The Government’s announcement of the gaming law amendment proposal bodes well for the city’s leading industry, analysts told Macau News Agency (MNA), while noting that some questions remain unanswered.
The Government set a maximum of six concessions which can operate under a license for up to 10 years, with a 3-year extension under exceptional circumstances. Another highlight is the decision to drop the controversial proposal included in the consultation paper of introducing a Government delegate to the concessionaires to enhance supervision and control over the operations. Authorities also indicated that another proposal which generated criticism – a prior Government authorization before distribution of dividends to shareholders – will also not be adopted as initially mentioned in the consultation document.
“This is excellent news for the six gaming companies, especially the three American ones (Wynn, MGM, Sands)”, gaming expert Alidad Tash, managing director of 2NT8, told MNA, while underscoring that “a lot of the uncertainty is removed”.
For gaming consultant and managing partner of IGamiX Ben Lee, “the details so far are moderately positive for the new concessions”, as gross gaming revenue taxes remain the same (35 per cent), there will be no Government representatives appointed to casino concessionaires, no direct dividend pay-out control and the number of concessions will remain at six.
Maintaining the existing number of operators (six) is also seen as a wise decision by gaming legal expert Carlos Lobo. “The main point is that the Government did listen to the population and to the industry and found the best solutions to maintain the stability of the gaming industry in a volatile environment”, Mr Lobo, a former legal aide to the Macau Gaming Commission, told MNA, while pointing to the importance of “recognizing reality – 6 operators – and taking away the government delegate”. These moves “show to Macau population, operators and investors alike that the government is aware of the risks and is taking charge of Macau’s future but will not interfere in the day-to-day operation”.
The market reaction was bullish. US gaming shares of Macau-linked operators surged following the Macau Government’s announcement of the new gaming law proposal on Friday.
In a note sent to investors, JP Morgan analyst Joseph Greff said “this is a positive outcome and meaningfully reduces Macau license risk and license term risk for the Macau operators”.
For casino operators, the flipside of the newly announced details regards the concession period being halved to 10 years, Ben Lee notes, alongside the minimum share capital increase from MOP200m to 5 billion and the increase in the share of the concessionaires’ managing director – who is required to be a Macau SAR permanent resident – from 10 to 15 per cent.
The 10-year license period is not seen by Alidad Tash as surprise: “The initial 20 years were too long and, while many headlines are highlighting the cutting in half of the license period, ten years was the most anticipated length by multiple analysts”.
In fact, Mr Tash argues, “the poorly-worded September document strangely made the reduction to ten years more palatable, because casino operators felt like winners once two of the more controversial elements (dividends and government watchdog) were removed”. In this sense, Alidad Tash singles out winners and losers. On the winning side are the Government “by appearing to give in, despite having halved the term (with little objection from the license-holders” and the public since “the least desirable elements (junkets and satellites) are severely curtailed”. However Mr Tash believes that “the ultimate winners are the three American gaming companies that may get another ten years of life, until we go through the same process yet again”
On the losing side of the equation, junkets who lost in December – following the Suncity scandal – “are now joined by satellite operators who are suddenly forced to either reach deals with the license-holders with little leverage, or become exclusively non-gaming”.
The bill unveiled on Friday also mandates that casinos in the future can only operate in the properties owned by gaming concessionaires, while a three-year grace period will be given for concessionaires to tackle the problem if they have casinos in the properties owned by a third-party.
Despite the analysts’ overall upbeat tone, a number of details are yet to be unveiled. Once the actual final version of the gaming law amendment bill, which has been sent to the Legislative Assembly following analysis by the Executive Council, is made public some pending questions may be answered.
For Ben Lee “what’s left unanswered are how the national security law will apply to the new concessionaires and how much or what form of non-gaming investments they will have to engage in”.
In yesterday’s press release, the Government underlined that the rationale behind the law amendment indicates that “gaming operations are obliged to take into account the need to safeguard national security and Macau SAR interests as well as the need to promote adequate economic diversification and sustainable development of the Macau SAR economy”.
In addition, Carlos Lobo notes that, despite the withdrawal of a prior government approval when operators distribute dividends to their shareholders, it remains to be seen if authorities set our criteria for dividend sharing. “The government was clear to say their concern on this matter was the financial capacity of these companies so I would not be surprised if there’s a limit on dividends”, Mr Lobo said.