25 minute read
INDUSTRY VIEWS
Impressive achievements, but still room for improvement
David Green* | Principal, Newpage
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At the time of its handback to China in 1999, Macau’s transition from a colonial outpost to a semi-autonomous global gaming powerhouse was far from assured.
The Portuguese had left behind a substantial cultural legacy and several thousand expatriates, but the exchequer was bare, and 450 years of foreign control had left the territory without the empowerment and enablement for independence of thought of its leaders, and with limited institutional capacity and skills to assure its future. Macau’s human capital was restricted to a population of 420,000, occupying a land area of no more than 28 square kilometres. Per capita GDP then was US$15,500, about 60 percent of what it was in Hong Kong, which had become a Special Administrative Region some 2.5 years earlier than Macau. The newly operative Basic Law left Macau responsible for its own fiscal affairs, which it was required to conduct conservatively and with a view to balancing revenue and expenditure.
Fast forward 20 years and Macau sits at the apex of the global gaming industry. Its nominal GDP of more than US$85,000 is approaching double that of Hong Kong, and is 25 percent higher than in Singapore, which opened its two mega integrated resorts in 2010. The SAR government generated a budget surplus in 2018 alone of more than US$5 billion, and has accumulated reserves of more than US$75 billion. Unemployment is structural, at under 2 percent. So all is good, right? Not necessarily, there is room for improvement.
While the concept of the full rice bowl undoubtedly guided the government to reserve the occupation of dealers exclusively for Macau permanent residents, the policy needs a re-think. There are currently around 26,000 dealers employed in the casinos, equivalent to 1 in every 14 people working in Macau. How is this compatible with the government’s desire to see Macau broaden its economic base, and to reduce its reliance on gaming? What does such a policy contribute to the development of a “smart” society, where knowledge, aspirations and technology drive greater success?
In August 2019, the government formally withdrew a proposal to set up a sovereign wealth fund, which it had planned to seed with about US$7.5 billion. Such a fund could have done some of the heavy lifting on diversification of Macau’s economy, but it seems the default position of reliance upon the casino concessionaires is to remain. Their interest in sustainability and wealth creation for the people of Macau is limited by the temporal and financial constraints imposed by the concession system; why should they invest in seeds when they may not harvest the fruit?
An openness to the use of Public Private Partnerships (PPP) for infrastructure development would have been vastly beneficial for Macau. Large public infrastructure projects since the East Asian Games in 2005 have evidenced a lack of institutional capacity for the management of them. In less than the time it has taken to date to construct the city’s light rail system, the Zhuhai-Macau- Hong Kong bridge has been designed, funded, built, commissioned and operated. The foundations for wider use of PPP’s have already been laid by the casino concessionaires, with properties constructed and opened since 2004 utilising a Build, Own, Operate, Transfer model.
The process for the re-tender of casino concessions remains opaque, despite the fact that the present administration has had 10 years to deliberate on the issue. The SAR has 30 years left to run. Investment returns will be nowhere near as attractive as they were for the 2002 grantees. Slicing and dicing the concessions (including the so-called sub-concessions) into time frames shorterthan 30 years makes little sense, given the prime sites are occupied, regional competition is growing, and the current concessionaires have arguably paid their way forward via a combination of high tax on their gaming revenues, and far exceeding their minimum contracted expenditure commitments.
The danger of retrospectives is that they tempt curation of the truth. I trust that I have not succumbed to temptation!
* Prior to founding Newpage, David Green was a partner of PricewaterhouseCoopers in Macau, and later Director of the firm’s gaming practice. He has advised on casino regulation in a number of geographies, including New Zealand, Singapore, Macau and Taiwan.
Gaming to continue to drive Macau’s wealth
Ben Lee | Managing Partner, IGamiX
Twenty-nine years ago I visited Macau for the first time. It was a consolation day trip from Hong Kong for not being able to apply and obtain a visa to enter China in less than a week when I had only four days to spend. My friend and I took up the offer of a tour guide with a van upon arrival at the Macau terminal, and off we went. Ah Ma temple, St Paul ruins... the usual tourist offerings then.
