A look into the slow bounce back of Macau’s casino industry
The bounce back from the impacts of coronavirus pandemic is going to be slow, and firms are braced for a hard slog back to the glory days.
Fortune reports that lucrative severance packages offered by several casinos and junket operators in China’s gambling enclave of Macau suggest the city’s high rollers expect the downturn to last well into 2022.
In April, Galaxy Entertainment offered casino floor staff a one-time payment of $47,500, about a year’s salary, if they volunteered to quit.
In May, Melco Resorts incentivised staff to take voluntary redundancy by offering 12 months’ pay and, in June, junket operator Suncity Group approved voluntary redundancy packages equal to 15 months’ pay.
“Casinos aren’t going to offer that outlay if they expect things to return to normal within a couple of years,” managing partner at Macau-based gaming consultancy IGamix Ben Lee said, as the casino city’s Delta outbreak shatters hopes that the island’s borders might soon reopen.
Macau weathers COVID storm but visitors are scarce
The Macau Special Administrative Region has recorded just 63 COVID-19 cases since the pandemic began – a baseline officials achieved by maintaining one of the world’s strictest border closures.
Travellers only from Hong Kong, mainland China, and Taiwan can enter the gambling enclave on China’s south coast, and only if they present a negative COVID test.
Even then, visitors from Hong Kong, Taiwan and several provinces in mainland China currently battling Delta outbreaks must endure a two-week quarantine upon arrival in Macau.
While strict border closure has spared Macau the worst of COVID-19, the island’s reduced tourism has pummelled the region’s casino-driven economy and affected the ability for the economy to bounce back.
Revenues across the city’s 41 gambling dens dropped 79 per cent in 2020 to $7.57 billion, despite lockdown restrictions shuttering casinos for only two weeks in February 2020.
Casino tax makes up half of region’s GDP
Macau’s GDP, roughly half of which comes from taxes on gaming revenues, declined 56 per cent to $24 billion in 2020.
Only six companies – SJM, Melco, Galaxy Entertainment, Wynn Macau, Sands China and MGM China are licensed to run casinos in Macau.
Each purchased a “concession” auctioned by the government in permitting them to open gaming rooms.
All six concessions expire in June 2022.
In the past, operating a casino in Macau was a lucrative gig.
The city’s high-roller tables turn over three times the revenue of the entire Las Vegas Strip and account for the majority of global earnings for their operators.
But with the pandemic slashing take at Macau’s tables, the value of a Macau concession has become harder to gauge and plays a massive role in the bounce back of the economy.
“If the government holds the concession tender process on schedule, would they be able to attract the best candidates?” IGamix managing partner Ben Lee said.
Macau authorities are seeking to diversify the local economy away from gambling and increasingly require casino operators to invest in alternative entertainment facilities, which provide lower rates of return.
Most resort operators are reluctant to spend money on low-value entertainment facilities under normal circumstances, let alone when their books are stressed by a pandemic-era depression.
Several casino operators expect the government will extend the expiry date for a year or more beyond June 2022.
“I don’t think the government is in a rush to renew the licences because they want to do things right,” Sands CEO Wilfred Wong said.
Other analysts agree a decision likely won’t be made until after the city’s legislative elections conclude in September.
