GBA, M&A

Ready for a reshuffle

Calls for shareholder changes at MGM; Macau gaming great Adelson dies

Sheldon-Adelson-w

Casino mogul: Sheldon Adelson died aged 87 this week

Sheldon Adelson, the founder of gaming giant Las Vegas Sands, was pretty unimpressed when he first laid eyes on the city that would make him one of the richest men in the world. “Prostitution infested, crime infested, triad infested,” he lamented. “Everything that you don’t want a gaming destination to be… was going on in Macau.”

Yet the gaming tycoon, who died at the age of 87 this week, must still have glimpsed the explosive potential of the former Portuguese colony and he went on to play a crucial role in the city’s emergence as the epicentre of the gambling world.

Such was Adelson’s contribution that he merited mention this week from Bloomberg as the man “who brought casinos to China”. That is a stretch: his achievements stemmed from the spread of his empire into Macau not mainland China itself, where casinos remain illegal. But there’s still no denying that his opening of the Sands Macao in 2004 was a transformational moment for the casino enclave and the millions of Chinese that soon flocked there from across the border in the hope of making their fortunes at their favourite game of chance, baccarat.

It was a spectacular success for Adelson as well, with the venue recouping its $250 million in construction costs inside six months.

Soon afterwards Adelson would play the role of pioneer again, this time as the promoter of the Cotai Strip, a glittering parade of hotels and gambling halls that rose up from swampy soil formerly regarded as wasteland. Another vast casino there (the Venetian) set the tone once more and Adelson’s company stayed so focused on its future in Macau that it was even reported to be considering a sale of its Las Vegas assets last year.

Yet Adelson’s death also coincides with a period of unprecedented uncertainty for the Macau gaming sector, especially for those of casino brands that are US-controlled. American entrepreneurs like him are unlikely to have the chance to shape the agenda in the same way again and political tensions between Beijing and Washington are complicating the picture further, with fears that some of Macau’s biggest casinos are set for the chop, because of their American ownership.

That is one of the motivations in a set of demands made last week of MGM China – another of Macau’s US-controlled casinos – to bring more Chinese money onto its shareholding register.

Snow Lake, an Asian-based investor, is urging MGM Resorts – the Macau casino’s parent – to sell a fifth of its business to a partner from China’s internet, travel or leisure sectors.

It has even proposed a few candidates: the online travel giant Trip (formerly Ctrip.com), the food-delivery mammoth Meituan, the property and tourism group Sunac and Huazhu, a major hotel chain.

MGM was tight-lipped in response, saying only that the company is committed to Macau and that it would take actions in the best interests of its shareholders.

Part of Snow Lake’s pitch is that new investors will boost MGM’s non-gaming expertise, fuelling Macau’s bid to broaden the city’s allure from its casinos to a fuller range of attractions. The shortlist of candidates would bring new customer bases, much needed after the commercial catastrophe of the pandemic, which saw gaming revenues fall 79% last year to their lowest levels since Adelson first arrived. But there’s a political undertone to the proposal too – that ongoing American ownership might hinder the casino’s chances of future success.

All of Macau’s casinos are counting on a swift recovery as the pandemic recedes across the region. The city’s control of infection rates has been exceptional – there have been no new cases of the virus reported since last June. But the by-product is that millions fewer people are coming to play at the tables.

Borders have largely been closed to non-Chinese nationals, although travel bubbles have allowed quarantine-free trips from most Chinese provinces since September as long as arrivals can show they are free of infection. Reks Ng, an analyst from HSBC’s fixed income team, warns that expectations of a rapid recovery are probably unrealistic, however. Take-up of visitor visas has been limited because travellers are still worried about being infected during their trip. The concern could persist for most of this year, he believes.

Another challenge for the casino bosses is how to respond to the longer-term focus on reducing the reliance on VIP players at high-stakes tables. China’s central government has tried to clamp down on much of the high-roller bets, worried about capital flight and illicit sources of funding for many of the players. Most of these gamblers are brought to Macau by specialised agencies called junkets which now find themselves at risk of pending legislation from China’s National People’s Congress which is making it a crime to solicit local players to gamble overseas.

Anyone who “organises mainland Chinese citizens to gamble outside the country” is a target, Xinhua, the state news agency reports.

Analysts are querying whether Macau might skirt the full impact of the legislation, because the definition of overseas jurisdiction allows for a grey area (like Hong Kong, Macau is termed as a special administrative region of China, separated from the mainland by a border or boundary).

Nonetheless, the clampdown is another complication for gaming executives at a time when the sector is on the verge of a new tendering process for the licences that have thus far allowed six operators to run casinos in the city.

Another part of Snow Lake’s gambit is that MGM will have a better chance of renewing its concession on favourable terms in 2022 if it has a higher proportion of shareholders deemed to be Chinese, particularly at a time when Sino-US relations are so strained thanks to President Donald Trump’s policies.

Similar sentiment has weighed on the share prices of the three US casino firms (Las Vegas Sands, Wynn Resorts and MGM), all of which have been trading at discounts to local rivals on political risk concerns.

All the same, MGM executives will be cautious about giving up too much of their franchise in the biggest gaming market on the planet. Perhaps they’ll be wondering whether some of the political risk in Sino-US relations will start to subside once Trump leaves the Oval Office next week as well.

The Macau government will spend most of this year revising the territory’s gaming law before formally opening the process that will award the new casino concessions by next June. But in the meantime there’s growing speculation that the retendering could be delayed as officials concentrate instead on the response to the Covid-19 crisis and efforts to reinvigorate the local economy.

An extension of the existing licences by up to three years to 2025 would be better news for the casino bosses from the US, giving them a chance to recover some of their losses over the last 12 months.


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