HONG KONG, Jan 3 (Reuters) – (This story from Jan 2 has been re-filed to correct Melco’s name and ticker symbol in the second paragraph)
As casinos in Macau begin new licenses to operate in the world’s largest gambling hub on January 1, the stakes are high on whether they will be able to successfully meet a government mandate to diversify away from their source of revenue: the play.
Over the past 20 years, Sands China (1928.HK), Wynn Macau (1128.HK), MGM China (2282.HK), Galaxy Entertainment (0027.HK), Melco Resorts
But their shortened 10-year contracts come at a time when COVID-19 restrictions have decimated Macau’s gaming revenue, with 2022 the worst annual performance on record. The industry’s net debt is rising and operators face a new era of government oversight and control over their operations.
The recent relaxation of coronavirus restrictions in mainland China and Macau in December has also resulted in a wave of infections across the city, including staff.
RAISING THE ANTE
Casinos have committed to invest a total of $15 billion over the next decade, 90% of which must be spent on non-gaming activities.
But operators will find it difficult to monetize their non-gaming businesses given their poor track record since 2001, when the former Portuguese colony first liberalized the industry, executives and analysts said.
Non-gaming revenue, which averaged about 5% of overall gaming revenue before COVID, should grow to more than 30% in the next decade, said Ben Lee, founder of Macau-based gaming consultancy IGamiX.
“Over the last 20 years, none of the operators have managed to make any meaningful progress in non-gaming.”
“Contrary to the vaunted Las Vegas model, not playing in Asia doesn’t have the same profit margin, as spending behavior is quite different here,” Lee said, adding that Galaxy, Melco and Sands are likely to fare better. Better at diversifying based on your track record and management team.
Visitors to Macau have traditionally been male players aged 30 and over, but in recent years more young families and women have begun to visit.
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 award of their contracts, the casinos unveiled non-gaming plans, including indoor water parks, health and wellness centers, art exhibits, and a major Gardens-like attraction at Sands. by the Bay of Singapore.
KEY CHALLENGES
Macau’s current non-gambling attractions have focused on shopping and dining, with some entertainment offerings including Melco’s nightclubs, Galaxy’s cinema, Sands’ Venetian and Parisian-themed properties, and its exhibition arena. .
But it pales in comparison to Las Vegas, which has 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 their new contracts.
The new rules also stipulate that companies must periodically submit to the government the progress of their investment projects, the value of their investments and the period of execution.
The heightened regulatory oversight comes as Macau’s casinos face much higher debt levels compared to 2019. Net debt quadrupled to $23 billion in 2022 and may only peak at the end of 2023 at $24 billion. said Morgan Stanley in a December note.
Compounding the challenges for casinos, Macau lacks connectivity to international markets, has dilapidated infrastructure and a shortage of skilled labor, as well as reputational damage from its COVID management, the executives said.
Macau has few direct flights from potential markets outside of China, while transportation within the city is limited to moving large groups of people, said David Green, head of Macau gaming consultancy Newpage.
“There is no indication that he has seen that the government is or intends to address these weaknesses. Given the serial mismanagement of public works…it leaves grantees with a less than optimal host attraction proposition.”
Lack of land also hampers further development, while competition for conferences and exhibitions is rife in cities like Hong Kong and Singapore and within China itself.
Alidad Tash, who has worked as a senior executive at Macau casinos since 2006 and now runs consultancy 2nt8, said the biggest challenge for operators was that mainland Chinese already had access to conventions, restaurants, shows and shopping in their own cities. .
“They come to Macao mainly for the one thing that is not legally allowed in China: gambling.”
Information from Farah Master; Edited by Kim Coghill
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