GGRAsia – Macau GGR targets hurt ops with low-yield assets: broker

Macau GGR targets hurt ops with low-yield assets: broker

Apr 19, 2022 Newsdesk Latest News, Macau, Top of the deck

The Macau government’s proposed minimum annual target of casino gross gaming revenue (GGR) per table and per gaming machine could result in operators with low-yielding gaming assets bearing in practice a levy on doing business that is higher even than the 39 percent effective tax rate on GGR, says a report from China International Capital Corp Hong Kong Securities Ltd.

As part of a planned rejig of Macau’s gaming regulatory framework, if local operators failed to meet such GGR targets for tables and gaming machines, they would be required to pay the government the shortfall in the minimum amount of gaming tax the authorities would have been expecting from such gaming inventory.

The proposal sets a “de facto gaming tax revenue floor” for the Macau government, said CICC Hong Kong analysts Shengyong Goh, Jiayu Wang, Liwei Hou, and Kai Qian. They believed that the Macau government would determine the minimum annual target of casino GGR based on the city’s market conditions and its fiscal budget.

“From the perspective of gaming operators, once minimum GGR per gaming table and slot machine is determined, we think it will become a target yield for each gaming property to meet,” the analysts wrote.

They added: “Consequently, if the gaming property fails to reach the yield, the actual special gaming tax paid will then be calculated based on the ‘allocated’ target GGR instead of actual GGR generated, resulting in higher tax [burden] for gaming operators.”

That implies gaming operators with “low yielding gaming assets” would potentially bear higher tax burden for their gaming assets, suggested the CICC Hong Kong team.

The investment service estimated the so-called “target yield” of gaming tables – blending both mass and VIP gaming segments – could stand at US$6,584 win per table per day, and that of slot machines at US$207 win per unit per day, in 2022. These target-yield numbers would for 2023 rise again, to US$9,803 win per table per day, and US$250 per slot machine unit per day.

CICC Hong Kong states its target yield assumption is built on estimation that Macau’s special gaming tax revenue could reach approximately MOP46 billion (US$5.7 billion) in 2022, and MOP69 billion in 2023, with the prevailing gaming tax rate at 35 percent. The Macau government imposes the other effective 4 percent relating to other social contributions from the casino operators.

The brokerage’s estimate also factors in the historical annual industry contribution from the mass, VIP and slot segments, as well as the amount of gaming inventory used from 2010 through to 2022.

“Even though when and how minimum GGR will be determined hasn’t been disclosed by the government amid the… discussions on the amendments to the gaming law, we think our target yields could be reasonable estimates of minimum GGR per gaming table and slot machine, given that our calculations build in both market conditions in the Macau SAR gaming industry – i.e. reasonable industry GGR level – and the annual fiscal budget,” the analysts stated.

Efficiency of gaming assets

The team said SJM Holdings Ltd ha been the “least efficient” with its Macau gaming tables and slot machines, in pre-Covid 19 trading years and since the pandemic. The operating efficiency of the gaming inventory for each gaming operator is gauged as a percentage of actual yields divided by target yields, according to the analysts.

SJM Holdings’ yield performance had been “dragged by satellite casinos and other self-promoted casinos”, said the institution. The casino operator might remain a laggard with both types of gaming inventory in 2023, due to the “ceased operation of junkets” and its “reliance on grind mass”, the analysts noted.

During the pre-Covid 19 trading years of 2010 to 2019, Galaxy Entertainment Group Ltd and Wynn Macau Ltd operated “most efficiently” in terms of their gaming tables; while Wynn Macau and MGM China Holdings Ltd had shown the highest operating efficiency in the slot segment, the CICC Hong Kong note suggested.

During 2020 to 2021, Melco Resorts and Entertainment Ltd and MGM China operated most efficiently among the six operators in terms of their gaming tables, the analysts suggested. They estimated that Wynn Macau and MGM China would remain the most efficient in tables and slots in 2023, driven by an expected recovery in the high-yielding premium mass segment.

They also remarked: “We believe gaming operators with inefficient gaming assets could: lift minimum bets on gaming tables and slot machines to drive increased table yields; internally allocate unproductive gaming assets – moving gaming tables and slot machines from low-yielding to high-yielding properties”; and or “hike promotional allowances to attract patrons, possibly inducing industry price competition.”

The amendment bill relating to the city’s existing gaming law says that if for two consecutive years the gaming inventory held by a concessionaire does not meet the annual GGR minimum decided by the government, then the incumbent secretary for economy and finance can take back some tables or machines.