Local junket operators expect no significant changes in the business climate in the short run, albeit the recent relaxation of travel measures between Macau and Mainland China, as they are looking for more communication with the Government
The long-awaited relaxation of travel arrangements last month has been welcomed, by the community at large here, as a step in the right direction for the normalisation of traffic between Macau and Mainland China, in the wake of the global pandemic. Despite signs of a potential turnaround after months of struggling, the junket operators expect their business prospects in the short run remains to be dismal.
“We do not anticipate there will be any major breakthroughs this year,” says Luiz Lam, a director at the Association of Gaming and Entertainment Promoters, despite the recent news of loosening the quarantine arrangement of travel from Macau to Guangdong, a rule that has been imposed since the outbreak of the novel coronavirus (COVID-19) earlier this year. “We expect the strategy of the authorities is to gradually lift up the travel restrictions to allow more visitors, but it’s impossible to see the restoration of free travel between the two sides without any restrictions this year,” says the representative of the Macau junket trade body, the middlemen that help attract big rollers to casinos and lend credits to them that will be settled later.
Guangdong provincial authorities announced last month that Mainland Chinese residents, the major source of tourism and gaming revenue for Macau, returning from the city to Guangdong province via Zhuhai, do not have to undergo a 14-day quarantine at designated locations starting from 15 July, a rule that had been in place for months to prevent the transmission of COVID-19. Mainland residents, with existing valid visas to Macau, now could move freely within Guangdong, but not beyond the province in the first two weeks upon returning from the SAR. It is expected, however, this relaxation alone could do little to help the city.
Brokerage, Sanford C. Bernstein Ltd, said in a recent research note: “Individuals coming to Macau from outside of Guangdong would face difficulties in travel as they would likely need to stay in Guangdong for two weeks prior to travelling home, which will severely restrict visitation. Further, there is still no word on the timing of restart of Individual Visit Scheme [visa] issuance (or group travel visa issuance).” The central government has stopped issuing new IVS permits and banned group tours to Macau since the end of January.
“What we hope now is that our business could gradually improve and we will lose less money step by step,” says Mr Lam, sharing a similar perspective. “The best scenario is that we could hopefully keep our financial sheet balanced by the end of this year [with the gradual relaxation of travel measures]… and it might take at least two to three years for the gaming revenue to return to the pre-pandemic level.”
He indicates the minimum cost for running a VIP room in the city, excluding payrolls to staff, is some MOP2 million a month. “For a large junket operator, which manages a dozen or more VIP rooms, it might lose tens of millions and even more than MOP100 million a month, including payrolls to staff, since the outbreak of COVID-19,” he continues.
No major layoff yet
The gaming industry, tourism, and the city’s economy, have been in bad shape since the onset of the pandemic in late January. The Macau gaming revenue only amounted to MOP33.72 billion in the first six months of this year, plunging 77.4 per cent year-on-year, an unprecedented decline since the liberalisation of the gaming industry in 2002, latest official data show, in light of the absence of travellers over the border and travel restrictions.
A breakdown of the data shows the VIP gaming revenue reached MOP16.31 billion in the first half of 2020, declining by 77.3 per cent from the previous year and accounting for 48.4 per cent of all casino revenue. The mass revenue, including slot revenue, stood at MOP17.4 billion in the January-June period, also down by 77.5 per cent year-on-year.
A source in the junket segment, speaking on conditions of anonymity, pinpoints the operation of the major players have remained stable so far, albeit being embroiled in the turmoil for over half a year. Suncity Group, widely regarded by market analysts as the largest junket operator here by rolling chip volume, has been rumoured in recent weeks to be having financial difficulties. However, its boss, Alvin Chau Cheok Wa, denied in a public video released last month, claiming the financial situation of the group remains sound with a fiscal reserve of HK$10.58 billion and a cash flow of HK$18.6 billion in its daily operation.
“The major junket operators have adopted various means to maintain the cash flow, such as scaling down the size of their operation,” the junket source says. “Concerning the headcount, most have basically heeded the calls of the Government in ensuring the local employment and there has not been any major dismissal of staff; some have just offered a remuneration package that is not too bad in consideration of the current business climate for the retirement and voluntary resignation of staff.”
Many of the existing staff of the junkets now work about 10-15 days a month and are entitled to about one-third to half of their monthly earnings, the source says. “It’s really hard to predict at the moment, but should there not be any major upturn in the next few months, I’m not surprised some junkets might start to cut down a significant number of staff and close down some VIP rooms to keep their operation afloat,” the source adds.
