Trapped in Macau

written by I. Nelson Rose
2022

On Saturday, Macau awarded “provisional licenses” to the six current casino operators.  These will allow them to continue to operate until they are awarded their official concessions in January.

No surprise there.  In fact, the biggest surprise is that another company, Genting, even bothered to compete.

Genting had hoped to add what was once the world’s richest casino market, prior to Covid, to its massive Resorts World operations in New York, Singapore, Malaysia and Las Vegas.

It may be unfair for me to also include Caesars as one of the losers, since the company formerly known as Harrahs knew it would be a waste of time to try to replace one of the entrenched concession holders.  But it has been desperate to undo the dreadful mistake it made in 2001.  When Macau open its casino licensing opportunities to the world, the company did not even submit a bid.  It apparently thought that the sleepy little former Portuguese colony, with a rumored presence of organized crime, was not worth the effort.

I visited one of the dark, dangerous looking casinos in Macau in 1996, so I understood Harrahs’ executives’ emotional reactions.  But in the gaming industry, money beats feelings every time.  I did not see how having the only legal casinos in China, the most populous nation in the world, could be anything but a sure thing.

Now I am not so sure.  The new concessions are only good for ten years.  Operators will soon have to start again the horrible process of seeking renewals.  And the governments of Macau and the Peoples Republic of China have made it clear that they barely tolerate legal gaming.

Macau announced that the main criteria for the right to operate a casino is now how much the casino company promises to spend on non-gaming.

Operators will have to spend at least US$1.27 billion on non-casino developments over the next decade.  This is on top of a hike in the tax rate to 40%, one of the highest in the world.

One of the two Macau officials now in total control of casinos, the Secretary of Economy and Finance, announced that non-gaming would become a major economic driver in the next ten years.

“What we need to change is Macau’s image as a gambling city.”

The other official, the Chief Executive, agreed, stating that one of his administration’s main goals is to ensure that non-gaming accounts for 60 percent of Macau’s Gross Domestic Product in the future.

So how are the six casino operators – MGM, Galaxy, Sands, Melco, Wynn and SJM – suppose to spend those billions of dollars?  And what will take gambling’s place?

The Macau government will be building up “MICE (Meetings, Incentives, Conferences & Exhibitions), culture, modern finance and Chinese medicine.”

Macau and the PRC are also putting in many restrictions on how casinos can operate.  The ability to bring in high-rollers, the lifeblood of Macau’s casinos, will be difficult, if not impossible.  Junkets are greatly limited.  Mainlanders will no longer be able to transfer out cash.

Each casino will have a government bureaucrat overseeing day-to-day operations.  The two top officials will decide how many tables and slot machines each casino can have.  They even think they can determine how much those slots and tables should win and will fine casinos that don’t make their quotas.

What do you do if you have spent hundreds of millions of dollars and two decades building your business in Macau, which, before Covid, had been one of the most successful casinos in the world?  Do you walk away from your billion-dollar integrated resort?

No.  You stick with it, even when the government orders you to close the casino and have literally no income for months because a total of six people died of Covid in the entire city.

Macau’s casinos won US$37.6 billion in gaming revenue in 2018.  And now the government has ordered the casino companies to replace that with MICE, culture, modern finance and Chinese medicine.

That would be a lot of money spent on Chinese medicine.

Perhaps Caesars was right to not get trapped in Macau.

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