WHAT NEXT FOR MACAU

By Christina Thakor-Rankin

COVID has completely changed the landscape of the global betting and gambling industry. Those operating within the digital space (because they were already there or their business and/or regulation was able to shift quickly enough to accommodate a changing world) didn’t just survived - many thrived and continue to do so. Others were less fortunate. Those with destination land-based operations hampered by an inability to adapt due to inflexible technology or stiff regulatory constraints regulation were hitthe hardest, finding their futures hanging in the balance.

The post COVID recovery has been mixed. Some land-based operators have found themselves slowly bouncing back, some such as Vegas have even seen a mild resurgence on pre-COVID footfall as those starved of physical interaction and experiences, including the previously elusive younger generation, flock back. Others, again, have been less fortunate. Some such as South Africa and parts of Europe and the US have seen a slower recovery due to changes in customer behaviour and shift to the convenience and accessibility of online gambling, or tougher regulatory measures.

Those who have been hit the hardest, however, are those with land-based operations where pivoting to an online offering has not been an option and where any attempts at recovery has been severely stifled by regulation, and arguably none more so than Macau where a hard-line approach to both COVID and gambling regulation has seen the Vegas of the east transformed from a city of gambling dreams to the stuff of nightmares. approach to COVID that saw Macau be not only one of the first to go into lockdown and one of the last to emerge from it, but also experience repeat cycles in a way others did not, resulting in a stop-start recovery that worked for no-one.

Next came Beijing’s on-going clamp down on gambling which culminated just under a year ago in the arrest of 11 people, including Macau’s Suncity ‘junket king’, Alvin Chau a syndicate comprising over 12,000 gaming agents and 80,000 members across China, on money-laundering and illegal cross-border charges.

The impact of this action was immediate and devastating. Not only did it result in an immediate suspension of trading on Suncity shares on the Hong Kong Stock Exchange the impact was felt across the wider industry with MGM China, Wynn Macau

and Sands China all seeing their share price tumble, but also the Mr Chau’s other interests including, Sun Entertainment Group whose share price plummeted by almost 30%.Within a month Suncity closed all of its VIP gaming rooms in Macau followed swiftly by a complete closure of the business.

According to the official indictment Mr Chau’s Suncity junket operations engaged in a number of activities that saw Macau lose out on gambling tax revenues in the region of $1 billion. One of these activities is described asdouble-sided betting (‘Tok Dai) taking place through various VIP rooms over a seven-year period between 2013 and his arrest in November 2021.

‘Customers have to pre-negotiate with the illegal gaming group through Sun City VIP Rooms betting with a private rate agreed upon with the illegal gaming group, thus, the customers’ bets on the gaming table multiply, consequently increasing the client’s commissions.‘When the customer wants to bet 10k on the gaming table, he simultaneously bets 20k under the gaming table with the illegal gaming group….If the customer wins, the casino will pay him 10k and the illegal gaming group will also pay him 20k. However, if the customer loses 10,000 of the bet, he has to pay the casino 10,000 and at the same time pay 20,000 to the illegal gaming group.’

In order to obtain more illegitimate benefits, the alleged illegal gambling group increased, in the name Sun City VIP Room, the commissions for “doublesided” side betting games, convincing customers to transfer the bet from the table legal for under-the-table betting, i.e. attracting customers to participate in “double-sided” activities.With such illegal activities, it tricked gaming concessionaires/sub-concessionaires into delivering false information to the Macau SAR, which resulted in a loss of revenue from the gaming concession to be collected”.

The charge sheet also cites a number of other allegationsincluding illicit phone and online betting revenues routed through front companies and underground banks in mainland China into Suncity, and detail around the actions and role played by specific individuals, including those responsible for technology. emerging evidence as to the scope of the investigation has been the first real tangible evidence of how determined it is to crackdown on illegal gambling.

Unsurprisingly the Macau regulators had to step up their supervisory oversight resulting in a consultation process and a new gambling law covering everything from more robust regulation to government officials being involved in the supervision of casino operations and a reduction in the number of new casino licenses to just 6. The on-going re-licensing process has been spiced up by Genting, an operator previously deemed unsuitable to hold a licence, throwing its hat not the ring at the last minute creating a situation of 6 licenses and 7 applicants.

This is all taking place against a backdrop of an order from China for Macau to ‘upgrade’ its national security legislation to the same standard as mainland China and Hong Kong. Whilst Macau has been relatively stable since the handover in 1999, Security Secretary Wong indicated that the new amendments would act as a ‘preventive’ measure following the social and political unrest in Hong Kong.

These changes will widen the definition of subversion to include both violent and ‘non-violent methods’ and obviously increase the powers of the police in investigating and addressing crime -but how might they actually impact the casino sector specifically?

