The question of whether Macau’s casinos will be able to properly comply with a government decree to diversify aside from their cash cow: gaming, is one that is highly important when they begin to use new licences to operate in the largest gambling hotspot in the world on Jan. 1.
With their casinos in the Chinese special administrative region, Wynn Macau (1128.HK), Sands China (1928.HK), MGM China (2282.HK), MGM China (2282.HK), Galaxy Entertainment (0027.HK), and SJM Holdings (0880.HK) have made billions of dollars over the past 20 years, transforming the once-quiet fishing village into a glitzy boomtown.
However, their 10-year contracts are shorter at a time when COVID-19 regulations have severely reduced Macau’s gaming revenues, with 2022 being the poorest year on record for gambling revenue.
Operators are facing a new age of governmental scrutiny and control over their businesses as industry net debt soars.
A surge of infections has spread throughout the city as a result of the recent relaxation of coronavirus limitations in Macau and mainland China in December, infecting many employees as well.
90% of the $15 billion in investments made by casinos over the next ten years must go toward non-gaming projects.
However, given their poor performance since 2001, when the formerly Portuguese colony first liberalised the market, operators will find it difficult to monetize their non-gaming endeavours, executives and analysts predicted.
Ben Lee, the founder of Macau gaming consultant IGamiX, said non-gaming revenues, which pre-COVID typically made up around 5% of total gaming revenues, must increase to more than 30% in the upcoming ten years.
None of the operations has been able to make any notable advancements in non-gaming over the past 20 years.
Lee noted that, in contrast to the celebrated Las Vegas model, quasi-gaming in Asia does not bring the same profit margin because local consumer behaviour is quite different.
He also noted that, based on their past performance and management teams, Galaxy, Melco, and Sands were probable to fare better at diversifying.
Male gamblers in their 30s and older have long been Macau’s primary tourists, but in recent years, more youngsters and women have begun to travel there.
The only location in China where casino gambling is legalized is Macau, a congested region on the country’s southern coast.
Following the official awarding of their licenses, casinos revealed non-gaming plans in December.
These included indoor waterparks, wellness and health facilities, art exhibitions, and a big garden destination by Sands that would be comparable to Singapore’s Gardens by the Bay.
The present non-gaming attractions in Macau are primarily focused on shopping and eating, with a few entertainment options like Melco’s nightclubs, Galaxy’s movie theatre, Sands’ hotels with dedicated Venetian and Parisian decor, as well as its exhibition arena.
But Las Vegas, which offers nonstop entertainment and lures tourists from all over the world, is far superior.
Since greater China accounts for more than 90% of all visitors to Macau, the government has mandated that operators’ new contracts include provisions requiring them to draw in foreign visitors.
The government must receive regular reports from businesses on the status of their capital investments, the number of their expenditures, and the timing of their implementation, according to new regulations.
Regulatory control has been stepped up as Macau casinos deal with substantially higher debt levels than in 2019. According to a December note from Morgan Stanley, net debt quadrupled to $23 billion last year and may only reach a peak of $24 billion by the end of 2023.
Executives said that Macau’s lack of connectivity with global markets, deteriorating infrastructure, a trained labour shortage, and reputational harm from its COVID administration all add to the difficulties faced by casinos.
David Green, chairman of Macau gaming consultant Newpage, stated there aren’t many direct flights to Macau from prospective markets outside of China, and there aren’t many options for moving large groups of players about in the city.