Macao casino move cheers markets, by Tom Mitchell and Robin Kwong - Union Network - 24th April 2008
The Macao government’s decision, announced on Tuesday, to rein back rapid growth in the world’s largest gaming market has been a long time in the making.
Edmund Ho, chief executive of the Chinese special administrative region, said his government would – among other measures – extend a moratorium on the number of licensed casino operators in the territory, halt land allocations for new gaming investments and restrict expansion plans at existing casinos.
Revealed at an otherwise routine question-and-answer session with Macao legislators, Mr Ho’s shot across the bow initially shocked the market, then cheered it. Share prices of US and Hong Kong-listed companies with gaming interests in Macao surged on the news.
“It stops unfettered competition,” said one industry executive, who is nonetheless anxious to see the fine print from Mr Ho. “People can’t just come in and set up casinos. It will drive profitability per table up.”
The growth of Macao’s casino industry has surged in recent months, especially noticeable in a city with a population of just 500,000. In the first quarter of this year gaming revenues increased more than 60 per cent year on year to $3.72bn – more than the Las Vegas Strip and Atlantic City combined.
Measures announced by Edmund Ho
● Total number of licences and sub-concessions to be frozen at six “for the foreseeable future”
● No more land allocations for new casino development, although “we will continue to work with those who have begun construction or negotiations”
● Increases in the number of gaming tables and slot machines at existing casinos to be “tightly restricted” pending government review of casino industry policy.
● Junket commissions to be “regulated in accordance with law”
● Possible introduction of government licensing requirement for “all high-ranking casino executives”
● Ban on casino company involvement in other sectors, especially “public services” such as transport
“We have to ensure our continued economic growth – but also resolve the new problems that have arisen as a result of [it],” Mr Ho said.
“This move reflects the Macao government’s concerns – and probably also Beijing’s – about the side-effects of the gambling boom,” says Au Kam-san, a pro-democracy legislator who has long been critical of Mr Ho’s administration. “The gaming industry’s explosive growth has already exceeded the capacity of Macao’s limited resources.”
The Macao government’s angst can be traced back to early last year when Jorge Oliveira, an influential policy official at the territory’s gaming commission, e-mailed senior casino executives the March cover article from Macau Business, an English-language monthly magazine. The article’s headline was unambiguous: “The Game’s Up: Revenue sharing threatens the system; Gov moves to block new players”.
At that time Macao had just eclipsed the Las Vegas Strip as the world’s largest gambling market, vindicating the government’s decision five years earlier to terminate tycoon Stanley Ho’s monopoly in the industry. Five players were ushered in including Sheldon Adelson’s Las Vegas Sands, which has opened the world’s two largest casinos in the territory, Steve Wynn’s Wynn Resorts and MGM Mirage, which formed a joint venture with Mr Ho’s daughter, Pansy.
But all was not well in Macao. The government was worried about “revenue sharing” or “franchise” agreements, under which outside parties piggy-backed off the licences of established players. Mr Ho’s gaming flagship, Sociedade de Jogos de Macau, had pioneered these arrangements, running casinos for partners who bore most of the properties’ investment risk.
Although typically involving businessmen and companies little-known outside Hong Kong and Macao, bigger fish were beginning to surface as well. In January of last year, Sir Richard Branson told the FT the Virgin Group intended to open a $3bn Macao gaming resort in co-operation with a licensed casino operator. Sir Richard’s public enthusiasm was the final straw for Macao government regulators. “That was probably not the best way to do business in China,” says one person familiar with Virgin’s approach. For its part, Virgin says it is still exploring opportunities in the territory.
The Macao government’s skittishness was aggravated by anti-government protests on May 1 last year – the largest since the former Portuguese colony reverted to Chinese sovereignty in 1999 – as people complained the boom had left them behind. In his remarks on Tuesday, Edmund Ho said the government would pay every Macao resident 5,000 patacas ($625) from its overflowing fiscal surplus – a sop that could damp turn-out at next week’s May Day march.
Further illustrating the stress the casino industry is putting on Macao’s social and physical infrastructure, the Venetian Macao – the world’s largest casino – opened in August with 15,000 employees, 5 per cent of the territory’s workforce. When William Weidner, Las Vegas Sands president, spoke of his new property as “the casino that ate Macao”, his joke struck some as being too close to the bone.
In this context, Edmund Ho’s announcement was perhaps inevitable. But as one senior casino executive says: “The government must get the new regulations out quickly so the industry knows what they are talking about. So far it’s only been a lot of froth.”
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