Then our tour guide asked if I was an overseas Chinese. It appeared that in the early 90s, China permitted overseas born Chinese to take in electrical goods such as TVs, heaters and refrigerators duty free once a year as gifts for their relatives. Apart from procuring on the spot free visas for my friend and I, I was also paid AUD$200 to get the vouchers stamped at the border, which in turn would allow the ‘people’ to bring in the goods at a later stage. After the short journey across a little bridge, our greeter advised that should I return in the future, I would get AUD$600 instead of $200. It seems that our guide received $200 and an intermediary he went through also received $200.
Fast forward to today, Macau is now the fourth-richest country in the world in terms of GDP per capita (PPP) at US$110,000 in 2017 according to the CIA Factbook. Like Singapore, we have no natural resources and even have to import our water. Our only ‘resource’ is the mandate to host gambling for the Chinese.
We have some of the world’s top earning casinos in our midst, their owners catapulted into Forbes billionaire ranks. In the space of just twenty years, our gaming industry has emerged to become a world leader. Where Vegas and Monte Carlo, Macau’s initial role models, are still using decades old systems, Macau commands with cutting age digital hardware on every gaming table.
We have pioneered new modes of gameplay and game tracking such as the Fast Action Baccarat and digitized Baccarat scoring. We have introduced higher standards of gambling addiction preventative measures such as prevention of continuous play and continuous note insertions in slots, as well as the recent banning of all casino employees from casino floors. More stringent protection of non-smokers than anywhere else in the world with a complete ban property wide and the introduction of negative pressure smoking chambers. And now the installation of leading AI recognition technology.
Local companies with no gaming background whatsoever have emerged as category killers. Galaxy Entertainment, a building products supply company, has excelled in the VIP segment as well as F&B. Melco Resorts & Entertainment, a formidable competitor in premium mass.
The foreign companies too have learnt the business, Chinese business, and the art of Baccarat. Their footprint in Macau has enabled them to leapfrog over their competitors at home.
Macau will never be a Vegas nor a Monte Carlo. It doesn’t have to be. Macau is a juxtaposition of new and old, east and west. With a horde of international casino operators eagerly awaiting the new concession bidding process, Macau is in a position to dictate its wants and needs for the next phase of growth, which is to share the wealth throughout the whole society through diversification.
Macau’s uniqueness lies in the fact that it sits as a gateway to the Chinese market, inarguably the world’s single largest gaming market. Despite the next chapter to be focused on non-gaming attractions amidst an integration effort into the greater bay area in which it sits, Macau will likely continue its trajectory as a Mecca of gaming for the next thirty years.
Its way of doing business is to share, as per my own experience, rather than exclude.
For my part, I was happy to have shared with the others as without them, I would not have had my most rewarding China experience. A lesson in there perhaps for some?
* Ben Lee is the managing partner of IGamiX Management & Consulting based in Macau. He is acknowledged as one of the region’s experts in the area of Asian gaming market. With extensive gaming experience all over Asia and Australia, Ben has been covering and uncovering new gaming projects around the Asia Pacific region.
Macau 2020 and beyond
Sir Glenn McCartney* | Professor of International Integrated Resort Management, University of Macau
The 1999 handover and casino liberalization policy put in place a new phase of development for Macau. All six casino licenses are soon set to expire and once the retendering process has been enacted, Macau will enter a crucial next phase.
The competitive landscape for casino and integrated resorts (IR) has, however, dramatically changed across Asia, with multiple iconic IRs and casino properties emerging. Macau’s position within the Greater Bay Area, Belt and Road initiative and Hengqin Island developments are factors to put into this dynamic development mix.
Looking to 2020 and beyond, what will Macau’s new phase look like and what policies will be put in place to guide and encourage buy-in from the private and public sectors?
