No clarity in casino concession countdown

The first of Macau’s six casino concessions expire in less than 18 months, though the operators who have invested billions in the territory still have no clarity as to how, or even if, those licenses to operate will be renewed.

This summer, the head of Macau’s casino regulator said the government would announce details on its proposals for the concessions later this year.

But as we head towards the end of 2018, no announcement has been forthcoming. In October, Secretary for Economy and Finance Leong Vai Tac said the government was still researching the impact of gaming concession renewal on the local economy. While at the Macau Gaming Show this week, Gaming Inspection and Coordination Bureau Director Paulo Martins Chan sidestepped questions from reporters on the issue.

The concession of SJM Holdings and the sub-concession of MGM China are due to expire on March 31, 2020, with those of Wynn Macau, Galaxy Entertainment, Sands China and Melco Resorts and Entertainment two years later in 2022.

Despite the uncertainty, most are putting on a brave face. During a recent Q3 earnings call, Rob Goldstein, president and COO of Las Vegas Sands and non-executive director of Sands China Ltd., said the operator’s Macau gaming concession was “not at risk.”

“We believe strongly today, we believe strongly tomorrow, we believe our concession renewal is not at risk,” Goldstein told analysts.

Others caution, however, that while the term ‘renewal’ has been widely used to describe the upcoming concession process, it does not reflect the true nature of what is, in reality, a re-tendering.

“The terms concession renewal and even rebidding are extremely misleading,” Ben Lee, managing partner at IGamiX Management & Consulting, told AGB.

“The original concessions were on BOT-style terms: build, operate, transfer. There is no guarantee that the operators will get new concessions at the end of their terms.

“The Macau government has gone to great lengths to spell out to the international investment community that when the gaming law expires, a new law has to be enacted and a whole new concession bid process will be undertaken.”

Several key questions continue to linger over the form this new concession bid process will take.

Perhaps top of the list of priorities is the timing. With the clock fast ticking down to March 31, 2020 there is little room to manoeuvre.

According to Changbin Wang, director and professor at the Macao Polytechnic Institute’s Gaming Teaching & Research Center, a likely first step is to bring all six concession into line on expiration dates.

“It would be inefficient if one bidding took place in 2020, while in just two years another bidding happens,” Wang told AGB, adding that without bringing the concessions into line, it would create a series of technical issues and questions around whether those whose concessions run until 2022 would be safer also bidding in 2020.

However, Lee at IGamiX says that more likely is that the new bidding process is held and concluded before by 2020, ahead of the SJM concession expiration.

“If you think about it, the extension story does not allow for the possibility of concessions not being granted to existing operators. What happens then in 2022 should this happen? Do those losers then have to cease operating immediately?

“In our scenario, the operators whose terms do not expire till 2022 and who have not been awarded new concessions will have two years to plan an exit strategy. Any newcomers who win a new concession will have two years from 2020 to either plan and commence construction of their new projects or negotiate to take over the properties of the ones who lost,” Lee said.

Beyond timing, the next big question is the form the re-tendering process will take.

It is likely to take a different shape to that of the early 2000s, and will proceed against a backdrop of a US-China trade war and increased competition from other regional gaming hubs.

Lee said a US-China trade war “most certainly” could impact the process. “The foreign operators had higher political risks than the locals and the trade war has now elevated those risks substantially,” he said.

Beijing is understood to want to change the current concession mix, with half of Macau’s concessions controlled by U.S. entities.

“We believe, given increasing local market chatter over the past two years, that foreign controlled operators are likely to be diluted either through new concessions being issued or their existing equity being restructured downwards to improve their chances of obtaining the new concessions,” said Lee.

Also at issue is the current structure of the concessions. Originally only three were granted to SJM, Wynn and Galaxy, with the other three operating through sub-concessions, creating an anomaly that some legal experts say now needs to be addressed to put all on the same legal playing field.

Some, such as Macau Legend CEO David Chow, are also arguing that further concessions should be granted, in particular to open the market to locals, though existing operators have opposed the idea of further competition. Former SJM Holdings executive director Rui Cunha has warned that a larger opening up could “lead to other difficulties since it is a sector in which unregulated activities easily appear.”

Equally of concern to regulators will be maintaining competitiveness against other regional gaming hubs, particularly Singapore, which has come online since the original tender, and Japan, which will likely be online during the term of the next concessions.

Lee said it is likely the Macau re-tendering will accordingly be “far more detailed in its objectives and regimented in its execution,” with greater emphasis on future non-gaming investments.

But for now, all current and future actors must await the highly-anticipated publication of two government reports that were commissioned last year, hoping they finally bring a greater degree of clarity to the process.