Opinions are easy when you have no skin in the game By Ken Adams, CDC Gaming Reports March 21, 2021 at 8:15 pm Communist China is once again proving to be an enigma to the casino-gaming world. Early in the year, China announced an extension to its blacklisted gambling destinations for Chinese. And beginning in March, it said it would enforce a law that makes it illegal to solicit Chinese gamblers to travel outside of the country and across borders. It is also a violation of the law for Chinese gamblers to leave the country or cross borders to gamble. Which jurisdictions are covered by the new law? That question is on the minds of every gaming operator in Asia and some on the Las Vegas Strip. The countries on the blacklist are clearly covered. But what about Macau? Even though Macau is in China, gamblers must cross a border to get there. Shutterstock/MGM Macau There has been no clarification on this point from China. Observers have speculated that the law targets the gaming operations in Australia, Cambodia, Korea, the Philippines, the Marianas, Myanmar, Laos, and Vietnam, but not Macau. Like those in Macau, casinos in the above jurisdictions were designed to attract Chinese gamblers. It is all Macau’s fault. After Macau opened its gaming market to outsiders and Sheldon Adelson and others started to build resorts, the revenue numbers were staggering. In 2009, the city generated more than $15 billion in gaming revenue and by 2013, that number was $45.6 billion. It appeared headed toward $100 billion, a number comparable to the casinos in the rest of the world combined. But of course, that did not happen. Instead, in November 2012, Chinese president Xi Jinping announced a crackdown on corruption and crime. Two years into the crackdown, gaming revenue had fallen to $28 billion, but were on the road to recovery when the pandemic hit. In 2020, total gaming revenue was only $7.5 billion. But it was the years 2009 to 2013 that captured the attention of those other countries and caused a wave of casino development across the region. Each country wanted a piece of the Chinese high-roller business that Macau enjoyed. China has been crystal clear about what it wants from Macau. The Chinese government does not care about the crooked and dishonest high-rolling politicians and businessmen who drove $45 billion through the casinos in Macau. China wants a broad-based, diversified, and international tourism industry in the city. It also does not want any other company hosting those corrupt people and thereby encouraging their illicit behavior. The city’s casinos heard the Chinese message. In pursuit of China’s tourism goal and to obtain a renewed license after 2022, the casino operators in Macau have invested billions of dollars in building elaborate resorts with as many amenities as the imagination could conjure. With 2022 just around the corner, the operators are understandably getting a little nervous. The criteria that will be used in judging suitability for licenses have not been published. However, one thing is certain: This is not the time to test China’s laws. The initial response to the new Chinese law was a wait-and-see. But recently, three operators, Wynn, MGM and Melco, have stated they are discontinuing their junket efforts in Mainland China. The new law covers gambling activity “outside the country and across borders.” Across borders leaves open the possibility that Macau gambling operations are included in the law. And that possibility prompted the action by Wynn, MGM and Melco. The licensing process is set to begin next year, but no one understands what the process will entail. It is not called a “renewal”; it is being termed a “tender.” Each existing operating company will have to tender itself for acceptance as a licensee. New companies may also tender their proposals. Could a new company tender one of the existing casinos as its proposal or would any new proposal be for an undeveloped property? No one knows what to expect. The situation is further complicated by the relationship between China and the United States. It is conceivable that a deterioration of that relationship could affect the American companies Wynn, Sands and MGM. Every gaming company in Macau has a great deal at stake. A loss of the license and thereby the revenue from Macau would have a huge impact on all. Of course, those licenses may not be worth as much as once thought. If the new law is meant to apply to Macau and to curtail the high end of Chinese gambling market, Macau will be much less profitable. Still, no compnay wants to chance being on the wrong side of the Chinese government and lose its license and investment. Analysts covering the region have opined that the law is not meant to apply to Macau. They say no one should be concerned. Those well-informed, high-skilled analysts might be right. They also might be wrong. But they have no skin in the game. If they are wrong, they can say, “Oh well,” walk away, and move on to making pronouncements on and predictions about other places. Not so with the operators. They have billions of dollars of skin in that game. If the analysts are wrong and the operators are forced to walk away, it will be a very painful exit.