Macau is worldwide-known as the largest gambling hub in the world and it daily attracts millions of people ready to give their luck a try in one of the leading gambling locations which could be found in its area. Every major casino developer is trying to find a slot and explore the market to the best way possible, as the region has the reputation of a place where money flows and people are ready to gamble and win big.
Every gambling location operates under a special gaming contract issued by the authority of Macau which has approved its development and regulates the development of the facility. What should be taken into account, however, is the fact that the years 2020 and 2022 are going to bring many changes to the gambling market in Macau, since all of the currently existing gambling locations will have to have their gaming licenses renewed. This is a pivotal moment in the development of the gaming hub as it could make or break the development of certain brands in the area.
Foreseeable Future for Macau
Macau is on the verge of the first major renewal process in the region since many 20-year gaming licenses are going to expire in 2022. As it could be recalled, that 2002 saw the end of the 40-year field monopoly of the gambling tycoon Stanley Ho. Among the casino operators among which Melco Resorts & Entertainment Ltd., Sands, Wynn and Galaxy Entertainment Group Ltd will have their permission to operate expiring then. There are also two major brands, to the likings of SJM Holdings Ltd. and MGM China which will have their concessions expiring in 2020. The casino operators’ actions now could determine their future in the field in the next 20 years.
The 2001 law that ended Macau’s gaming monopoly and the six concessions that were subsequently granted stipulate that the licenses are at all times the property of the government, which retains vast powers over the licensees and their gaming-related assets in the territory. According to some experts in the field, there is the possibility that the government imposes a license renewal fee or certain increases applied to the taxes gambling operators have to pay annually. One of the first signs that the industry is preparing for what there is to come is the relatively more complicated funding process of planned locations, the closer 2020 comes.
Investors could feel unsure when it comes to a new project and finding long-term financing and more clarity should be provided in those cases. Back in November 2017 it became known that the industry is preparing ahead of time and considering some gambling renovations which could make the whole process smoother. The future plan for action involved the redevelopment of its basic gambling laws as to ensure that casino operators are sticking to the commitments they have when it comes to non-gaming activities. In order to fortify its problem gambling policy and make sure everything in the sphere goes according to plan, the authorities are planning to regulate junket operations, promote responsible gaming and boost the Macau casino industry’s competitiveness.
Exploring New Opportunities
The authorities are willing to explore a more family-friendly branch and apply this approach to the gambling hub, which is why casino operators are encouraged to develop their non-gaming offerings and elevate the customer experience in that sphere to the next level. It could be recalled that back in 2014 China went through an anti-corruption crackdown which affected gaming revenue in a negative way, and this is the main reason why the authorities are willing to work on different revenue sources development. In Macau’s Five-Year Development Plan – a package of policies and initiatives covering the period 2016 to 2020 – the city’s government stated that Macau casino sector non-gaming revenue should account on average for at least 9 percent of all revenue generated by Macau operators by 2020.
March 2020 will see the official expiration of SJM Holdings Ltd. and MGM China Holdings Ltd.’s gaming licenses, whereas June 2022 will bring the last days of the gambling permit of the remaining four casino developers in the region, to the likings of Sands China Ltd., Wynn Macau Ltd., Galaxy Entertainment and Melco Resorts & Entertainment Ltd. According to Union Gaming analyst Grant Govertsen, there is a possibility that SJM and MGM’s licenses will be extended for two more years, as to bring them to parity with the other four licenses.
There is also the possibility that the government extends the licenses by one year at a time for up to five times and this could happen without the need for new legislation. Those are, of course, all possibilities which are explored by the experts in the field. However, in the past, it has been claimed that the government will not reveal too much of its approach plans. The reason behind the decision to keep their policy to themselves is because if the government reveals too much too soon, this could give other jurisdictions the time to adjust their gambling regulations.
This could lead to even more harsh conditions in the gaming industry, which is something that could be easily avoided. According to Fernando Chui Sai On, Macau’s Chief Executive, the best time for revealing of future plans when it comes to the gaming licenses of the six casino developers would be sometime around the middle of 2018. According to Macau’s gaming law, it would be possible for the territory’s government to renew the existing contracts for a maximum period of five years. But once a gaming concession contract expires, the new concession will have to be granted via a public tender.
The year 2019 is expected to bring the beginning of the negotiation process of the license renewal for the first two casino developers. According to Morgan Stanley analysts, there are several factors which could make the process harder than it should be. Among the risk cases that could derail a smooth renewal process are a one-time bullet payment, an increase in revenue tax rate or corporate income tax rate, and spending on non-gaming assets. However, such negative turn of events is not very likely, as the financial reserves of the region are well-prepared. At the moment the tax rates in the gaming hub are some of the highest on a global scale and this should prevent any unfortunate turn of events.
Steve Wynn Expresses Confidence Regarding License Renewal
In the years leading up to the licenses renewal, many of the casino developers currently operating have expressed their concerns with the way the industry could affect them. Some casino executives have expressed concern over the uncertainty, and have been making increasing efforts to stay on the right side of the authorities. It could be recalled, that back in November 2017 the former Chief Executive Officer of one of the leading developers in the field, Steve Wynn claimed that 2022 will be a piece of cake for Wynn Macau.
As he stated back then, the company had been given reason to have confidence that its businesses would continue after the initial concession expiration dates. That confidence was based upon the kind of conversations with the government which had confirmed it. Wynn operated two luxury resorts in Macau and was also the Republican National Committee Finance chair which controls the special administrative region, but since then many things have changed and he is no longer on those two leading positions.
Forecast for the Renewal Process
As it is stated in Law No. 16/2001 which regulates this sphere of the gaming in Macau, “Legal Framework for the Operations of Casino Games of Fortune” provides that the period of a concession shall not exceed 20 years and, once it has reached the end of the period, “the duration of the concession may exceptionally be extended by reasoned order of the Chief Executive [of Macao S.P.R.], by one or more times, not exceeding in the aggregate five years”. This means that a public tender is most likely to take place in Macau in the near future.
It should be taken into account that according to the initial plan for operation, only three casino developers were supposed to receive a permit to operate in the gaming hub. Subsequently, three more were given the right to do so. Many years after they were granted their licenses, it will be almost impossible to remove any of them, as their facilities are built and in full operation. This means that at least six licenses need to be granted to keep all the operators in, as well as to solve the legal disputes caused by the sub-concessions. In the field, there has been the notion that the government could issue one more license to a local bidder.
In Conclusion
The largest gaming hub in the world is facing many changes in its structure in the foreseeable future and this could affect some of the major gambling developers which have their operations in the area. The following years leading up to 2020 will definitely provide interesting development of events, as the negotiations commence and casino operators are making sure that they remain in the government’s good books.