To project scenarios for Macau’s next phase of casino and tourism development, it’s necessary to step back 20 years and look at the actions that essentially signaled and were a catalyst to Macau’s impressive IR and casino development post-handover.
The triad turf wars that played out so publicly in the years up to the Macau handover were to have a negative impact on annual gross gaming revenues, which fell 11 percent year-on-year from 1998 to 1999 from $1.8 billion to $1.6 billion. That’s essentially less than two weeks of gaming revenue generated today.
VIP revenues in 1999 had dropped to $1.1 billion, making up 70 percent of total gaming revenue. Again, a minor reflection on the revenues now generated from VIP and premium mass. The liberalization of Macau’s casino industry and the end of the casino monopoly only a few years after the handover was to be a fundamental policy to stimulate economic growth and return stability to Macau.
In 1999, the Macau government received $766 million in direct tax of gross revenues, but by 2018 took $14.2 billion, showing the sheer volume of casino play in Macau today, and its contribution to the now over $70 billion in government fiscal reserves. With 337 gaming tables and 796 slot machines at liberalization time, Macau still had Asia’s largest gaming revenues, though this shifted to global leadership when it overtook the Las Vegas Strip in mid-2000.
By 2018, Macau’s casino industry had a total of 6,588 gaming tables and 16,059 slot machines (or electronics games). Of the 7 million visitors to Macau in 1999, 1.6 million (23 percent) were from Mainland China, a three-fold increase in Mainland Chinese visitation to Macau from 1997.
With the establishment of Special Administrative Region (SAR) status for both Hong Kong and Macau, the two SARs become the first to get ‘ADS’ (Approved Destination Status) agreements from China.
This signaled that Mainland Chinese were about to start travelling outbound in ever increasing and significant numbers. Combined with casino liberalization, Macau’s casino (and tourism) success would be and still is based essentially on the comparative advantage of being a cross border location to another jurisdiction that bans casinos, in this case China. Today Mainland Chinese visitation is crucial, representing over 70 percent of Macau’s 36 million visitors in 2018.
This description of data comparisons is an important one. It shows rapid and sometimes unexpected growth, of greater dependence on casino revenues and the Chinese travel market, and where development goals are not necessarily to be restricted by fiscal constraints.
I was in Macau before 1999 working in the hospitality and tourism sector and experienced the changes first hand. The Macau government receives 85 percent of tax revenue today from the gaming sector, while there is a constant narrative that Macau needs to diversify beyond gaming. Over the years I have researched and commented on the various reasons why Macau has become more reliant on the gaming industry, examining Macau’s policies, destination communication strategy, city branding, stakeholder collaboration and sustainable development. The Macau government has pitched the city as a ‘World Centre of Tourism and Leisure’. A vision can require various levels of objectives with clear key performance indicators.
When suggesting future tourism scenarios, one outcome is based on there being minimal change in current direction. At the other end of the spectrum, another will take a more dynamic position, with a greater level of disruption needed to achieve its aims.
A forecast for Macau’s casino and tourism landscape in 2020 and beyond needs to obviously consider many variables. It is a dynamic situation where a sudden public or tourism policy initiative, infrastructure development or regional competitive factor could all influence a well devised tourism plan.
Based on Macau’s tourism history and trajectory of the past 20 years, I currently would take a cautious position, with Macau continuing in the current development cycle with incremental non-gaming growth. As well as internal city challenges to growth, I am aware too of the competitive tourism landscape throughout Asia and the future growth projections in each destination’s tourism and casino development and infrastructure surrounding this. A new phase of tourism development for Macau must take into account that these factors did not exist 10 or 20 years ago and could even impact non-gaming growth goals. Defining and rallying consensus around Macau’s tourism vision and a tourism strategy based on this, could certainly put the city in a greater competitive foothold for 2020 and beyond.
* Professor Glenn McCartney MBE is Associate Professor of International Integrated Resort Management at the University of Macau. Professor McCartney worked for many years in different operational, strategic and consultancy roles within the tourism, hospitality and gaming industry in Macao and other Asian countries. He is also the British Honorary Consul for the territory for which service he was awarded an MBE in 2016.
