Analysis: Macau casinos deal themselves a tough hand with big non-gaming investment pledges

  • New casino licenses with shorter contracts come into effect on January 1st
  • Operators have worst year on record in 2022 amid COVID-19
  • Issues such as diversification from core games and labor shortages

HONG KONG (Reuters) – Macau casinos will launch new licenses to operate in the world’s largest gambling hub on January 1. Their main source of income: Gambling.

Over the past 20 years, Sands China (1928.HK), Wynn Macau (1128.HK), MGM China (2282.HK), Galaxy Entertainment (0027.HK), MGM China (2282.HK) and SJM Holdings (0880) . HK) has amassed billions of dollars from its casinos in China’s Special Administrative Regions, transforming once-dormant fishing villages into glitzy upstart cities.

However, their 10-year shortened deal comes at a time when COVID-19 restrictions have decimated Macau’s gambling income, making 2022 its worst annual performance ever. The industry’s net debt is soaring, and operators face a new era of government oversight and control of their businesses.

The recent easing of coronavirus restrictions in mainland China and Macau in December has also resulted in a wave of infections throughout the city, including many staff.

up the ante

Casinos have pledged to invest a total of $15 billion over the next 10 years, 90% of which must be spent outside gaming.

But given the poor track record since the former Portuguese colony first liberalized the industry in 2001, operators will find it difficult to monetize non-gaming businesses, executives and analysts said. said.

Ben Lee, founder of Macau-based gaming consulting firm IGamiX, ​​said non-game revenue, which averaged around 5% of total gaming revenue before COVID-19, will grow to more than 30% over the next decade. said it must.

“In the last 20 years, no operator has been able to make significant progress in the non-gaming sector.”

“As opposed to the vaunted Las Vegas model, non-gaming in Asia doesn’t deliver the same profit margins because the spending behavior here is so different,” Lee said, noting that Galaxy, Melco and Suns have a diverse base. He added that it was likely to work well with the transformation. About their track record and management team.

Visitors to Macau have traditionally been male gamblers over the age of 30, but in recent years young families and women are visiting.

Macau, a densely populated territory located on China’s southern coast, is the only place in the country where casino gambling is legal.

In December, following the formal awarding of the deal, the casino will expand its non-gaming facilities, including an indoor water park, health and wellness center, art exhibition and a large garden attraction by Sands similar to Singapore’s Gardens by the Bay. announced the plan.

Main issue

Macau’s current non-gaming attractions focus on retail and dining, along with several entertainment offerings such as Melco’s nightclubs, Galaxy cinemas, Sands’ Venetian and Parisian-themed properties, and its exhibition arena. is guessing.

But it pales in comparison to Las Vegas, which boasts daily entertainment and draws an international crowd. More than 90% of Macau’s visitors come from Greater China, prompting the government to require operators to attract foreign tourists as part of the new deal.

The new regulations also stipulate that companies must regularly submit to the government the progress of their investment projects, the value of the investment and the implementation period.

Macau casinos face much higher debt levels than they did in 2019, resulting in increased regulatory scrutiny. Net debt could quadruple to his $23 billion in 2022 and peak at $24 billion by the end of 2023, Morgan Stanley said in his December memo. said in

Exacerbating the casino’s challenges is Macau’s lack of connectivity to international markets, its aging infrastructure, lack of skilled workers, and reputational damage from COVID-19 controls. a decline, officials said.

Macau has few direct flights from potential markets outside China and intra-city transportation is limited to move large numbers of people, said the head of Newpage, a Macau-based game consulting firm. says David Green.

“We see no indication that the government is addressing or intending to address these weaknesses. .”

Competition to host conferences and exhibitions is rife in cities such as Hong Kong and Singapore, as well as within China, while scarcity of land also hinders further development.

Aridad Tash, who has held senior management positions at Macau casinos since 2006 and now runs consultancy 2nt8, said the biggest challenge for operators is that mainland Chinese already have conventions and conventions in their cities. He said it’s access to restaurants, shows and shopping.

“The main reason they come to Macau is gambling, which is illegal in China.”

Reported by Fallermaster.Edited by Kim Coghill

Our standards: Thomson Reuters Trust Principles.

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