The new proposed laws for Macau casinos have been made public, and the existing casino operators – and their investors – have breathed sighs of relief.  The government has made it clear that there will be “no more than six casino concessions,” which all six companies read as “we will be renewed.”

Probably so.  Politically and legally, it would be too difficult to throw out one of the current operators.  

Under Macanese law, once a casino concession expires, the casino itself, along with its gaming tables, slot machines, and all other equipment, “revert” to the government of Macau.  And the law is clear the casino company receives zero compensation.  What American company would be willing to invest in China in the future if the PRC says, “Thanks for the billion-dollar casinos.  Now, go away.”

Giving a casino concession to a new operator would create enormous problems for both the loser and the winner.  The outgoing operator would still own the hotel, shops, and land-lease.  But those would be almost worthless without the casino, except to one very interested party.  The new concessionaire would now own the casino, but it would have no right to trespass through the old concessionaire’s hotel to get there.  So it would have to try and buy the surrounding hotel or spend years and hundreds of millions of dollars building an entirely new casino/hotel.  The government of Macau will undoubtedly want to avoid this mess.

But it still may be too early to celebrate.  There are lots of major unanswered questions.  For example, how much will concessionaires have to pay to keep their casinos open?

On June 26, 2022, all the concessions revert to Macau.  The casino companies then have to pay for their next 10-year concession.

In 2001, the concession expired on the Grand Lisboa, the flagship of Stanley Ho’s company, SJM, and the casino reverted to Macau.  The government instantly renewed the concession.  But it required SJM to pay for the renewal, in effect, buying the casino it had built.

A government Evaluation Committee used the formula for valuing hotels, not casinos, and came up with a price of MOP 75.86 million (US$9.5 million).  That is, of course, ridiculously small.

I expect Macau will ask – although “ask” may not be the right word, since there will be no negotiations – for at least US$100 million for a casino the size of the Venetian.  The new concessions are for 10 years.  So, this would mean the Las Vegas Sands would pay only $10 million a year for its right to operate one of the most successful casinos in the world.

In fact, I expect Macau will ask for much more.  Every government in the world which has legalized successful casinos has demanded more money from its operators when licenses came up for renewal.  Usually, this is by increasing taxes.  But Macau announced it is sticking with its already high 39% effective tax rate.

So, it will resell the concessions back to their present owners.  Plus, it is now explicitly requiring casino operators to invest in programs under the vague descriptions of “educational, scientific and technological nature, environmental protection, culture, and sports.”

My guess is this means giving hundreds of millions of dollars to the University of Macau and other schools, spending massive amounts on mass transit and building arenas and soccer stadiums.

There are other proposed restrictions, especially on junkets, which will hurt VIP rooms.  At the same time, Macau’s Chief Executive will require payments if a casino’s gaming tables and machines don’t make enough money.  And each casino will have a cap on how many games it is allowed to operate. 

The most important unknown is how much Macau is going to interfere in the activities of casino companies outside of China.  The proposed law even appears to say that Macau casino subsidiaries cannot share revenue with their American parent companies.

It does a US company little good to own a casino in Macau if all it can earn is management fees.

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