Twenty years of gaming twists and turns
Jorge Godinho* | Visiting professor at the Faculty of Law of the University of Macau
The 20 th anniversary of the Macau Special Administrative region is upon us. When it comes to gaming, these were not two linear decades. There were plenty of twists and turns.
On 20 December 1999 everybody knew that the STDM monopoly concession would expire in 2001, and its 40-year monopoly would end. It was decided that there would be three concessions. Some observed that three concessions was not enough, while others doubted whether any international companies would want to invest in a place that so recently had been through a rough crime-infested period.
In the public tender of 2001/02 a grand total of 21 bidders showed up. The LVS/Venetian started the process with one partner and ended it with another, Galaxy. Soon after, disagreement broke out between them and, in a major twist, the first subconcession was created in late 2002. And so the three became four.
Another twist soon followed: operators basically forced the Government to legalize credit for gaming, something that was not in the original plans. A law approved in 2004 did that and, in passing, spoke of “subconcessions”, in the plural. In 2005 and 2006 two more subconcessions were agreed. And so the four became six, providing the basis of a booming industry. The economy was pretty good, money was flowing.
This may be largely forgotten now, but in 2002 nobody was really interested in investing in the Cotai, often derided as a faraway swamp full of mosquitos. Macau is where the action was, and most of the sub/ concession contracts were executed in old Macau. Lots of casinos opened, big and small. Then a major twist happened: the Venetian opened in August 2007. Suddenly everyone wanted land to build in the Cotai. And since then no more casinos opened in old Macau.
Another twist was the very rapid growth of gaming promoters. In 2004 some analysts were predicting a vast mass market, with many slot machines. The opposite happened: Baccarat grew a lot and gaming promoters rose in importance, in a manner that nobody could have predicted, so much that commissions on Baccarat had to be capped. Only now, in 2019, is the mass market finally overtaking the VIP sector.
And suddenly we really didn’t want the industry to grow that much: table caps were imposed, and everybody started talking about the importance of non-gaming and diversification.
The economic crisis halted the development of the Cotai for a while, but with so much liquidity around, and more properties opening, the revenue continued booming, and reached a stratospheric all-time high in 2013.
Then, in a major twist, suddenly things turned very negative. Various regulations tightened (money laundering, smoking) and money dried. Gaming promoters, so strong just a few years before, now had serious problems. Many promoters simply closed; scandals erupted and lawsuits followed. The VIP market lost some of its luster. Half of the 2013 gross gaming revenue vanished by 2016. Markets and analysts were very depressed. Then finally things started to recover a bit.
The interim review of the concessions in 2016 was an unexpected regulatory twist. Now there would be a large examination. Nobody saw it coming, but all sub/concessionaires passed the exam.
In 2019, the twisted concession deadlines (18 years for SJM and its sub-concessionaire, 20 years for the others) were fixed. They will all come to an end at the same time, in 2022.
The next twists in the plot will be unveiled soon after 20 December 2019.
The twist that the industry always wanted — lowering the heavy taxation — never happened.
*Jorge Godinho is a legal consultant and a visiting professor at the Faculty of Law of the University of Macau, where he teaches gaming law and anti-money laundering law. Jorge joined the Faculty of Law as fulltime assistant professor in 2004 and became an associate professor in September 2009. His current academic interest is gaming law.
Customer focus urgently needed
Sudhir H. Kalé* | Founder, GamePlan
The casino industry in Macau grew from US$2.77 billion in revenues in 2002 to over US$45 billion in 2013. Then, in 2015, revenues fell precipitously to under US$29 billion, a fall from which casinos are still reeling.
In 2009 two very senior casino executives predicted casino revenues to top US$100 billion by 2020. Now that we are approaching the cusp of the new decade, a figure of US$35 billion seems more realistic.
