Casinos & Junkets in Macau Seek Clarity Over New Laws
Operators of junkets and casinos themselves are seeking clarity from the authorities over the new legal framework in which their industry will operate. Following the recent crackdown taken against the Macau casino sector, there are serious concerns over the long-term stability of the local economy. Stocks in foreign-owned casinos based in Macau tumbled over the past weeks, as investors react to the growing uncertainty in the political outlook on gambling in China.
The city of Macau will undergo a major restructuring of the licensing framework which it currently works with. Casinos and regulators will hold a number of key meetings throughout October to determine the best path forward. ©8268513/Pixabay
Senior officials representing the largest casinos on the Macau strip have attempted to gain some clarification from the city’s gaming regulators over the future legal status of their business. Thus far, they have received little in the way of clarity, and remain painfully unaware of how the scenario will develop. In the current climate, there is a definite need for some clarity and greater acknowledgment of the value the industry provides for the local economy.
According to reports of the meeting posted online, the conversation lasted 70 mins and touched on the major bottlenecks the government foresees with the casino sector. The Chinese Communist Party and its governing philosophy are certainly at odds with the concept of liberalized gambling, especially when foreign entities are the ones enjoying major shares of the profits. The casino licenses are key to this model, and with the current agreements expiring next year, the entire model depends on how the renewal process will be navigated.
The meeting that took place this week was the first chance the casinos have had to give their views on the current situation. All the major players were in attendance, and that included Sands China, Wynn Macau, Galaxy Entertainment, MGM China, Melco Resorts, and SJM Holdings. The consultation period with the local authorities is expected to last another 45 days, and then a clear picture is expected to be made available to the industry players.
Fundamental Changes Coming to Casino Oversight in Macau
Authorities in the city of Macau have already outlined a series of structural changes to the way they will handle oversight and administration of the casino business across the city. The government are going to begin implementing a much stricter regimen of staff who will embed into the different casinos on the strip, in order to supervise the daily operations of license-holding casinos. Also, there will be much tighter controls over the number of casino licenses that are given out, and a re-implementation of how the market is regulated, with close attention given to the handling of employee welfare.
On the bright side, there was a mutual agreement from the authorities and Macau’s casino that the current legal framework which has been in existence for 20 years is in dire need of an update. Both sides also recognized the fact that Macau is an essential tourism hub and a great provider of capital inflows, to reduce its presence would be a lose-lose situation for both the industry and government.
Vice president of Galaxy Entertainment Buddy Lam told the meeting that the company needed more information on several key areas. This includes the introduction of government representatives to guide the conversation towards clarifications of new responsibilities and penalties for criminal acts that are being committed across the industry. There is a clear concern from the operator’s perspective that the government meddling will become a major pain point for the freedom to operate in their current methodologies.
But the underlying takeaways from the meeting pointed towards an optimistic message. Both parties are confident that a mutual understanding has been reached between the operator’s demands and the national interests. One argument being tabled by SJM was former investments into Macau should be taken into consideration when awarding the new operating licenses to applicant casinos. This would ensure only those entities that provide residual value to the city, thus serving the national interest, are awarded these lucrative assets.
Junket Operators Demand Answers
One party in this operation that has been hit much harder than everyone else is the junket operators bringing in wealthy Chinese cash to Macau. These businesses have been effectively banned in recent times, with the largest company in the sector SunCity being exposed for a number of legal breaches and unethical operating practices. Albeit not all junkets operate in this way, and many were seeking clarity on the criminality of accepting cash deposits through their channels.
The city’s largest junket operator association inquired with the government over how an agreement could be reached to find a legal way to still operate. Following an unrelenting crackdown by the government on capital flight, the junket industry has been completely decimated. The effects on the broader gross gaming revenues for the entire industry have been profound, with an almost 80% reduction seen across the board.
A major point of concern is the clause that local ownership equity levels need to increase for all casinos operating in the space. For foreign entities such as Wynn and MGM, this poses a significant risk and has been enough to scare investors. There is a 10% voting rights share that Macau residents currently possess, but local authorities have already stated their main objective in this latest overhaul will be to increase this share dramatically.
If these changes are implemented the current market perception and valuations of the main casino public equities will only worsen. This scenario could lead to a major sell-off and subsequent takeover of foreign companies by Chinese investors. Four more consultations like the one this week are expected to take place throughout October before any final conclusions are drawn.
