22 November, 2022

Will Macau get its magic back?

Amid regulatory changes and strict Covid restrictions, can Macau’s gaming industry make a recovery or not?

It’s been a chaotic couple of years for Macau. The region has witnessed many ups and downs in recent times, with Covid-19 restrictions and regulatory changes each having a huge impact on casino efficiency and effectiveness.

At the time of writing, the most recent statistics from Macau’s Gaming Inspection and Coordination Bureau (DICJ) are not good reading for interested parties (see graph on page 43), with the region reporting MOP$2.96bn (US$370m) in gross gaming revenue for the month of September 2022, a 50% decline from the prior-year period.

It follows July’s tally of MOP398m, the lowest monthly tally quite literally since records began (since currently-published records by the city’s authorities, dating back to 2003).

GGR for the first nine months of 2022 now stands at MOP$31.81bn, a 53% decline from the first nine months of 2021.

February’s figure of MOP$7.75bn remains the highest total of 2022 so far, as well as representing the only month in which GGR grew year-on-year. January’s MOP$6.34bn is second, followed by March’s MOP$3.67bn and May’s MOP$3.34bn.

Unsurprisingly, tax revenue collected by the Macau Government has also plummeted, with Macau’s Financial Services Bureau reporting a figure of MOP$244.4m for August 2022. The total was down 81% from July, and down 93% from August 2021.

Elsewhere, Macau visitor numbers simply highlight the struggles further, with the number of visitors to the region in August falling 19% year-on-year to 331,397, according to the Statistics and Census Service (DSEC). Overnight visitors did, however, increase by 18% year-on-year to 177,640, but the declines were evident again through same-day visitors, which fell 40% to 153,757.

When all of these figures are then compared to pre-Covid times, it is unsurprisingly an even more worrying situation. Macau’s monthly GGR continuously surpassed MOP$20bn pre-pandemic, with gaming revenue from the city’s casinos in 2019 exceeding US$29bn for the full year. The figure dwarfed that of its nearest competitor on a global scale, the US$6.6bn in revenue for Las Vegas.

But only in May 2021 has Macau broken beyond the MOP$10bn mark. It’s a historic low point for the region, and major operators have certainly been feeling the effects, with MGM China and SJM Holdings reporting revenue declines of 46% and 25% respectively for H1 2022.

The latest figures from Global Betting & Gaming Consultants (GBGC) provide yet more angst for all groups with invested interests, with Macau casino gross gambling yield (GGY) falling from MOP$77bn in Q1 2018 to just MOP$8bn in Q2 2022. At one point throughout that period, from Q4 2019 to Q2 2020, GGR fell a staggering 96%, with the pandemic wiping out MOP$69bn from operators during that time.

Macau’s first lockdown - in February 2020 - was the major reason for such a sharp decline, and while revenues started to recover in subsequent quarters, the July 2022 lockdown saw figures fall once again.

It’s not all doom and gloom, however, as evident in the latest numbers surrounding market caps. That is the case for the larger companies at least, with Las Vegas Sands (LVS) sitting at the very top of the list of the top 10 global gambling companies by market cap as of mid-September.

Its market capital of US$29.53bn saw it rank ahead of the likes of Flutter Entertainment and Evolution Gaming. The company’s fortunes are undoubtedly tied to those of Macau, and despite LVS being confident that a recovery in the region will indeed happen in the near future (more on that later), it remains to be seen whether or not its investors share in that positive outlook.

Another group with strong interests in Macau is MGM Resorts, which boasted a market capital of US$13.11bn, putting it fifth in the list of all gambling companies. Given the situation in Macau, the operator has largely relied on its Las Vegas presence in recent times, but will still have hopes of a Macau recovery to further boost its standing in the industry.

At US$7.44bn, Wynn Resorts also squeezes its way into the top 10. But like MGM Resorts, the group finds itself in a perhaps perilous situation amid the growing concerns in Macau.

SJM Holdings meanwhile, owner, operator and developer of casinos and integrated entertainment resorts in Macau, had a market cap of HK$21.87bn (US$2.79bn), showing just how huge the market is.

Despite these positive signs, it is evident that the overall picture in Macau remains a bleak one for the majority of those with a business interest there, and it’s an issue that will take a lengthy period of time to bounce back from.

Macau Polytechnic Institute Professor Changbin Wang told Gambling Insider that the city can indeed recover from the pandemic, but only if the border control is not too tight. He added: “But it will be less likely to recover to the level reached in the past two decades due to the crackdown on VIP operators both in mainland China and in Macau.”

2NT8 Limited Managing Director Alidad Tash, meanwhile, offered a two-part answer, noting that any recovery depends on the time horizon.