Macroenvironmental factors (such as “tigers and flies” campaign, restrictions of Union Pay credit card withdrawal, and tightening of credit in China) aside, the casino industry in Macau, has partially been a victim of its own success. The years from 2004 (when Sands Macao opened on the Peninsula) to 2013 were marked by a building flurry with scant regard for customer retention. The number of casinos in Macau increased from 15 to 35 during this time with the number of gaming tables going up from 1,092 to 5,750. This feeding frenzy came to an abrupt stop in 2014, beginning three years of sequential decline. All operators were quick to cut their head count, consultants were shown the door, and player reinvestment was further reduced from an already low base.
Today, as 2019 draws to a close, we are again witnessing serious challenges. Markets such as Singapore, Philippines, Cambodia, and Vietnam are ramping up their offerings and luring customers away from Macau. At a time when customer franchise building should be the clarion call for Macau’s six casino operators, most seem preoccupied with cost-cutting.
When over 90 percent of large businesses around the world are competing primarily on customer experience, casino operators in Macau are cutting back on customer-facing initiatives to shore up the bottom line. It appears that senior leadership in the Macau casino industry is running out of ideas to deal with—or is simply oblivious—to the current and impending competition in their backyard.
According to Union Gaming, around US$65 billion will be invested in casino properties in Asia between now and 2025. Economic growth in Asia will not be enough to fuel the new casino development across the region, the analysts warn. With a slowdown in Mainland China’s economy, the looming re-licensing question in Macau, continued restrictions on the outflow of currency in China, and devaluation of the Renminbi, we could very well be looking at 2014 all over again.
The supply in the casino industry in Southeast Asia is increasing every day and will continue to increase for at least another five to ten years. The demand for the casino product is simply not there to handle the increased supply. Asian customers visiting casinos are increasingly cutting back on their gambling budgets and this cutback is already hurting casinos everywhere from Melbourne to Macau, from Singapore to Sydney. These developments could cumulatively result in another perfect storm to hit Macau, and this time it won’t be a typhoon like Hato which devastated Macau in 2017.
Casino operators need to act now and focus almost singularly on initiatives to foster customer retention and customer intimacy. These customer-franchise building activities should include all customers, not just the much-touted premium-mass segment. Corporate ethos in the Macau casino industry needs a serious overhaul, a redirection toward a customer-centric culture and market-oriented management.
* Sudhir H. Kalé, Ph.D., is the Founder and CEO of GamePlan Consultants. He has written over 100 articles on the management and marketing of casinos. Sudhir has advised casino clients in the areas of customer experience, marketing and CRM on five continents. You can write to him at skale@ gameplanconsultants.com.
Macau memoirs - the good, the bad and the future
Peter Johns* | Chief operating officer/ business development, IDX Games Ltd.
My first visit to Macau was in August 2004 to have a look around the newly opened Sands casino. I recall the day well. It was a T3 (Typhoon) that felt like a T8, not the best ferry ride I’ve had. I recall squeezing myself around a packed Sands floor in the days when it had more tables on the mass, then queuing to get into the old Lisboa, which was also hemorrhaging people.
Getting back to the ferry to get off the island was also a challenge. No taxis in sight we took a rickshaw back for HK$60 and got soaked, even though the poor rider gave us his umbrella.
I think my last words were, not sure I’ll be back here too soon. Fourteen months later I was back on a networking trip, meeting several of the early executives in town, some of whom are still around Macau. Two months later, I moved to help Galaxy City Clubs in a role at the Rio Casino.
My first impression was what the hell have I done? It was foggy a lot in those days and I don’t think it cleared to see 100 meters in front of you for at least a month. It was two months before I could see Taipa across the water, though there was not much to go over for. You were considered a bit mad if you were looking for accommodation over there in those days.
And there was not much choice if you did. The only decent place was the newly opened Kingsville.
The biggest change is that you now have a multitude of excellent choices especially for families. The same goes for shopping, eating and entertainment. In the early days you basically had HQ (the old Roadhouse on the Macau side), or if you were really feeling like letting your hair down, a trip to the Embassy Bar at the Mandarin, or the Cave at the Landmark. The latter was always fun for some live music and dancing with the right crowd.
