Although 2010 has been a banner year for the Macau gaming industry—after a very difficult 2009 highlighted by visa restrictions by the Chinese government and a brief economic downturn—analysts are concerned that increased pressure upon the SAR casinos could be a problem.
With the industry now operating at four times the volume of the casinos on the Las Vegas Strip, some ominous signs are on the horizon. The overheated Chinese economy is creating an inflation of 4 percent, while the most a Chinese citizen can earn in a savings account is 2.5 percent. As a result, many of the Chinese middle and upper class are deciding to “invest” their money in a Macau gamble. The same imbalance is creating economic “bubbles” in commodities and real estate markets.
“The situation is likely to fuel domestic spending and investment on all fronts, not just a visit to casinos in Macau,” said Desmond Lam, a professor at the University of Macau. “However, past research has shown that mainland Chinese tend to come to Macau to gamble to win—winning money is very important for them—and are serious about it. This is unlike many players from Hong Kong or Macau, who claimed to gamble more for leisure or entertainment.”
At Union Gaming Group, a visit to a Beijing official clarified the government’s position toward the SAR. Union Gaming joined a group that met with Minister Wang Guangya, the new director of the Hong Kong and Macau Affairs Office of the State Council. According to Union Gaming, the minister pledged support for the Macau populace, while stressing economic development and social improvement.
“Our interpretation of the director’s message is that Beijing will further support controlled gaming growth in Macau,” Union Gaming reported. “We suspect this translates to maintenance of junket commission caps, the ultimate gazetting of win-rate caps, a pragmatic approach to gaming table caps and a similarly thoughtful deepening of the Individual Visit Scheme in conjunction with rail connectivity to the SAR. We suspect visa restrictions will remain a tool to indirectly control political corruption vis-à-vis Macau or to quell from time to time circumvention of RMB (Chinese currency) non-convertibility. We strongly believe the director’s vision for Macau affords additional casino resort development such as MGM and Wynn’s Cotai prospects, especially if they include notable non-gaming square footage.”
Questions about the government’s enforcement of a commission rate on VIP deposits at casinos also have been popping up. In October, Sheldon Adelson, chairman of Las Vegas Sands, and Steve Wynn, chairman of Wynn Resorts, hinted that MGM Grand Macau had been increasing commission payments to VIP operators to bring more business to the property in order to boost revenues prior to an MGM Macau IPO.
Experts say, however, that MGM and other properties are re-structuring their VIP arrangements that focus on revenue sharing rather than commission payments. While the commission payments usually equate to revenue sharing of around 42 percent to 44 percent, MGM has reportedly allowed revenue sharing of up to 57 percent. And since the government doesn’t regulate revenue sharing, the agreements are quite legal.
Macau Business magazine quoted Francis Tam Pak Yue, the government’s secretary for economy and finance, as saying, “We don’t want to see gaming enterprises using commissions to compete in a harmful way.”
