Macau adopts new EGM regulations

Published in: Latest Intelligence

To say that Macau has lacked regulations on EGMs and related equipment is an understatement, given that prior to the Administrative Regulation 26/2012 approved on November 16, there was little else on paper to cling to. That's not to say the market was unregulated: the local Gaming Inspection and Coordination Bureau (DICJ) has enforced guidelines set forth in the generic gaming law directly with the gaming operators and suppliers.
In the making since late 2002, the new regulation comes, above all, to legitimize the business. Should something happen to any other revenue streams - touch wood - EGMs are now "safe" and regulated.
If the changes at the operational ground level are conceptually limited - given DICJ continuous oversight - the ramifications at a corporate and consumer level are far and wide. AGB's advisor Luís Mesquita Melo discusses the full extent of Administrative Regulation 26/2012 in a legal reference paper available here.

Most importantly is that under the new regulations, the relationships change. Previously gaming concessionaires dealt directly with the Gaming Bureau, seeking approval to place specific EGMs by supplying the blueprints of their gaming floor plans. The games themselves had to have gained approval from reputable testing labs, but not the supplier.
Under the new legislation, any manufacturer will now have to undergo an approval process - much akin to that of gaming operators and junkets - to be able to supply EGMs and related equipment to concessionaires. The approval process is waived should the manufacturer already be approved in other jurisdictions of note, such as the US or Australia but, by being in place slams the door on a potential surge of "intermediates", while also preventing the introduction of a second hand machine market.
Adding to expense of suppliers, Macau has also developed its own set of standards and requirements, some of which will undoubtedly pose some challenges to developers. Point in case, all front facing text has to be available in dual languages, Chinese and English. The cost of implementation of a game in a jurisdiction with such a limited number of machines as Macau will, most likely, steer away the more ROI conscious manufacturers. Williams has yet to create a game to meet the new Macau standards, as it waits on the release of its new platform.  Meanwhile, other major developers have dramatically reduced the number of games being deployed to this market.
EGMs have also gained their own extended definition in Macau, which becomes important when looking at how EGMs are 'charged' to operators. Whereas under the licensing agreement operators pay the government a premium license fee of around USD $18,700 per gaming table (USD $37,600 for VIP), in an attempt to diversify the local market, operators are only charged a symbolic fee of around US$125 per machine. Thus, multiplayer games are charged according to the number of seats available in a game.
Even if not clearly articulated, the new regulation also reiterates that no revenue sharing agreements are allowed. Few schemes were ever in place - save for a few exceptions - with parties opting to agree to a "maintenance fee."  
Machine payout is also officially set - between 80 and 98 percent - refuting a 2002 initial notion of permitting a cap well over 100%. Products currently on the floor with significantly different math models will remain in place, but new games will have to adhere to specifications and revise their models.
New compulsory enhanced "auditability" capabilities have also been introduced. It is now mandatory that every machine be linked to DICJ which was already the case - save for smaller venues – as major operators granting electronic access to their gaming systems via dedicated lines. The ability to perform on screen digital signature checks is also a must, fully supported by all major systems. Again, operationally wise, the new regulatory measures formalize what has already been - mostly - happening on the ground.
Curiously - or not - the new regulations delve, for the first time, into the scenario of termination of the gaming concession contracts. Because the contents of the flagship property of each of the six licensees automatically reverts to the SAR at the end of the concession period - or upon termination - the concessionaires are required to be able to purchase all machines at any given time from the supplier. Furthermore, in the last year of the concession contract, an express authorization has to be granted to operators wanting to subtract any machine from their gaming floors.
Regulations on EGMs were long overdue, arguably necessary even, to instill a level of transparency in Macau as a gaming jurisdiction. Regardless of the new regulation’s independent worth, its major deficiency is the fact it is not part of a much needed strategic regulatory legal framework for all gambling activities.
Notwithstanding, 2012 did bring significant regulatory measures with permeating ramifications to the industry such age restrictions on entering gaming venues, problem gambling guidelines (prompting the relocation of three slot venues), and  perhaps most importantly, the partial smoking ban which is gearing up to shake the market and is the subject of a future e-brief from AGB. Stay tuned!

Click here to access Asia Gambling Brief's legal reference paper on Macau's new EGM regulations and their ramifications, by our in-house advisor Luís Mesquita de Melo.

AGBrief adisor Lobo Vilela, member of the orginal legal team tasked to draft EGM legislation back in 2002, also contributed to this article.