With the month of July off to a ‘strong start’, according to analysts at Telsey Advisory Group, and Bernstein estimating that July 1 to 9 saw gross gaming revenue of MOP6.8 billion (US$850 million), the announcements made by Secretary Lionel Leong Vai Tac on Monday about a potential review of gaming legislation in advance of the upcoming concession expirations in 2020 and 2022 are a good sign that local authorities are beginning to tackle the complicated issue, say experts.
“That which the government is doing is correct and this is the path that should be followed. First, a revision of the gaming law is necessary and then afterwards the government will have to decide what it wants to do and how it wants to do so,” said Sergio de Almeida Correia, a lawyer and gaming expert at Rui Afonso lawyer’s office.
Analysts at Bernstein suggest that four possible scenarios exist, noting that ‘under the original gaming law, there is no renewal process per se’.
The four possibilities suggested by Bernstein analysts are:
*effective renewal with no new economic costs
*effective renewal with additional economic costs
*additional concessions granted to new parties
*loss of concession by one or more existing concessionaires

Most likely
Despite the four options, the analysts point out that ‘we see effective renewal of all six operators with some added economic costs as the most likely outcome’. This viewpoint is shared by Ricardo Siu Chi Sen, an Associate Professor of Business Economics at the Faculty of Business Administration in the University of Macau.
“In my personal view – even [though] the government is reviewing the concessions – the number staying the same would be the best for Macau,” opines the professor, noting that “Macau’s market is now pretty packed already with the six operators”.
“If the government tries to think about one more new licence […] I think a technical problem would be how to find the land and the area to fit in another new operator,” said Professor Siu.
The ‘added economic costs’ this ‘effective renewal’ would encompass could be divided between ‘higher taxes, gaming concession fees (up front or payable over time), low ROI (return on investment) capital investment requirements, or some combination of these,’ say the analysts at Bernstein, adding, ‘We view the likelihood of no renewal to be very unlikely.’

Giving it time
While given that the public tender is mandatory under current legislation “those who are already here could have a benefit at the time of the creation of the tender dossier, of the tender programme, by the fact of already being here, and already knowing the land and already being correspondents with the government of Macau,” said Correia, noting that “from the start the tenders should be open, transparent and those who satisfy the requirements and offer the best conditions, the best returns – in this case for the Macau Government – should be those who obtain the licence to operate.”
As part of this tender process, opines Correia, two things could, and should, if possible, be done.
“The sub-concession regime should be eliminated given that the government should be the direct interlocutor with the concessionaires,” points out the lawyer. In addition “things need to be done on time,” he notes, opining that it’s “preferable if there wasn’t an extension of the current concessions” for those coming up in 2020 – SJM and MGM China.
“The mechanism should be prepared in time, the alterations should be made in time, the Legislative Assembly should approve a new gaming law in sufficient time, and the government should also define that which it intends in advance – in order to create the best conditions for the public tender and permit investors to make their calculations and to prepare their projects in advance”.
If this were the case, he notes, then the concessionaires whose licence come up in 2022 would not be at a particular advantage compared to the others.
Professor Siu also opines that the 2020 concession renewals will not be delayed to 2022, and that when the tenders happen “excepting if there were an accident to happen such as an individual operator doing something very unfavourable to the public interest,” all six operators would be eligible to join the tenders and, given their “very good job for the modern development, especially the development supporting the mass market development in Macau,” that all six will be renewed.

Although admitting to not knowing the government’s stance on the issue, Correia opines that “the current operational model of the junkets should be reviewed, and if possible they should be done away with,” given that the junkets “at least in the current model, are dispensable, and I think they have created some problems in Macau, so I think that’s avoidable”.
Correia suggests a limit on the total number of junkets in the event that the market cannot function without them, a likelihood Professior Siu says “may not be high”, given how they are “important to Macau’s casino business”.
Bernstein analysts point out that ‘The VIP market has shown considerable strength over the past half year’ but that ‘the mass market will be the key driver of sustainable growth in 2017 and through the rest of the decade’.
“To clarify the related regulations or the supervision of the business activities of the junket operators would be more realistic and practical,” the Professor claims.