Tuesday, June 28, 2022

Twenty years of gaming twists and turns

The 20th anniversary of the Macau Special Administrative region is upon us. When it comes to gaming, these were not two linear decades. There were plenty of twists and turns.

On 20 December 1999 everybody knew that the STDM monopoly concession would expire in 2001, and its 40-year monopoly would end. It was decided that there would be three concessions. Some observed that three concessions was not enough, while others doubted whether any international companies would want to invest in a place that so recently had been through a rough, crime-infested period.

In the public tender of 2001/02 a grand total of 21 bidders showed up. The LVS/Venetian started the process with one partner and ended it with another, Galaxy. Soon after, disagreement broke out between them and, in a major twist, the first sub-concession was created in late 2002. And so the three became four.

Another twist soon followed: operators basically forced the Government to legalize credit for gaming, something that was not in the original plans. A law approved in 2004 did that and, in passing, spoke of “sub-concessions”, in the plural. In 2005 and 2006 two more sub-concessions were agreed. And so the four became six, providing the basis of a booming industry. The economy was pretty good, money was flowing.

This may be largely forgotten now, but in 2002 nobody was really interested in investing in Cotai, often derided as a faraway desert swamp full of mosquitos. Macau is where the action was, and most of the sub/concession contracts were executed in old Macau. Lots of casinos opened, big and small. Then a major twist happened: the Venetian opened in August 2007. Suddenly everyone wanted land to build in Cotai. And since then no more casinos have opened in old Macau.

Another twist was the very rapid growth of gaming promoters. In 2004 some analysts were predicting a vast mass market, with many slot machines. The opposite happened: Baccarat grew a lot and gaming promoters rose in importance, in a manner that nobody could have predicted, so much so that commissions on Baccarat had to be capped. Only now, in 2019, is the mass market finally overtaking the VIP sector.

And suddenly, we really didn’t want the industry to grow that much: table caps were imposed, and everybody started talking about the importance of non-gaming and diversification.

The economic crisis halted the development of Cotai for a while, but with so much liquidity around, and more properties opening, the revenue continued booming, and reached a stratospheric all-time high in 2013.

Then, in a major twist, suddenly things turned very negative. Various regulations tightened (money laundering, smoking) and money dried. Gaming promoters, so strong just a few years before, now had serious problems. Many promoters simply closed; scandals erupted and lawsuits followed. The VIP market lost some of its luster. Half of the 2013 gross gaming revenue vanished by 2016. Markets and analysts were very depressed. Then finally things started to recover a bit.

The interim review of the concessions in 2016 was an unexpected regulatory twist. Now there would be a large examination. Nobody saw it coming, but all sub/concessionaires passed the exam.

In 2019, the twisted concession deadlines (18 years for SJM and its sub-concessionaire, 20 years for the others) were fixed. They will all come to an end at the same time, in 2022.

The next twists in the plot will be unveiled soon after 20 December, 2019.

The twist that the industry always wanted — lowering the heavy taxation — never happened.

*Jorge Gordinho is a legal consultant and a visiting professor at the Faculty of Law of the University of Macau, where he teaches gaming law and anti-money laundering law. Jorge joined the Faculty of Law as fulltime assistant professor in 2004 and became an associate professor in September 2009. His current academic interest is gaming law.

Asia Gaming Brief is a news and intelligence service providing up to date market information for worldwide executives on relevant gaming issues in Asia.

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