3 minute read
LAST WORD
Dark clouds of concession
Sharon Singleton | Managing Editor, AGB
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Although Japan appears to be taking up a lot of time and energy on the part of global operators, Macau remains the largest gambling hub in the world.
Last year, the territory’s 41 casinos pulled in MOP302.85 billion ($37.4 billion), a 14 percent increase on the prior year. Gross gambling revenue growth is again slowing in tandem with a slowdown in the Mainland economy, with some analysts predicting the market will shrink again in 2019. However, longer term most express confidence in the strength and potential of the market as it improves its reach into China.
That said, there is a major wild card facing Macau’s six operators and one which the government doesn’t seem to be in any hurry to tackle. The first of the concessions and one sub-concession are now due to expire in little over a year and to date there is no clarity as to how, or if, those licenses will be renewed or extended.
SJM Holdings and MGM China will find themselves without the right to operate casinos in their properties by the end of March next year unless action is taken. The remaining concessions expire in 2022.
Markets and investors dislike uncertainty and it’s hard to fathom why the government is dragging its feet on a sector that makes up the bulk of its revenue. The operators, both local and U.S., have invested billions in building Macau’s glitzy resorts, transforming the former sleepy Portuguese colony.
The government had promised to provide clarity by the end of 2018 following a review of the sector, but in October, Secretary for Economy and Finance Leong Vai Tac said the government was still researching the impact of gaming concession renewal on the local economy.
Heading into 2019 officials have remained tight lipped on their findings and how they plan to handle the issue.
The most widely accepted view is that the current administration will extend the licenses of SJM and MGM for two years to bring them in line with the other concessionaires and deal with the problem all at once.
The current CEO Fernando Chui finishes his second and final term in December and then it will
be the responsibility of whoever is elected to replace him to decide on future of the concessions. This feels like kicking the can down the road. Lawyers have pointed out that the matter is not as easy as simply renewing existing contracts and effectively, under the law, it will be a re-tendering process. That raises the question as to whether the government would open the market further to allow more operators.
Given its stated aim to diversify the economy that seems unlikely, though some local parties have been vocal in calling for a chance to participate in Macau’s gambling largesse.
It’s also hard to imagine the government failing to award a new license to the current concessionaires whohave invested so heavily in their properties. However, the geopolitical landscape has changed considerably since the first concessions were given out and some commentators have pointed to the risk of the U.S. operators becoming pawns in President Trump’s trade war with Beijing.
So far, the operators are keeping their cool and whenever questioned have expressed optimism about their future presence in Macau, though it appears clear that the government is prepared to make them sweat.
So why then is Macau taking so long to provide the necessary clarity to the sector that has made it one of the richest economies in the world in terms of gross domestic product per capita?
There is a view that the government is seeking ways to be more specific about what it wants from its gaming operators, such as setting objectives as to how to achieve greater non-gaming revenue. It’s hard to imagine further direct gaming taxes could be on the table, given growing regional competition and the fact Macau already has the highest rates in the region at 39 percent.
However, at the end of the day, the answer is probably that the ultimate decisions lie with Beijing.
