Macau does not appear to be able to control its appetite

Macau does not appear to be able to control its appetite

  • Ken Adams
November 14, 2021 8:48 PM

It is not a secret that the casinos in Macau are suffering during the extended pandemic era.

Macau has always depended on China for gamblers. Since the pandemic began, China is the exclusive source of gamblers in the city. And the flow of visitors has slowed to a trickle due to mainland policies. Whether or not China brewed the virus in a laboratory or it leaped from the critters in the market to shoppers, China was the first place to recognize COVID-19. It is also the strictest of the major countries in the world in its handling of the disease. Various cities and provinces have been locked down over the last twenty-one months. The travel restrictions caused by those lockdowns have had a huge impact on the city of Macau, as well as the casinos.

Casino gambling is the city’s main industry and taxpayer. The taxes generated by the gaming provide ninety percent of the city’s operating budget. The tax collections have taken a blow to the solar plexus. In September, 600,000 tourists visited Macau, generating $735 million in gross gaming revenue (GGR) and $221 million in tax revenue. In September 2019, there were 3 million visitors, $2.7 billion in GGR, and $1.1 billion in taxes. For the first 10 months of this year, casino revenue is almost $9 billion, with $3.6 billion in taxes; in 2020, the total GGR for the year was just $7.5 billion. Regardless of the total GGR for 2021, it will be a very long way from the $36 billion in 2019, from which $14 billion in taxes were paid; 2018 had $37.6 billion in GGR with over $15 billion in tax revenue.

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Predicting a return to post-pandemic revenues has proven to be nearly impossible for casino operators, financial analysts, and government officials in Macau. Everything depends on China and that is a moving target. It moves according to the status of coronavirus, the mainland economy, and the political agenda of the Chinese Communist Party. Those factors have been in constant flux for nearly two years. Every month or so, Macau has revised its revenue estimates, trying to get a handle on the situation, which is reminiscent of the Great Recession in this country.

During the recession, most city, country, and state governments revised their budgets and, in many cases, drastically reduced expenses. That process led to serious discussions on the nature of essential and non-essential services. Everyone agreed that police, fire, and education were essential, but the level of essentiality was not so easy to agree upon. Teachers, firemen, and police officers were furloughed as various government entities struggled to balance income and expenses. It was a painful time and even to this day, some governments have not fully recovered.

Given the drastic fall of tax revenue, one might expect Macau to be taking the same steps. However, one would be wrong. At one time, circa 2014, GGR in Macau reached nearly $50 billion and it has consistently been between $35 and $45 billion. Macau collects nearly 40 percent of the GGR as tax. That level of tax income created a large surplus.

Macau has approximately 650,000 residents. It is difficult to spend $15 billion or more a year in tax revenue on services for 650,000 people. To spend some of its wealth, the government developed as many forms of largesse as the imagination of the bureaucrats could conceive. And therein lies the answer to the government’s current dilemma: how to live on less money? The citizens are not eager to lose any of the perks that they have grown accustomed to receiving. Even the yearly distributions, not unlike those of the more prosperous gaming tribes in the United States, are expected to continue. Besides having the good fortune of living in Macau, the citizens have learned to accept the mainland mantra that the worker is always right and entitled to a full menu of services and benefits.

That attitude has also put pressure on the casinos. In any other country, if revenues dropped by 80 or 90 percent, casinos would drastically cut back on expenses, including payroll. That is not an acceptable procedure in Macau, neither for the casinos nor the city. It is a dilemma for everyone. Macau does not want to disappoint Communist China in the way it treats its workers. Nor do the casinos; with the pending license renewals, none wants to appear anti-social. So Macau draws down on its reserves to pave the streets with gold and send the annual bonus to each citizen.

As a runner, I understand the dilemma. Whenever circumstances limit the amount of running and exercising I can do, I gain weight. Cutting back on running is easy; in fact, whenever it happens, my body welcomes it. But cutting back on my eating is not so easy. There is a simple rule: The more you exercise, the more you need to eat to fuel your effort. When there is a breakdown in my exercise, I continue to eat to fuel that now non-existent exercise. Thus, I put on pounds. I shudder at the thought of what would happen if I could never get control of my food intake or return to my normal level of activity.

That is where Macau stands. Macau will never get back to the GGR and tax flow of earlier times. A report commissioned by the city predicts that by 2025, the number of tourists will have returned to the pre-pandemic levels. The report forecasts more people, but less revenue. The VIP gamblers who once fueled the city and its coffers, along with the investment by casinos, are not expected to return, ever.

The Macau Civil Servants Association has a solution and it is specifically not to reduce the level of entitlements. The Association recommends passing the “big bills” on to the casinos, such as for transportation and medical services. A newly elected local lawmaker has another good idea: raise casino taxes. No one in Macau seems to be considering a diet, except of course the casinos.

The casinos are in the process of trying to reengineer their business model. To remain in business, it will be necessary for them to rein in capital investment and operational expenses to be in line with revenues. At some point, the city will have to face the same issue. You cannot continue to live beyond your means, or as I often try to do, eat beyond my energy expenditures. That time will be painful for the government and for the Macanese. Dieting is never easy.