mandatory contributions for social benefit causes, has been raised, naturally, from 39% to 40%. But the new law contains some carrots: Casinos can reduce or even avoid mandatory contributions of up to 5% if they expand their patron base beyond China, Hong Kong, and Taiwan.
Perhaps the greatest danger to the free market casinos of Macau is the government’s meddling in their day-to-day operation. Not only will bureaucrats dictate how many baccarat tables will be on a floor, but they also think they can determine how much those tables should win.
Casinos must pay the government the difference if their slot machines and tables fail to win a minimum annual amount set by Macau’s Chief Executive.
The process for winning one of six Macau casino concessions is about to begin. None of the present operators are walking away. Of course, if you already spent billions of dollars building a giant casino, you don’t have much choice.
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