The challenge was what made the early days fun. It was a challenge to find food in the supermarkets; a challenge to keep your family and young kids entertained; a challenge to open new properties from the ground up with few resources, but those days were memorable. Everyone knew each other. You didn’t pass another gweilo in the street without saying hello, because if you didn’t know them, you knew by the weekend you probably would. There were new people coming to town every week, and most of them met up in the old HQ for weekend drinks, or at the very few restaurants everyone seemed to go to, such as Antica Trattoria or Pizzeria Toscana, or listening to “Blue card” play at the Old Taipa tavern.
Everyone in those days had at least one “Macau day” every week. The ones you know can only happen here. Most involved either a day at immigration, or the blue card office, or a day with a real-estate agent who took you around a bunch of places you would never think of living in, before Macau. I remember being shown the same apartment by three separate female agents, none of whom spoke English. It was the best of a bad bunch, but the price was way out of my budget at the time. I asked for a second look from the last of the ladies, who brought along her English-speaking niece to translate. (She was about 12). While I was in the apartment the other two agents showed up and began squabbling over the lease. The niece told me they were arguing over the commission and wanted to know what I wanted to pay. She said they have to split it three ways, so wouldn’t want to drop too low. I asked the niece, what if I gave them the full commission if they got me a good price, so they wouldn’t lose out. I ended up paying a third of what they originally asked, as long as they got the 20k commission to split. I slowly began to realize how things worked around this place.
Also, in those days it was prudent for everyone to have one of those guys, the person you called for almost everything you needed doing or getting. There were a few early entrepreneurial locals who did a great job for a lot of people.
Over the past 13 years, I feel like I accomplished quite a lot in Macau. After moving from Galaxy City Clubs after six months, I joined MGM and was in the first group setting up the property from the WanTu offices. It was like a small family back then and we had a good pick of the market for some talented new hires, some of whom are holding high positions across Macau today. The MGM opening was in the middle of the global financial crisis and a few other local challenges. I distinctly recall the irony of our very creative opening tagline and advertising, which was “Players wanted.” But we survived and I’m proud of having had the opportunity to be one of the early pioneers in Macau and of having created some of the biggest electronic gaming floors in a table-orientated market.
After almost five years I was about to move back to Australia, but was asked to join Galaxy again to open the Cotai property. I was on the opening of stage 1 in 2011 and stage 2 in 2015, seeing the glory years of 2013 and 2014, when Macau GGR was almost $50 billion before the perfect storm arrived. No smoking, AML restrictions and outside forces brought the market to a new, sustainable level.
After 2016, I took an 18-month break from Macau to travel and enjoy life. I came back after starting to do some consulting around Asia. The market bounced back, new properties continued to open, albeit with delays and some without their fleet of red Rolls Royces. But now Macau is back to a bustling city, not only for gaming, but for shopping, eating and almost for entertainment.
Despite the recent slowdown in response to certain issues in HK, I think Macau will survive the next 20 years just fine. Everyone is a little apprehensive about the 2022 concession, but I see this as a possible new spike in growth in the market. The possibility of new licenses and competition, coupled with all the new reclamation projects, Hengqin, the Greater Bay Area and HKZM Bridge, will possibly contribute both to a population increase and more economic growth. Japan may be opening at least one casino by 2025 but I don’t see this having much effect on Macau. There are many emerging gaming markets and growth throughout the SE Asia region, but somehow there always seems to be enough people to sustain most of the regulated ones.
I am setting some new challenges myself for 2020, onwards. I recently got involved in a new company called “ IDX Games LTD,” a subsidiary of idNerd Studios, an innovative group from Hong Kong. We plan to bring some new innovation and excitement to Macau and the Asian market in 2020.
* Peter Johns is the chief operating officer/ business development at IDX Games. He has a long career in Macau, working on opening projects for MGM China and Galaxy Entertainment.
