Battle lines are forming in Macau. In a heretofore unheard of move, the major casinos are tightening their belts, reducing expenses and encouraging employees to take time off without pay. To any other jurisdiction, this process is as familiar as the changing of the seasons. In fact, it often coincides with the beginning of winter. In most jurisdictions, November and December are very, very slow months. The weather and competition from Christmas shopping keep casino customers home; casino revenues typically drop thirty or forty percent from the peaks in October. The week between Christmas and the New Year is the best week of the year in many casinos while the two weeks before Christmas and the week after New Year’s day are the worst weeks of the year.
When the casino business takes a dramatic downturn like the one in winter, casinos cut expenses. Every category of expense that is not absolutely essential is reduced or eliminated. It is impossible to turn off the lights or heat, but it is possible to reduce payroll, the largest single expense. Employees are encouraged to take vacations, unpaid leave and they can expect to be scheduled to work fewer hours. As I said, it is a familiar pattern everywhere except Macau. Until June of 2014, casinos in Macau could not spell the word “downturn”, nor did they have any experience cutting expenses. However, after eight months of declining revenues, including a disastrous 49 percent drop in February, the casinos are learning to trim costs.
Wynn Macau is texting workers encouraging them to take unpaid leave… “In fact, since the end of last year, almost all of the gaming corporations have started accepting workers’ applications for unpaid leave. Kam Leong, Macau Business Daily, 3-9-15
Sands president Rob Goldstein told investors at a JPMorgan Chase & Co. conference to expect cuts to the Las Vegas-based company’s marketing and entertainment budget. He didn’t provide details. “We’re not looking to take it apart, the whole structure, but reexamine where those opportunities to run it cleaner and better,” Goldstein said. Macau Daily Times, 3-10-15
Conditions are unique in Macau. It benefits from its proximity to a billion and half Chinese citizens, but suffers from its closeness to the Chinese government. In the grand scheme of things, “One Country, Two Systems” is a simple, great and noble concept. On the practical side, it is more complicated. In December, Xi Jinping, president of China, came to Macau. Xi said very nice things about the economy and the casinos in Macau. He also said the crackdown on high-rollers with questionable sources for their gambling funds would continue. Xi suggested that everyone relax and get used to the new normal.
Last week another phrase was added to the Chinese government’s definition of the new normal. The premier of China, Li Keqiang spoke about the one country, two systems policy. Li said Macau had a “high degree of autonomy” and then he said the autonomy must be in strict compliance with the Basic Laws – the Chinese constitution. It is all in the language, but many observers are reading this to mean that China is preparing to tighten up the two systems concept. Many are beginning to think it is one country and two systems, a major and a minor system. The major system is written in all caps and is clearly the most important and dominant one. The minor system is not capitalized and is equally clearly inferior and subservient to the other.
China’s premier Li Keqiang expressed support for the “one country, two systems” principle governing Hong Kong and Macau, unlike last year when he chose not to address such matters. Delivering a speech at the opening ceremony of the annual National People’s Congress meeting, Li Keqiang stressed that the “one country, two systems” policy should continue governing both SARs. He recalled that Macau and Hong Kong enjoy “a high degree of autonomy in strict compliance with the Basic Laws.” Macau Daily Times, 3-6-15
What, you might ask does this have to do with Wynn and Adelson tightening their belts? It may have absolutely nothing to do with them. Or it might have a great deal to do with everything casinos do in Macau. As an example, I leave you with another quote from a government official. The secretary of economy and finance offered casinos a little advice on the subject of employees. “Don’t give people unpaid leave, instead send them to paid training if they are not needed at work.” The statement is logical in the context of the economic philosophy of the MAJOR SYSTEM and probably is in keeping with the Basic Laws. However, in the context of the minor system it is hardly helpful for a casino operator trying to reduce expenses and manage within revenues. It is an axiom in the minor system that to remain in business it is necessary to make a profit. It is the core principle of a capitalistic system. The conflict between the two systems is going to make managing a casino in Macau increasingly more difficult.
Secretary of the Economy and Finance Lionel Leong Vai Tac has warned casinos to refrain from offering unpaid leave to employees that it has no work for, and to give them training instead, Jornal do Cidadão reports. The newspaper quotes Mr Leong as urging casino operators: “Don’t offer unpaid leave, thank you. Offer paid training and training at work.” Macau Business, 3-10-15
