The world's largest gaming market has a deadline for casinos. Macau opened its gaming industry to foreign investment two decades ago, but the licenses of its six operators will be up in June. There is a chance that new players may enter the market in 2022, and other operators may lose their place at the table.
The casino operators are still suffering from a lack of customers because of China's border shutdowns, so the deadline couldn't come at a worse time. Macau's gaming revenue was down 70% from its pre-pandemic level as the Chinese government temporarily suspended travel between the city and the mainland due to the Covid-19 outbreak. The door to Macau is closed for visitors from the rest of the world and residents in nearby Hong Kong have to go through a two week scurvy period.
The Macau waterfront has Macau Tower in the background.
The government is cracking down on high rollers in Macau and has changed legislation governing the industry. The chief executive officer of Suncity Group was arrested by police in November. Beijing has long objected to these credit facilities being used to help clients transfer money out of China. Police said that Chau confessed to carrying out illegal gambling activities. The junket business could be adversely affected by the loss of Chau's financial support. The company runs overseas casinos, travel and hotel services, and property development. Chau, who resigned as the company's chairman and shut his junket operations in Macau, couldn't be reached for comment.
Chau's arrest sent shock waves throughout the city's gaming halls, with experts predicting casino operators would need to reduce their reliance on a relatively small number of wealthy customers. The junket industry was killed off by targeting Suncity.
A shakeup of the high-roller gambling sector, which accounts for about $3 billion in annual revenue, one-third of the city's total gaming return, will bring Macau more in line with the government's "common prosperity" campaign.
Steve Vickers, CEO of Hong Kong-based risk consultant Steve Vickers & ASSOCIATES, says that Macau's role in enabling capital flight has changed due to heightened state oversight. Billions of dollars have been funneled out of China in stark noncompliance with capital control regulations, and the big beneficiaries have been the casinos.
Some or all of the current operators will receive new licenses, but it is not known how long they will last. Macau officials are revising the city's gambling laws to make it easier for the government to supervise operators and approve dividends.
MGM China, Wynn Macau, and Sands China are vulnerable to policy shifts. Macau is the major profit engine for the parents of these affiliates of American companies. Wynn Resorts got more than half of their revenue from China. The U.S.-China relationship was hurt by the news of Chinese persecution of Muslim Uyghurs. In December, President Joe Biden banned Americans from investing in more Chinese technology companies, including SenseTime Group, and banned Chinese entities from accessing key U.S. suppliers and technologies. He boycotted the Winter Olympics in Beijing and signed legislation banning goods made with forced labor in the region.
Chinese officials want to show their displeasure with Biden, so casinos with U.S. parents are easy targets. The majority owner of the Macau subsidiary and operator of a large casino in Singapore agreed to sell its Las Vegas properties for $6.25 billion so it could focus on its Asian businesses. The CEO of the company said in a March statement that the developments in Macau and Singapore are the center of their attention.
The mid-2022 deadline may be pushed back due to Macau's government yet to announce legislation to govern the industry. If an updated gaming law isn't ready before the license expires, current rules allow the extension of licenses. The results of public hearings on license renewals were released in December. Most respondents supported the proposal to increase local ownership of the casinos.
Many analysts think a final deal may keep the status quo. Morgan Stanley analysts believe operators will be allowed to distribute dividends after satisfying some investment thresholds.
There will be changes. To continue operating in the city, American-owned casinos may need to offer local partners stakes of as much as 20%. They would keep more of their profits in Macau rather than sending them back to the U.S., according to an analyst. The Americans would keep a piece of the action.
All Rights Reserved © 2024