Firstly, Wong indicated that:‘If there is no national security, there is no social stability and no economic development’ and that ‘The national security of the country, and thus the security and stability of Macau’. This could be interpreted to mean that whilst the Macau regulator is happy to issue casino licenses the operation of those premises could be heavily influenced by the new security laws, especially as the new gambling laws have already created an open door to greater governmental supervision on day-to-day casino operations.

Secondly, the upgraded security laws would apply to any individual in Macau or overseas who was perceived to be or linked to a ‘foreign threat’. Most of the casino operators come from outside mainland China. Given China’s hard-line stance on vice and arrest of Macau’s ‘junket king’ on the grounds of facilitating Chinese nationals to engage in ‘illegal gambling’ and charge sheet that links illegal gambling to money laundering and the transfer of funds from the mainland, how long before a casino in Macau, and by association its overseas owners, finds itself on the wrong side of the new law not through a breach of any gambling regulation but as a by-product of a wider socio-economic and political situation and the words ‘foreign threat, illegal gambling, subversion, money laundering, criminal’, and assets and individuals seized?Hopefully never - but given current global tensions not something to be entirely discounted either.

Then there is also the wider impact of the new security law on the wider economy. Similar changes in Hong Kong saw massive impact on property values, and a drain of expatriate and foreign workers. Given mainland China has been encouraging Macau to diversify away from gambling to things like tourism the impact may not be as severe overall, but there will almost certainly be a financial hit to be absorbed by someone if Genting is successful in its application for one of the 6 licenses.

The fact is that Macau has suffered enormously in the last few years. A combination ofon-going COVID restrictions (the latest being casinos having to reduce the number of staff to reduce risks of transmission), the new gambling law and China’s arrest of the biggest junket operator (and a lesson to all others) have seen gambling revenuesfall away to almost nothing, and for many to predict that it is now game over for Macau.

Maybe. But maybe not. Whilst China has stepped in and radically changed the landscape of Macau it has not actually prohibited gambling. It has introduced tougher measures and forced greater governmental involvement - but it has not prohibited gambling. This may be for a number of reasons. Certainly it will not have been blind to the fact that pre-pandemic gambling revenues were 6 times bigger than Vegas. Nor will it be blind to the fact that it’s casino industry has been a key factor in attracting tourism (just like Vegas) making it a key part of any transition process to diversification. It will also not be blind to the fact that its citizen like gambling. A lot. We know prohibition does not work. Consequently, maintaining a framework that allows its nationals heavily controlled access to gambling productsmay be a much more preferable alternative to the effort required to tackle illegal gambling on the mainland.

Right now keeping Macaua live and kicking is it is in China’s best interests. The market is aware of this, and an announcement by the Macau regulator that it is due to announce its shortlist of license candidates this week has seen stocks in SJM Holdings and Sands China rally.

Macau may be down, but it is definitely not out.

Philippines heading to an online gambling ban?

The Philippines’ iGaming sector has experienced some notable challenges in recent years. In particular, significant concern has materialised in relation to the activities of POGO’s, (Philippine Offshore Gaming Operators), externally based gambling firms who have a licence to trade within the realms of country’s digital space. Such is the scale of their illicit behaviour, it’s virtually an open secret that many of these organizations have express links to criminal syndicates.

Now, influential politician Joel Villanueva, who was elected Senate leader earlier this year, has mobilized a piece of legislation that would spell the end for the island-state’s online gaming sector. Villanueva is steadfast in his belief that iGaming should have no place in Philippine society and suggests that its removal would serve to completely eradicate problem gambling, despite his plan permitting the continuation of bricks-and-mortar casino operations. The ban would be draconian in nature, fixing heavy penalties to those who engage in any form of online play. It’s understood that those who would ignore the proposed guidance could serve a custodial sentence of up to six months and be fined up to PHP 50,000 (US$8,710), more than double the national salary average.

Nevertheless, if the undesirable practices of POGOs are strengthening Villanueva’s hand in discussions surrounding the online industry, then PAGCOR (Philippine Amusement and Gaming Corporation), the organization empowered to regulate the native marketplace, are working hard to undermine the Senator’s calls for change. Last weekend, PAGCOR rescued 140 foreign individuals from a mass kidnapping conducted by a POGO, one of a string of fifteen similar incidents in recent months. Although there are less active POGOs than in previous years, largely due to a vicious cycle of crime and subsequent falling revenues, their threat remains a serious one.

Concerningly, Villanueva’s ‘AntiGambling Act’ is gaining traction in the Senate, with several high-ranking officials now endorsing this bill. However, the east Asian state’s political chambers have resisted pressure to discard iGaming in the past, with neighbours China recently lobbying for a complete ban on POGO outfits. ThePHP 7.18bn (US$149.3m) generated in GGR each year was enough to convince politicians to fend off Beijing’s advances – perhaps a similar response will see Villanueva’s campaign put to the sword in the coming weeks.