A veteran junket operator in the city for more than three decades, Macau Golden Group, ceased operation of all its three VIP rooms at the Hotel Lisboa complex on 31 July due to low business volume. This decision leaves the property, founded by the late casino mogul Stanley Ho Hung Sun, with no VIP room, and also means Golden Group now only has five VIP rooms in the city, all located at Grand Lisboa, an adjacent property to Hotel Lisboa that was also founded by Mr Ho.
There is no concrete public data on the number of VIP rooms operating in the city now but latest figures from the local gaming regulator, Gaming and Inspection and Coordination Bureau (DICJ), show there were 95 individual and entity promoters authorised to run junket operations as of early 2020. This represented a 5 per cent drop from early 2019, marking the seventh consecutive annual decline over the anti-corruption campaign and slowing economic growth in the mainland and heightened supervision on the junket segment throughout the years.
“According to our observation and data gathering, about 6-7 VIP rooms have ceased operation since the onset of the pandemic,” says Mr Lam, who also does not rule out more junkets will further streamline their scale in the near future.
While the resumption of issuing new visas for the mainlanders to Macau is crucial, he stresses the recovery of the junket segment relies on the economic fundamentals of the mainland. “Despite the negative impact from COVID-19, there are still many uncertainties clouding the mainland economy, such as the trade war and relationship between China and the United States,” he emphasises. “Should the mainland economy remain in bad shape, the gross gaming revenue will remain lacklustre, even when the mainlanders are allowed to visit Macau freely again due to their low spending power.”
China reported a 3.2 percent growth in gross domestic product (GDP) in the second quarter of this year, recovering from the first quarterly contraction of 6.8 percent in decades in the January-March period. Yet analysts have cast doubt on this rosy picture, as the Chinese official data has long been regarded by some as “manipulated”.
In the perspective of Mr Lam, the slow repayment rate of mainland gambling patrons in settling their debts reflect the mainland economy is still far from the best. “Last year, for instance, every RMB100 million in credits we extended to a mainland client, we could get back about RMB10-20 million in average a month,” he illustrates. “The situation for this year: we will be extremely glad if we could overall get back RMB5 million for RMB100 million in credits.”
In face of the downturn, some stakeholders in the gaming industry, including junket operators, have asked the Government to allow telephone proxy betting again and online casino gaming. Telephone proxy betting, a practice in which a third party makes a bet in person at a VIP room on behalf of a client via a telephone or other devices, had been permitted in the city until May 2016, when DICJ banned phone usage at gaming tables. The Power of the Macao Gaming Association, mainly formed by gaming employees, met Secretary for Economy and Finance Lei Wai Nong in May in deliberation of various topics, including the possibility of allowing telephone proxy betting again to stimulate the local gaming sector and economy.
Another junket source, which also spoke on the conditions of anonymity notes, not only has this call fallen onto deaf ears, but also the officials have so far avoided to meet junket operators. “The junket representatives have asked to meet Secretary Lei and the new DICJ director to discuss their latest situation, but the attempt has been in vain,” the source said. “[The officials] probably think the meeting would not be productive, as they know they could not address the requests of the junkets.”
Adriano Marques Ho, a former advisor to the Secretary for Security, was sworn in as the new boss of the local gaming regulator in June, replacing Paulo Martins Chan who had occupied the top post for about four and a half years. Mr Ho was also the head of the Macau Sub-bureau of the China National Central Bureau of Interpol between 2004 and 2010.
“Owing to his resume, it is expected there will be heightened scrutiny over the capital outflow of the mainland via the casinos here, which will likely deal another blow to the junket segment amid the recovery of the segment from the pandemic,” the same source notes. “The impression [some junkets] have upon the new-term Government so far is evasive and indifferent.”
The former officials in charge of the gaming policy, including Mr. Paulo Chan, and Lionel Leong Vai Tac, former secretary for economy and finance, had kept frequent exchanges with the junket segment, Mr. Lam comments, who hopes the officials from the new-term Government that was sworn in last December, will carry on this practice. “We wish to continue maintaining constant exchanges with the authorities, especially in this life-and-death stage.”
“It is important for the policy to reflect the voice of the industry as the Government is preparing for the renewal of casino gaming licenses by 2022 and amend regulations for the junket sector,” he reasons.