‘The house always wins’ is one of the many warnings against gambling. Yet that was hardly the case in Macau last year, when gross gaming revenue fell almost 80%, loading the city’s casinos with heavy losses.
Of course it was the pandemic to blame rather than a flurry of fortunate punters and the bad luck was back for the gaming bosses in June when monthly gross gaming revenue slumped 37% from May because of new restrictions on visitors.
At $817 million the June numbers were nearly 10 times better than a year ago, when casinos reported their lowest gaming revenues of the entire pandemic. But gross gaming revenues were still way back on the forecasts from earlier this year, when there were hopes of annual arrivals of about 10 million visitors (versus the peak of 39.4 million in 2019).
A tightening of restrictions in June was the result of a resurgent outbreak in neighbouring Guangdong, Macau’s largest source of visitors. Even for those with negative tests, travellers from the province were expected to quarantine for 14 days, and there is a similar process for arrivals from Hong Kong, which provides 10-15% of the city’s visitors in normal circumstances.
The restrictions on visitors from Guangdong are expected to loosen a little after local authorities there reported no new local cases of Covid for 10 days, and there has also been talk of a new travel bubble with Hong Kong that would dispense with quarantine requirements. Visitors will have to prove they have been fully vaccinated for at least two weeks and show negative test results within the previous 48 hours.
The conditions would be restrictive once Hongkongers arrive in Macau too: they’ll have to stay in specially designated areas of their hotels and they are forbidden from visiting bars, karaoke rooms and nightclubs.
Maybe that won’t put off the most determined gamblers. But Macau’s casino economy isn’t going to be firing again until the virus is comprehensively beaten and that could run tight to the deadline of the end of June 2022, when the territory’s current casino concessions are set to expire.
Back in 2001 the government granted three licences, with three further sub-licences, to the gaming operators, spawning a marketplace in which more than 40 casino brands do business (including American giants like Sands, Wynn and MGM). Time is nearly up on these arrangements and a new regime now needs to go through a public consultation process before approval by local legislators.
There would then need to be a few months of tendering for the licences by interested parties. But squeezing all of this into less than a year looks tough, especially when the pandemic is suffocating the sector.
Most of the casino operators seem to be betting on a renewal of the existing arrangements and have been signalling so by pushing ahead with major investment.
SJM will launch the Grand Lisboa Palace, a $5 billion resort on the Cotai Strip in the third quarter this year, and analysts point out that it would take the casino giant at least four years to recoup its investment (and that’s in pre-pandemic conditions). SJM has just one more year of its concession remaining in the current circumstances.
The uncertainty is similar at Melco, another of the casino operators, which has just been given a seven-month extension by the government on the date for the opening of its new Studio City resort. The new deadline is late December 2022, which is several months beyond the expiry of the gaming licence that underpins the resort’s business.
These kinds of commitments seem to show confidence from the casinos that a decision on the new concessions is going to be delayed or even that the current licences are going to be renewed because of the exceptional circumstances. However, probably the most plausible path is that the government sticks with the status quo but demands higher fees from licence holders, as well as larger commitments on future investment in non-gaming assets. No doubt that there would be protests at having to pay out more at a time when the pandemic has ravaged their profits. But the casino bosses would surely take such a deal for a guarantee of a seat at the table in the world’s most profitable gaming market, once the pandemic subsides.
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