Proposed changes in gaming licenses held by big US gaming companies recently announced by the Macau government are being seen as the latest bargaining chip in US-China relations.
With six 20-year gaming concessions set to expire in June 2022, Macau authorities are expected to grant the same number of concessions but for 10 years with a “review and license renewal” every five years.
The shift will give Beijing another leverage point as US casino tycoons will have more incentive to serve as middlemen between the two powers, analysts and observers say.
At the same time, investors are worried that Hong Kong-listed Macau casino operators will become less profitable if as suggested they are required to invest in non-gaming businesses in Macau and nearby special economic zone Hengqin, a government pet project.
There are also market concerns that Macau’s gaming companies could become the next capitalist victim of China’s new “common prosperity” drive.
After Macau was handed over by Portugal to China on December 19, 1999, Beijing decided to end the 40-year monopoly of SJM Holdings when its gaming concession expired at the end of 2001.
In 2002, SJM Holdings, Wynn Macau and Galaxy Entertainment won the bids for three new 20-year gaming concessions. In the intervening years, they were allowed to sublease their licenses to MGM, Melco and Venetian Macau, respectively.
All six of their licenses are set to expire on June 26, 2022. Among them, Wynn Macau, Sands China and MGM China are funded by US companies.
On September 14, the Macau government announced that it would launch a 45-day public consultation regarding proposed revisions to Law No.16/2001, or the Legal Framework for the Operations of Casino Games of Fortune, until October 29.
The consultation document has nine key discussion points ranging from the future length of concessions, increasing supervision on concessionaires, the introduction of government representatives at licensed gaming companies, the promotion of non-gaming offerings and the role of corporate social responsibility, among others.
The government decided to conduct an overall review and optimization of the existing gaming law, in an effort to advance “healthy and sustainable” development of the sector, Lei Wai-nong, Secretary for Economy and Finance in Macau, said on September 14.
Since the review’s announcement, Macau’s gaming sector has slumped by about 20 to 30% amid rumors that as many as three sub-concessionaires would lose their rights to run casinos. Others have speculated the three US players face growing risks of being kicked out of Macau altogether amid deteriorating US-China relations.
Any three of the US gaming operators could be ousted in 2022 as Beijing could make the decision on political considerations rather than economic benefits, said Victor Ng Ming-tak, a former banker and an adjunct associate professor of economics and finance at the Hang Seng University of Hong Kong.
Ng said Beijing would likely lean towards granting concessions to companies that could help China influence US politicians and officials.
Hong Kong-based political commentator Johnny Lau said the possibility that some US gaming operators would lose their concessions next year should not be ruled out. Lau said by announcing the public consultation document, Beijing had sent a signal to Washington on the need for more communication and cooperation.
A few days before Macau proposed the gaming rule changes, US President Joe Biden and Chinese President Xi Jinping held a 90-minute phone call on September 10. The call was described as “frank and familiar” by media on both sides but no agreement was made during the dialogue.
By demonopolizing Macau’s gaming sector, Beijing achieved its goal of making Macau a “Chinese Las Vegas” while the three US gaming operators have made fortunes in the gaming city over the past two decades
Reports at the time said Beijing granted Macau’s gaming concessions to Wynn Macau, Sands China and MGM China in return for the US helping it obtain the rights to hold the Olympics Games in 2008.
Although Chinese officials denied such a quid pro quo, The New Yorker reported in June 2008 that Sheldon Adelson had made phone calls in July 2001 to Republican leaders in the US Congress and asked about a resolution opposing China’s Olympic bid over human rights issues.
The resolution was eventually scrapped while Adelson’s Venetian, parent of Sands China, was later offered a gaming license in Macau.
The Macau government has not been able to confirm the future number of concessions as Beijing had not yet made a decision, which is related to the state of wider US-China relations, Guan Feng, an assistant professor in the Department of Economics, Faculty of Social Science, University of Macau, recently told Allinmedia.com, which focuses on news about Macau’s gaming sector.
Davis Fong Ka-chio, director of the Institute for the Study of Commercial Gaming and an associate professor in the Faculty of Business Administration at the University of Macau, said the number of concessions should stay at six to avoid hurting the job market in Macau.
Fong said Macau authorities had no intention to remove US gaming operators while it was also wrong to assume that sub-concessionaires would face a higher risk of being kicked out when all concessions expire next year.
He suggested it would be better to postpone the bidding by two years as the current operators might not be able to offer high bids as their profits had been squeezed by the pandemic since early last year.
Wang Changbin, director of the Centre for Gaming and Tourism Studies at Macau Polytechnic Institute, said reducing the number of concessions would hurt Macau’s economy and job markets. He explained the reasons in an article titled “The casino gaming concession system in Macao: past, present and future” in the UNLV Gaming Law Journal in August 2020.
“If an existing concessionaire loses its concession, it will lose the privilege of operating casinos in Macau and the casinos it has owned will have to revert to the government,” Wang wrote.
“It is not easy in practice to replace a current operator with a new one…Macao does not have the land resources to build new casinos. If newcomers operate casinos under the same roof with the replaced operator which retains the non-gaming facilities after 2022, it would produce many managerial problems.”
He added: “The replacement of operators also may cause significant social problems such as unemployment and economic problems at least within the short term because the new operators may not operate as successfully as the replaced one did.”
On September 5, the central government announced the Master Plan of the Development of the Guangdong-Macao Intensive Cooperation Zone in Hengqin, which aims to diversify Macau’s gambling-dependent economy.
In a research report, investment bank Morgan Stanley warned that the plan would hurt the bottom lines of gaming operators. In particular, it said Galaxy Entertainment, which signed a memorandum of understanding with local authorities in 2014 to invest in non-gaming businesses in Hengqin, would face pressure on its return-on-equity.
Other analysts have suggested casino operators could be forced to invest in unprofitable businesses and may become victims of Beijing’s “common prosperity” drive, which was proposed by Chinese President Xi Jinping at a top Communist Party financial and economic affairs committee meeting on August 17.
The Chinese central government has tightened rules and regulations on various industries that have adversely impacted internet, tutoring and entertainment businesses. Some suggest gaming companies could be next in line amid suggestions they may be forced to take on government representatives in the future.
Some Macau-based academics said the concerns are overwrought as government representatives would only monitor whether concessionaires had fulfilled their investment promises.
Wang said in an interview last week that it was not a new requirement to have government representatives at licensed firms, which is already the case at the Macau Jockey Club and Canidrome Club, and concerns that Beijing could seek to nationalize foreign-held casino assets were misplaced.
He said government representatives would only help monitor the concessionaires but not make decisions for them.
At the same time, foreign gaming operators should in future show Macau authorities they can help diversify the local economy and bring some non-gaming businesses from their home countries to Macau and Hengqin, Guan said.
“We are not talking about running a few cultural exhibitions or art shows by delivering free tickets. Macau needs some new self-sustaining and long-term businesses,” Guan said, adding that bidders who were willing to invest in Macau’s non-gaming businesses such as Chinese medicine would have an advantage in winning concessions.
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