Posted on: January 3, 2023, 08:24h.
Last updated on: January 3, 2023, 08:24h.
The 10-year gaming concessions that the six Macau casino operators agreed to in November came with conditions that could render the market less attractive. That’s according to Ben Lee, a leading gaming analyst who is focused on Asia markets.
Macau and its six casino licensees — Sands, Galaxy, Melco, SJM, Wynn, and MGM — agreed to further invest a total of $15 billion over the life of their concession terms. The new permits run through Dec. 31, 2033.
Of the $15 billion in capital improvements, 90% of the spending must go towards nongaming initiatives. The mandate comes from Beijing, which has instructed Macau to diversify its economy away from gaming.
Macau’s reliance on casino tax revenue was made apparent over the past three years, as COVID-19 rendered the enclave lifeless of meaningful visitor traffic. That resulted in gross gaming revenue (GGR) tumbling from $36.4 billion in 2019 to $7.5 billion in 2020, $10.8 billion in 2021, and just $5.25 billion last year.
Lee, the founder of Macau-based gaming consultancy IGamiX, believes the $13.5 billion in nongaming investments ordered by the Macau government in exchange for the fresh concessions deals the six gaming giants a difficult hand. Nongaming accounted for around just 5% of the casinos’ pre-COVID business revenue.
Lee said previous attempts to diversify Macau’s casino industry weren’t successful. He explained that nongaming in Asia is quite different — and far less profitable — than in Las Vegas and other major casino markets where nongaming initiatives have been emphasized.
For the past 20 years, none of the operators have managed to establish any significant progress in nongaming,” Lee told Reuters. “Contrary to the vaunted Las Vegas model, nongaming in Asia does not carry the same profit margin as spending behavior is quite different over here.”
Lee opined that Galaxy, Melco, and Sands are likely best suited to embark on the nongaming investments and find a way to make such resort amenities profitable. But Lee added that Macau doesn’t have the global recognition of being a leisure travel destination like Las Vegas or other integrated casino resort markets such as Singapore.
Adding to Lee’s worry about the $13.5 billion in nongaming investments is that he doesn’t think Macau is equipped to handle a large influx of business and/or non-casino guests. Lee explained that’s because of Macau’s dilapidated infrastructure and shortage of skilled labor.
Macau is also relatively isolated from much of the world it seeks to attract, as Macau International Airport offers limited direct flights to potential feeder markets outside of mainland China.
“There is no indication that I have seen that the government is, or intends to address, these weaknesses. Given the serial mismanagement of public works … it leaves concessionaires with a less than optimal host attraction proposition,” Lee stated.
Macau has been a popular destination for mainlanders primarily for the one thing that isn’t legally allowed within China: gambling. The region liberalized commercial gambling in 2002, two years after the territory was handed back to China from Portugal.
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