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The Precarious Position of Macau Gambling
By Shane Addinall Jan 23, 2022 IndustryThe gambling capital of Asia finds itself at a crossroads with the announcement of the draft gaming bill from Macau’s Legislative Assembly. Could the proposed laws cripple or strengthen the currently casino-dependent economy?China’s casino capital, Macau, holds its breath as the city’s Legislative Assembly publishes a draft gaming bill. The bill’s introduction will take place on Monday, 24 January when the 44-page draft document will have its first official reading. A sub-committee will then receive the document to discuss any changes.
Once lawmakers sign the bill into effect, this will be the biggest reform in two decades for Macau and the concern is how its economy will cope. The proposed bill comes just in time for casino operators’ re-tendering of their licenses. Although the Administration and Justice Secretary, Cheong Weng Chon, admitted that the bill may not be completed by 26 June when current licenses expire.
The region’s six casino concessionaires reportedly received assurance that the Chief Executive, Ho lat Seng, will consider brief extensions if the new gaming bill is not in place by that time.
Tightening Grip or Strangulation?
Macau’s multibillion-dollar casino operators have been expecting a change in legislation for years now. The Chinese SAR (Special Administrative Region) aims to gain control over more processes in the region’s casinos, and the bill presents an obvious threat to the future of junket operators.
The draft gaming bill indicates that only six operator licenses will exist going forward and all current and potential operators need to apply through a new tender process. The six casino licenses that currently operate but expire in June are Wynn Macau, Sands China, MGM China, SJM Holdings, Galaxy Entertainment, and Melco Resorts. New licenses will be valid for 10 years.
Beijing has expressed its increased concern about Macau’s economic dependence on gambling revenue. The former Portuguese colony raked in six times more than their Las Vegas counterparts for 2019, with casino revenue turning $36 billion for that year. Following coronavirus travel restrictions and the junket industry coming under heavy scrutiny, the region experienced crippling results. The city’s gross gaming revenue for 2021 closed on $10.81 billion, a 43.7% improvement in 2020.
Initial proposals caused kickback from concerned operators who overturned a suggestion that government officials will directly supervise casinos. The draft bill now shows that facilities will be subject to a contractual compliance review every three years by the city’s gaming regulator. Companies may publicly list a maximum of 30% of their shares and any major financial transactions need to be communicated with authorities.
Junket operators, travel agents who bring in high-rollers from mainland China, may no longer have revenue-sharing agreements with any casino, nor may the casinos offer dedicated VIP rooms to any junkets. VIP promoters will still be able to apply for licenses, but they will link this to one casino concessionaire. Concessionaires must administer a 5% withholding tax on all junket commissions once they approve the gaming bill.
Targets and Limits
Effective tax rates remain unchanged, but the bill calls for a tremendous increase in minimum capital requirements from $25 million to $625 million. Concessionaires must prove that the capital is paid up in cash or bank bill, according to the draft document.
Furthermore, the bill allows for a maximum number of tables and machines for each concessionaire. They will review these numbers annually in relation to business volume and gross income. If the tables and machines do not generate set-out targets, the casinos must pay the difference. If this result continues for a second year, the Chief Executive may lower the allowed number of tables and machines.
The bill stipulates that any exploration by concessionaires for new ventures must first receive approval from the Secretary for Economy and Finance. Corporate Social Responsibility initiatives demand support for the development of small and medium-sized enterprises, and diversification of local industries. Concessionaires also need to prepare a plan to promote responsible gambling and submit it to the DICJ, together with a report on their responsible gambling initiatives for the previous year.
Investors Indicate Approval
Following the draft bill’s announcemen0074, shareholders seemed to give a nod of approval as shares of Macau’s casino operators experienced an $8 billion increase in value. This is approximately 15% of their market share. Tighter grips on casino concessionaires are quite a gamble in this casino-driven economy, however investment bank JP Morgan is inclined to give the Macau government the benefit of the doubt.
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