Staffing costs outstrip GGR as Macau operators set to ramp up hiring

Published in: Latest Intelligence Growth in labor costs at Macau’s casinos is now outstripping gross gambling revenue and the situation is likely to get worse before it gets better, analysts say.
Macau’s tight labor market, with unemployment running at just 1.7 percent, has long ranked among the key concerns of gaming analysts. However, recent labor unrest, coupled with a massive upcoming round of hiring to fill new casinos, is bringing the issue to the boil.
According to Morgan Stanley research, total staffing costs for the six operators rose 19 percent in the first half year on year. That compares with GGR growth of 13 percent.
With revenue now down for the fourth straight month, that trend is likely to continue, the investment firm said. It sees the negative spread widening to 30 percent in the first half of next year, based on a 15 percent decline in GGR and a 17 percent gain in staffing costs.
Macau maintains strict controls on imported labor and only locals are able to work as dealers in the casinos. Newly re-appointed Chief Executive Fernando Chui Sai On has pledged that won’t change. As a result, casino operators have been forced to compete to attract and retain key staff, pushing up costs.
Although casino dealers are better paid than the average Macau worker, with wages running at a 24 percent premium, they still earn comparatively less than their western counterparts, contributing to the unrest.
Dealers from SJM Holdings, for example, earn salaries of about MOP16,000 - MOP 19,000 or about $2,000 - $2,400 a month - half of what dealers earn in Las Vegas. Workers are aiming for an increase in salary to about MOP 19,000 - MOP 21,000, or $2,400 - $2,600 a month.
The key Golden Week holiday, one of the busiest times of year in Macau, was marked by industrial action from casino dealers in the latest of a series of protests aimed at squeezing higher wages and better working conditions from operators.
Dealers in particular at MGM China Holdings Ltd and SJM Holdings Ltd. worked to rule by reporting late, taking sick leave or refusing to work overtime. While workers from labour unions sought to pause or stop table game operations for a number of hours.
Operators shrugged off the action, with MGM China saying its operations had remained largely unaffected, saying "a vast majority of our team members have reported to work and are delivering their high level of service as usual."
The protest was the ninth demonstration from casino workers this year. Last month, 700 employees protested against SJM Holdings, demanding higher wages and better working conditions. In the month prior to that, as many as 1,400 workers also took to the streets.
Aside from higher wages, staff are also demanding that restrictions on sick leave be eased and arrangements during typhoons be implemented as part of improved working conditions. Other workers are protesting the high price of property in Macau, stressing the need for more public housing. Still others are looking for career growth opportunities and upward mobility.
Operators in Macau have made several moves to respond to workers’ demands. Wynn Resorts recently gave employees shares of stock in addition to bonuses, awarding 1,000 shares to each of its 7,500 employees; Galaxy Entertainment promised to give workers company shares and extra bonuses to those who agreed to stay with the company through 2017.
Melco Crown Entertainment, on the other hand, has given its workers opportunities to attend management courses as part of their incentive packages. SJM Holdings announced that it will provide annual living subsidy increases for its employees, which are set to take effect next year. It also promised to pay double or 2.5 times summer bonuses if workers stay employed until 2018 or 2020, respectively.
Consequently, costs have soared. In their latest earnings releases, Wynn Resorts and Las Vegas Sands reported a combined $50 million in additional and unexpected labor-related compensation costs.
In the past, providing salary increases, added benefits and annual bonuses meant an increase in casino workers' productivity, which in turn helped ensure revenue growth for casinos.
However, the general slowdown in GGR has meant that increased productivity is no longer offsetting labor costs, Morgan Stanley says.
Morgan Stanley now sees the Macau market declining 17 percent in the first quarter of 2015 to $10.64 billion, compared with $12.84 billion in the same period in 2014. Fitch sees GGR this year growing 4 percent, compared with its earlier forecast for 10 percent growth, while Bank of America/Merrill Lynch sees no growth this year, or next.
In the short-term, a huge increase in new hiring to fill integrated resorts coming online in Macau means the situation is likely to get worse.
According to Barclays, casinos will have to hire around 55,500 employees from 2015 onwards. Of these, between 14,000 and 17,000 will have to be dealers for gaming tables, while 35,000 will be non-dealer employees. While Deutsche Bank reckons the cost of labor for operators will probably rise 10 percent to 15 percent annually in coming years.
Melco Crown is expected to begin hiring for its Studio City project by the end of 2014, as is Galaxy for the next phase of Galaxy Macau.
“Assuming MOP25K/month all-in compensation per dealer, 2,100 dealers (7 x 300 tables) and three months’ advance employment, this could add $20 million of staff costs per quarter per casino,” Morgan Stanley analyst Praveen Choudhary wrote.
However, the firm doesn’t expect the gap between casino dealer wages and that of the Macau average to continue widening, given the potential for social unrest.
Eventually the additional revenue from the addition of more capacity on Cotai should help re-balance the situation. The addition of more hotel rooms on Cotai is expected to provide a boost to the mass market sector of the market, which is more profitable and requires fewer dealers.
Analysts have said that the labor shortage could be helped by moving resident workers from other non-gaming industries into the casino labor pool, while foreign workers can replace the original positions. Positions other than casino dealers could also be filled in by imported labour. 

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