Anti-money laundering (AML) regulations, the Mainland’s eye on capital outflow – in particular regarding UnionPay cards – and local politics remain the primary threats to the outlook of the local gaming industry this year, according to independent business intelligence supplier Gambling Compliance.
The insight comes in the group’s Global Gaming Outlook for 2017, which calls Macau ‘The Rising Phoenix’ and notes that so far the MSAR has kicked off the year ‘with some relief and cautious optimism,’ largely banking on the return in revenues, evidenced in the 3.1 per cent (January) and 17.8 per cent (February) year-on-year increases in gross gaming revenue in the first two months of the year, according to information from the Gaming Inspection and Co-ordination Bureau (DICJ).
‘The VIP and mass markets are indisputably growing once more […] girding the better atmosphere is a feeling that pressure from Beijing and its security apparatus on operators and customers is easing,’ notes the report, ‘giving an essential boost of confidence to high rollers and premium mass customers.’
The main problems facing the industry, which has been excluded from the ‘disastrous crackdown on Chinese and foreign staff of Korean and Australian casino companies in China, including morale-sapping arrests,’ is the upcoming renewal or extension of the gaming contracts, expiring in two waves, 2020 (SJM and MGM China) and 2022 (Wynn, Melco Crown, Galaxy and Sands China).
So far the DICJ hasn’t opened up as to whether the renewal will take place and under what conditions, except for the 9 per cent non-gaming revenue target set for 2020 and met by the operators in 2015.
However, given the two new mega-projects opened last year – Sands China’s Parisian and Wynn Macau’s Wynn Palace – and two more projects in the pipeline – MGM Cotai and SJM’s Grand Lisboa Palace – operators appear confident in their permanence. Yet, in terms of a road map for the operators to follow regarding the attempt the group describes the non-gaming diversification policy as ‘poorly defined,’ noting that it ‘acknowledges operator achievements randomly, if at all.’
As the new properties ramp up, the main focus is the ‘significantly under penetrated’ Mainland China market, points out the group’s Asia Editor Martin Williams, a push-pull given ‘Beijing’s shorter leash’ being ‘matched by the Macau gaming regulator’s tightening grip on junket operations and fiscal checks.
These have led to the consolidation of the junket operators in the MSAR; according to DICJ information there are currently 110 junket operator groups and 15 individuals as opposed to 121 junket groups and 20 individuals last year, ‘which has seen major players Hengsheng, David and Neptune substantially reduce or erase their footprints in the market.’ Williams points out that this has been ‘largely to the benefit of unrivalled industry leader Suncity.’
While the threats from increased regulation and capital outflow control are present, those from competition in the neighbouring area are not, points out the group, noting they will ‘pose little problem for Macau in 2017, especially given the proportion of market revenue directly affected by Chinese domestic policy.’ However, ‘credit liquidity, a weaker renminbi against the dollar-pegged HK dollar and policy shifts in response to U.S. President Donald Trump’s threat of massive tariffs and other punitive actions against China’ are of larger concern.
Regarding the upcoming Legislative Assembly election, Williams opines that the result will be to ‘recycle debate on the renewal or extension’ of the concessions, ‘allowing more oxygen for outlier gaming moguls such as lawmaker Chan Meng Kam and former lawmaker Daivd Chow […] to argue for expanded local concessions at the expense of American operators.’
To watch out for this year, the group points to the ‘largely blindfolded political games that U.S. operators must play with government and employees alike to protect their concessions.’
Regionally, with the recent rulings in Japan on integrated resorts drawing the eye of local operators such as MGM and Las Vegas Sands (Sands China’s parent company), the country has become a ‘must win’ for many global gaming operators,’ in particular the ‘well positioned’ United States-based gaming operators including the two previously mentioned.
‘But the race for licences also has the potential to elevate unknown bidders into the top rank of international gambling operators,’ notes the group’s Research Director Andrew Gellatly, adding that the ‘next steps in the process are as unpredictable as last year’s legislative developments proved to be.’
Main roadblocks, including ‘missing’ public support coupled with ‘strong-worded editorials condemning the government for its decision’ on the legislation by media in Japan push foreign operators to quickly find their local partners, as a ‘strong emphasis on local ownership’ will be part of the final regulations.
‘We believe that there will be a frantic speed dating process in 2017 as foreign operators seek local partners and every party seeks to shape and influence policy making,’ notes the report. This includes corporations such as ‘Fuji TV, Mitsui Fudosan, Orix, Tokyo Tokeiba, Tokyo Gas, Mitsubishi and Sumitomo all looking to participate in the almost unprecedented introduction of a brand new and never-before regulated national industry,’ writes Gellatly.
Business Daily contacted the DICJ for comment regarding the gaming outlook report but had not received a reply by the time this story went to press.