“In terms of gaming revenues, within the next three years? No. By the end of the decade? Possibly,” he stated. “In terms of EBITDA, within the next three years, quite possibly. By the end of the decade? Definitely.”

When asked what the future holds for Macau, Tash replied: “Macau will eventually recover, but it’d be devoid of many of its colourful expats and outlaw junkets. Sadly, its wild days are in the past.”

Why the drop?

So why the drop in revenue? Both restrictions amid the pandemic and regulatory changes to Macau’s casino scene have played a huge role.

Concerning the former, it is China that shoulders much of this responsibility, with Macau’s neighbour implementing a strict zero-Covid policy, with Macau following in its footsteps. It is in stark contrast to the system that the majority of Europe and North America have adopted, whereby living with Covid-19 is very much the strategy.

For the city of Macau, however, and subsequently its casinos, tourism is crucial, and visitors have been prevented from easy entry due to strict testing requirements. Sporadic lockdowns have also been added to the mix to complicate matters further. It came to a climax this summer, with the Macau Government ordering all non-essential businesses to close in mid-July. Unsurprisingly, casinos were not exempt, and, as mentioned, were forced to shut their doors for the first time since February 2020.

Macau may just be living on the notion that with every cloud comes a silver lining, which in this case could very well be the Silver State in the US. Nevada is thriving right now, despite going through similar restrictions and barriers that Macau has faced in recent times.

As of September 2022, the bustling state, which is of course home to the bright lights of Las Vegas, has reported 18 consecutive months of over US$1bn in revenue. The same thing could happen in Vegas’ Asian counterpart if things go well in the coming years. The potential is huge, as shown prior to the pandemic.

Regulations and concessions

Regulations have been a huge talking point for the gambling industry in recent times, with various bodies tightening their grip on their respective regions, limiting what companies can and cannot do. Macau has not been left out of these changing times.

Among many changes for the city, one major rule involves the new minimum revenue threshold for Macau casinos, which has been set at an “easy-to-reach” level in a bid to bring relief to the region.

Authorised gaming companies are now required to generate a minimum of MOP$7m per table, and MOP$300,000 per machine. Moreover, as stated by the Macau Government, firms are permitted to operate as many as 6,000 tables and 12,000 machines in total for 2023, in what is the first time authorities have set such formal caps.

It seems the Government has its heart set on tightening its control on casino operators. The all-important issue of problem gambling certainly comes into play in this regard if casinos are forced to constantly meet the minimum threshold.

But despite all of the new rules and regulations, operator desire to stay in Macau has not once faltered. The Committee for Public Tendering of Concessions for the Operation of Casino Games of Fortune, the body responsible for selecting winners from the public tender process, confirmed in September that all seven bids for Macau’s six gaming concessions had been accepted.

It was perhaps a straightforward choice initially, given the fact that all six incumbents - SJM Resorts Limited, Galaxy Casino Company Limited, Wynn Resorts, MGM Grand Paradise Limited, Venetian Macau Limited, and Melco Resorts (Macau) Limited - applied once again.

But they have since been joined by GMM Limited, a subsidiary of casino operator Genting Malaysia. The bid came accompanied by Bruno Nunes, a lawyer in Macau, and a representative that confirmed the intention of Genting Group CEO Lim Kok Thay to penetrate the Chinese market.

It’s now up to the committee to make its decision, with that decision expected before the year has ended. Given the new concessions are expected to begin operating on 1 January 2023, the committee must act fast.

For Wang, it is difficult to predict how the new concession renewals will go, but he doesn’t think they will impact the future of Macau much.

“What really matters is the policies and attitude to gaming by mainland China and the Macau Government,” he noted.

Tash concurred that it will be “quite uneventful,” believing that the current six will carry on, “with Genting ending up only a distraction.”

He continued: “I don’t see them willingly taking away anyone else’s licence. And if they were to partner up with one of the big six, it’d be more like a shotgun wedding.”

Can Macau make a recovery?

The concession situation alone shows the willingness of operators to continue in Macau. Genting, for example, is already running casinos in the UK, US, Malaysia and Singapore through its Resorts World brand, but now also wants a slice of the cake in Macau.

SJM Holdings, meanwhile, even went as far as taking out a HK$2bn loan from its parent company to afford its new concession licence, proving just how valuable such a licence still is.

Macau was handed another boost in late September, with stocks for the six concessionaires surging the most in six months after the announcement from Chief Executive Ho Iat Seng that electronic visas (eVisas) and package tours will be reinstated in November following discussions with China’s central government. It’s certainly a difficult time for the region, but many heavily invested in Macau remain positive that it will indeed make a recovery. How quickly it can make that recovery, however, remains to be seen.