It’s official. On Friday, December 16, 2022, the six merry concessionaires of Macau signed new contracts with the government. MGM, Galaxy, Sands, Wynn, and SJM have agreed to spend 10 times as much on non-gaming facilities as on gaming by the year 2033. On Saturday, the six announced their investments plans: a high-tech amusement park; garden-themed attraction; three-year residency with Chinese pop stars; and a medical center are among the projects.
After years of uncertainty, the casino operators have 10-year contracts with Macau and with them, some certainty. The final details held few surprises. The casinos are required to invest a combined $12.5 billion and the amenities are meant to attract tourists from around the world, not China or the VIP Chinese gamblers who built the city’s reputation. It is not an abrupt change from 2021 and 2022, but compared to 2015, it is a totally new mandate.
Macau’s days as a VIP high-roller haven are over. Those days started ending 2016, but with the pandemic, the social credit system, and the new junket restrictions, it is time for a full-fledged funeral. VIP gambling once accounted for 70-80 percent of total gaming revenue in Macau; in October 2022, it was 20 percent. The junketeers that once recruited, transported, and handled the VIP gamblers are nearly gone. Two companies are currently facing criminal investigations and their leaders are apt to spend years in jail. The junket companies remaining represent a fraction of the 160 plying their trade in 2015. Recruiting gamblers in China will be very limited. Under the new law, junket companies will not be allowed to issue credit or loan money to gamblers and each will be authorized to work with a single casino licensee.
The new law goes into effect on January 1, ending the old era two weeks from now, though one could say it died in 2022. The death stroke came from China’s 3three-year-old zero tolerance policy. China was determined to prevent the spread of COVID; in the process, it stopped nearly all travel into Macau. Not only the VIP gamblers weren’t allowed to enter the enclave, but group and most individual travel was also severely restricted.
The nearness of China and its 1.4 billion people made Macau the gambling center it had become. Without Chinese tourists and gamblers, Macau will be a mere shadow of what it was. Of course, the renewed contracts and investment are meant to change that destiny and make the city a hub of international tourism.
In the short term, operators in Macau have other issues. China is going through major political and economic changes. The focus on the new Silk Road, the Belt and Road is decreasing. In its place, China is increasing emphasis on internal economic growth. For Macau, that means the Greater Bay Region; manufacturing, high-tech development, scientific exploration, and education will be much more important than tourism. But the policies that will have the biggest impact on the casinos in Macau are more social. China plans on introducing a digital coin and with it, the government will be able to track all transactions by all Chinese citizens, then make the appropriate adjustments to their social credit scores. Few will risk losing privileges by gambling very much.
China is distinguished by its carefully planned and controlled economy and society. However, last week China did an about-face on COVID. Its new policy has been termed “let it rip,” changing from zero tolerance with to an open wild-west policy.
“At present, the focus of epidemic prevention and control has shifted from prevention and control of infection to medical treatment,” said Mi Feng, spokesperson for the National Health Commission.
Western observers are uncertain what impact this will have on the world economy. But they are certain there will be a significant impact and it will be negative. The same reasoning is being applied internally in China. As the virus takes its course in China as it did in the rest of the world and as the country rushes to vaccinate everyone, millions of people may become infected. It might lead to a major disruption of the Chinese/Macanese economy.
In the meantime, people are suddenly free to move about, including travel to Macau. In theory, it could be a turning point for the six concessionaires. The analysts covering the region are not yet predicting a fully open and functioning casino industry. But they are hopeful. Full recovery is a very high mountain to climb, with lots of lost ground to make up. Going into the pandemic, Macau saw nearly 40 million visitors annually. This year will end up with something closer to six million. And 2022 visitors spend much less per person than pre-pandemic visitors did.
Still, the situation is more hopeful than it has been for the last three years. First, the axe is no longer hanging over operators’ heads; the contracts are signed. Second, the travel restrictions have been lifted. And third, 2022 is nearly over. While this was an average-to-good year for gaming in the rest of the world, it was terrible year for Macau. A new year with new contracts should be better. At least that is what the investors, operators, and government officials in Macau are hoping.
