According to the “Interim Review of Gaming Liberalisation for Games of Fortune in Macao: economical, social, livelihood impacts and operating conditions of the concessionaires”– an interim report released on 11th May 2016 – all six of Macao’s gaming operators have satisfied their contractual capital commitments.
Commissioned by the office of the Secretariat for Economy and Finance and conducted by the Institute for the Study of Commercial Gaming at the University of Macau, this report will be an important government reference for further improvement of gaming laws, regulations and a regulatory framework.
Over the next seven years, the government must decide how and to whom to grant nearly 2,000 additional gaming tables.
It must also decide whether to renew gaming licenses in 2022 to the six operators who received them between 2002 and 2006. The report’s assessments will greatly impact these decisions.
Whether the concessionaires have fulfilled the commitments set forth in their contracts is a necessary pre-condition for attaining government approval to renew these operating licenses. Of the US$32.7 billion (MOP262.31 billion) of investments made by the six operators between 2002 and 2014, Sands China Ltd. was responsible for the most – US$10.8 billion (MOP86.97 billion), amounting to 33 per cent of the total from all six casino operators. Melco Crown Entertainment came in second with US$6.5 billion (MOP52.68 billion), and Galaxy Entertainment Group third with US$6.3 billion (MOP50.91 billion).
GAMING INDUSTRY’S PROS AND CONS
The review concludes that the gaming industry’s dramatic expansion since 2002 has been both positive and negative for Macao.
During the Portuguese administration, only one company, Sociedade de Jogos de Macau, held a gaming license. After Macao’s handover to China in 1999, the Special Administrative Region (SAR) government decided to grant five more licenses, a decision that has since transformed the city.
But it has also made housing more expensive, led to high inflation and higher costs for small and medium-sized enterprises (SMEs), contributed to more gaming-related crime and worsened the quality of life for many.
Gaming revenue in 2015 totaled US$28.75 billion (MOP230 billion), more than 10 times the US$2.7 billion (MOP22.18 billion) in 2002. As of the end of 2015, the number of casinos operating in Macao had reached 36.
In 2006, Macao overtook Las Vegas as the world’s leading gaming centre and has since extended its lead. In 2015, the SAR had 30.7 million visitors – a 300 per cent increase from 2002 – largely driven by the gaming industry.
The transformation of the past decade and a half includes the construction of giant casinos, hotels and tourism facilities. The 39-storey Venetian, covering an area of 980,000 square metres, is the largest casino in the world and the biggest single hotel structure in Asia. Its construction required a total investment of US$2.4 billion (MOP19 billion). Projects of this kind have completely changed the city’s landscape.
The industry’s rapid growth has translated into a correspondingly rapid growth in GDP, increased fiscal reserves, improved social welfare, record foreign investments, increased labour productivity, relatively low unemployment rate and favourable conditions to drive development in other industries, such as hotel, luxury retail, catering, convention and exhibition, as well as performance and entertainment. This expansion has also seen a net increase of nearly 35,000 companies.
The industry’s boom has provided lucrative local employment. “The proportion of local employees (of the six operators) of managerial grade or above increased from around 60 per cent in 2008 to 80 per cent in 2014.”
The report’s analysis of the industry’s knock-on effect on the overall economy finds that, between 2003 and 2013, the added value of the hotel industry rose 11.4-fold, wholesale and retail industry 7.4-fold, construction 5.1-fold, banking 3.5-fold and catering 3-fold.
GROWTH IS NOT WITHOUT ITS PITFALLS
The growth of the gaming industry, however, hasn’t been without drawbacks, especially in one of the most densely populated cities in the world covering only 30.4 square metres.
The report identifies a number of issues linked to the industry’s advancement, including a persistently high inflation rate, increased stress on the elderly and other demographics, acutely rising and increasingly unaffordable housing prices, hikes in operating costs for SMEs and an increase in gaming-related crimes.
“The economy and employment became too dependent on the gaming industry and challenged traditional values,” it adds. The report also identifies cases of all six gaming operators failing to take measures to adequately prevent money laundering and financing terrorists.
In an interview with Macau Business in May, Secretary of Economy and Finance Leong Vai Tac states that, until 2023, the government will permit a maximum of 1,892 additional gaming tables. “The authorisation of tables is a very important measure in the management and supervision of the gaming sector. It is an important stimulus for gaming operators to invest in non-gaming elements.”
“We must consider all the factors globally, especially investment in non-gaming areas, the participation of SMEs in these projects, the capability to diversify sources of clients, etc. These are all essential factors for Macao to become a world centre of tourism and leisure.”
Speaking on the sidelines of the report’s publication, Leong adds that “We cannot depend upon a small number of people, that is, a small number of customers to generate the largest revenue. In the face of international competition, we need to discover new customers, new growth points.”
ENCOURAGING THE GROWTH OF NON-GAMING REVENUE
Industry diversification is a major point of research in the review. “Development of the gaming industry has scaled up the added value of its related industries… Non-gaming elements have created a large amount of non-gaming job positions. In 2014, non-gaming employees accounted for 44 per cent of the total number of employees in gaming operators.”
The report cites data showing that the cumulative non-gaming elements of the six operators created US$2.9 billion (MOP23.2 billion) of revenue in 2014, a figure comparable with that of Las Vegas. However, it comprises a far smaller percentage of total gaming revenue compared to Las Vegas.
The central and Macao governments have demanded that casino operators diversify their sources of income and clients and also reduce their dependence on gaming and on the mainland market, which last year accounted for more than 60 per cent of all visitors to Macao. This will factor into whether licenses will be extended.
THE FUTURE OF JUNKETS
The review also addresses the issue of gaming promoters, locally known as junkets, who handle high rollers and VIPs. A dramatic drop in spending from this demographic accounts for declining overall gaming revenue for the past two years. More than a decade ago, 60–70 per cent of casino gross profit came from VIP rooms. In 2015, this figure dropped to around 54 per cent.
Revenue for May 2016 was US$2.17 billion (MOP17.4 billion), a drop of 9.62 per cent year-on-year and the 24th successive month of decline.
Most analysts believe that this decline in junket revenue is long term, making it an economic as well as a strategic imperative for casinos to focus on the mass market and diversify offerings.
The government, meanwhile, is trying to strengthen supervision of junket operations.
In October 2015, the Gaming Inspection and Coordination Bureau (DICJ) issued a new financial accounting system to all the junkets, but according to the review, of the 183 promoters in Macao, 35 had failed license renewal due to failure to comply with these regulatory requirements.
In February 2016, the DICJ officially launched a review of all promoters’ adherence to the new accounting guidelines. So far, the bureau has conducted site visits to over 80 promoters and expects to finish all reviews within six months.
This interim review has stimulated lively debate and given the government much to consider as it plans the next stage in the economy’s diversification.
Year holiday break, they rest on shore, repairing their weathered boats and preparing themselves and their vessels for the next fishing venture.
Text Mark O’Neill
Photos Antonius Photoscript, GCS, Xinhua News Agency
Illustration Fernando Chan