Photographer: Jerome Favre/Bloomberg

OPINION – Getting the house in order for the concession re-tender: Part 1

As Macau edges closer to the anticipated 2022 re-tender of its casino concessions, it is timely to look at opportunities for improvement of its regulatory regime. The over-arching gaming law, 16/2001, was completed within a remarkably short time frame of about 6 months. While it has served its purpose, it has not been subject to any material amendment since it was enacted in August 2001.

By David Green

Principal, Newpage Consulting


Government has foreshadowed the need for the Law to be amended, not least to clarify the number of concessions which will in future be permitted (Article 7,2) and the duration of new concessions (Article 13,1). Aside from these machinery provisions, there are other matters deserving of consideration when such a review is undertaken. Here’s what, and why.

Harm Minimization

The scope and objectives of the Law are set out in Article 1,2. Most are relatable to similar statements which appear in comparable legislation in other mature jurisdictions. Noticeably absent, though, is any objective of minimizing the harm that may be occasioned to the community by disordered gaming. In 2001, the prevailing view was that harm minimization was not an issue that government needed to concern itself with. At the time, there were only 12 casinos operating, and less than 340 tables. Gaming machines were principally decorative items; most of the 900-odd installed at the time were a generation or two removed from contemporary machines, and contributed almost nothing to casino revenues.

Since then, the government has introduced several significant initiatives which implicitly recognize the potential for gaming-related harm to damage the fabric of Macau. The age limit for casino entry was increased, and a cap on table numbers introduced in 2012. In the same year, a ban was also introduced on the location of gaming facilities in residential areas of Macau. A ban on casino workers being present in a casino outside working hours was introduced in 2018, due to the prevalence of disordered gaming among dealers, in particular. Self and third party exclusion mechanisms have been available through DICJ for some years.

Since the concession contracts provide that a ground for cancellation is that casino operations are conducted contrary to the public interest, an object dealing with harm minimization would provide a further reference point for informing the application of the public interest test, should that be required.

Disciplinary Regime

While the Law requires continuous suitability of concession companies and their directors and substantial shareholders, the disciplinary options available to DICJ are uncertain. The concession contracts do provide grounds for concession termination, and other legislation provides for specific financial penalties in the event of breaches (eg. Macau’s anti-money laundering laws). However, there is no general advertence to measures which might be implemented to discipline concessionaires whose breaches may not, in themselves, justify the nuclear option of concession termination. These might include warnings, letters of censure, binding compliance directions and undertakings, and temporary cessation of gaming operations. Taken together, a concessionaire’s disciplinary history could provide an unimpeachable record of its suitability to hold a concession, or to be considered for the grant of a new concession at the time of re-tender.

Key Employee Licensing

Article 14, 6 of the Law refers to the need for key employees of a concession company to be, and remain, suitable during the term of its concession. That theme is reflected in Article 26 of the concession contracts, which provides a requirement for principal employees to self-report matters affecting their suitability.

A better approach is arguably to undertake a licensing process for employees occupying positions officially designated as “key”. Such positions would likely encompass roles such as Chief Financial Officer, CEO/COO, and senior gaming management positions. These licences could be transferable between casino concessionaires in Macau. A database of key employee licensees could be interfaced with, for example, the Judiciary Police database to ensure that offences alleged or committed by licensees would be flagged on a timely basis for consideration by the licensing authority, presumably DICJ. This would provide a much more robust system for ongoing monitoring than one reliant upon self-reporting.

Management Companies

The Law recognizes the possibility that a concession company might outsource its management, as indeed was originally anticipated when the Galaxy concession was granted. What is not adequately dealt with is the situation of so-called partial managers, such as operate satellite casinos on behalf of  concessionaires. To date, the regulation of those arrangements has depended upon the approval by DICJ of contracts between concessionaires and their satellite operators.

A more comprehensive framework for the regulation of satellite operations is required to ensure that concessionaires retain a responsibility for compliance by the satellite operators with relevant requirements of the Law. It is not clear currently whether satellite operators are required to satisfy a standard of suitability comparable to that which is required of the concession companies. It is also important to ensure that their custodial control of gaming assets does not negatively impact the exercise by the government of the SAR’s reversionary interest in those assets.

Sportsbetting

Sportbetting is currently unable to be offered in Macau’s casinos. The casinos can only operate games of chance, which are defined to mean games whose outcome is determined wholly or principally by the luck of the player. Pari-mutuel bets are outside the definition, as are games wholly or predominantly of skill. In any event, Macau Slot currently holds a concession to offer fixed odds betting on football and basketball.

While sportsbooks are not generally major revenue generators for casinos hosting them outside Macau, they do provide a diversion from rapid cycle table and machine games, and provide entertainment. They also provide a platform for the extension of betting propositions to fantasy sports, which are major businesses in the US, with stakes often held by professional organisations such as the NBA and the NFL. Sportsbetting in casinos could comfortably co-exist with the Macau Slot concession provided Basketball and Football (soccer) were either excised from the arrangement, or allowed to be offered under a commercial arrangement between Slot and the concessions. The latter would likely offend the principle of one concession only per premise, but it would be in the interests of all concerned to find a means of resolving that problem.