The Casinos in Macau are Going to Be Very Challenged By Ken Adams February 18, 2015 at 1:00 pm If 2014 appeared to be a very bad year for Macau, 2015 is shaping up to be worse. The president of China has called for a critical review of gaming. He expressed concerns that the casinos in Macau are contributing to the corruption of China and have put Macau in a precarious position with only one major source of revenue and employment. President Xi Jinping wants Macau to clean up the casino industry and diversify its economy. The authorities in Macau have promised to comply. They will push the casinos to diversify and they will be considering the tax rate, authorizing additional table games, permitting foreign workers to staff the new casinos, extending the smoking ban to the entire gaming floor and reviewing casino licenses in preparation for their renewal. There is increasing speculation about license renewal. Many people are wondering if instead of re-licensing American and Australian operators, the government will grant the licenses to Chinese companies – a backhanded way to nationalize the casinos without actually nationalizing them. A Chinese government official is hinting at a potential gaming tax increase ahead of license renewals for Macau’s casino operators. A Hong Kong-based gaming analyst said Monday the comments was the first evidence that a government review of Macau’s gaming industry will be linked to any gaming concession renewal talks. Howard Stutz, Las Vegas Review-Journal, 1-19-15 “One reason the Macau authorities sought U.S. company involvement in Macau in 2002 was their expertise, but now many local companies have their own capacity. As such, it is possible that Beijing or Macau would choose to advance a Chinese champion in the gaming sector, for nationalist reasons.” The Macau government might be minded to endorse a new “local” entity as a gaming. Gross Gaming Revenue Asia, 1-23-15 The Secretary for Economy and Finance Lionel Leong has declared that any eventual change to the gaming tax system can only occur after a reevaluation that will happen this year….The reevaluation, Lionel Leong said, will serve as a basis to “renegotiate gaming contracts.” The existing tax on gaming could increase from 39 per cent to 43 per cent upon renegotiation of the gaming licenses. Macau Daily Times, 1-23-15 A legislator representing the Federation of Trade Unions, Ella Lei Cheng I, has urged the government to set a time frame for a full smoking ban in casinos during the political address in March, indicating that the government should not decelerate the process of conducting a full smoking ban as gaming profits dropped in 2014. Kam Leong, Macau Business Daily, 1-23-15 Without or without governmental pressure, the casinos are forced by circumstances to change. The stream of Chinese high-rollers is drying up and in the midst of double digit revenue declines, several new mega-properties are getting ready to open. Studio City is trying to diversify just as Las Vegas casinos did two decades ago. It plans to attract families and children with a wide variety of entertainment options. It did not work in Las Vegas and is not likely to work in Macau, but it is something to do while the major operators look for other ways to cope with a collapsing market. Melco Crown said it plans to woo vacationing Chinese with a family entertainment center it will open with Time Warner Inc. (TWX) at its new $3.2 billion Macau casino. This is part of the company’s plan to shift resources away from high rollers, Ho said…Melco Crown is building a 30,000-square-foot (2,787-square-meter) Warner Bros. Family Entertainment Center that will include a virtual reality Batman ride and other facilities featuring DC Comics characters such as “Superman,” “Wonder Woman” and “The Flash，” Billy Chan, Bloomberg, 1-12-15 Galaxy Entertainment Group Ltd…plans to spend about $7.4 billion more to expand in Macau and will recreate New York’s Broadway theater district to woo more visitors. The company will add a 3,000-seat entertainment theater, accompanied by live entertainers, shows and performances as well as 120 bars and restaurants, according to the company. Galaxy has committed HK$100 billion to Macau’s Cotai strip, with a part of it already invested. …shifting resources away from high-rollers to draw vacationing Chinese and other mass-market gamblers. Jill Mao/ Billy Chan, Bloomberg, 1-23-15 The challenges Macau faces are formidable–the loss of VIP gamblers, government pressures and restrictions and an expanding industry in the rest of Asia. The next major hit to casino revenues is likely to come from a total ban on smoking. In every jurisdiction in the world where smoking restrictions have been imposed, it has led to an average revenue drop of twenty percent, at least in the short term. Macau’s Secretary for Social Affairs and Culture, Alexis Tam Chon Weng, announced the government would propose a full ban on smoking inside casinos. The ban would impact VIP rooms and mean that smoking lounges on mass floors would no longer be allowed. Gross Gaming Revenue Asia, 1-29-15 However, in the end the real challenge for Macau may not be the shortage of high-rolling Chinese gamblers, smoking bans or casinos in Korea, Cambodia, Vietnam and the Philippines, but the shortage of employees and tables. Macau’s gaming industry is going to need up to 18,000 more workers this year..Studio City and of Galaxy Macau Phase II will require gaming labor to expand by 16,000 to 18,000 within this year, which represents an expansion of 27.8 to 31.3 per cent. The unemployed population of Macau accounts for just 6,900, labor costs in the industry are expected to soar as operators fight to staff their new resorts. João Santos Filipe, Macau Business Daily, 1-15-15 The number of people in Macau working for the gaming industry reached an all-time high during the fourth quarter of last year. There were 87,000 people employed by the sector during the October-December 2014 period, said the Statistics and Census Service. Gross Gaming Revenue Asia, 1-27-15 The casinos have been coy about the table game allotment and employee shortages. But it cannot be hidden forever; Las Vegas Sands has become decidedly vague about the opening of its Parisian Macau. A few months ago, the Sands said the hotel would open in the fourth quarter of 2015 and the casino in the first quarter of 2016. The timeline has now become “some time in 2016” and Adelson is admitting that the delay is related to a shortage of labor. The Sands does not have enough construction workers to complete the project on time; it will be just as challenged to find employees to staff the Parisian unless the government changes its policy. The opening of the Parisian Macao casino resort in Macau will be “some time” in 2016, said Sheldon Adelson, chairman of Las Vegas Sands Corp…Mr. Adelson indicated on Wednesday’s call that allocation of labor could be an issue affecting the timetable. Gross Gaming Revenue Asia, 1-29-15 Using the term “the government” is confusing because there are actually two governments, the Chinese government and the government of Macau. They appear to be separate and to act individually, but in truth, Macau does what China wants. That government has placed two extremely important restrictions on the casinos. There are a fixed number of table games authorized for the entire market and it is unclear at the moment how many table games the new casinos will have. Whatever the number is will be determined by the government and not the casino management. The second restriction could be even more onerous. Only a limited number of “foreign” workers can be employed by the casinos in Macau. The vast majority of the employees are citizens of Macau. It is a noble concept, but currently nearly every person who wishes a job is employed. Again that means any new casino will struggle to find employees. And, the restrictions will increase operating costs and reduce profit margins as casinos bid against each other to retain employees and attract new ones. Macau casinos are caught in the worst possible scenario; their revenues are declining and their costs are going up. What a difference a year makes. Just a year ago, Macau seemed to be on a golden path without a worry on its mind. Today, it is difficult to see any positives in store for the casinos in Macau.