GGRAsia – Macau non-gaming desirable, ops cannot do it all, say pundits

Macau non-gaming desirable, ops cannot do it all, say pundits

Aug 25, 2023 Newsdesk Features, Latest News, Macau, Top of the deck

Macau’s recovery rate in gross gaming revenue (GGR) is likely to trigger as early as next year a government condition for the city’s six casino operators to increase their collective MOP108.7 billion (US$13.47 billion) non-gaming and overseas-marketing spending pledges by up to 20 percent over the life of their current 10-year concessions. But it should be a manageable expense for those companies, and perhaps even desirable for market development, say some commentators in respective remarks to GGRAsia.

One observer did however express concern that casino companies were being asked by the Macau authorities to do work – in terms of a departure even from resort-style entertainment into other economic activities such as healthcare tourism – that they were never set up to do.

Sectoral hotel-room supply bottlenecks and transport infrastructure shortfalls citywide were also identified as challenges to the tourism industry that might be beyond the remit of the casino operators.

Historically the Macau government’s own annual GGR estimates are conservative. But earlier this month the city’s Chief Executive, Ho Iat Seng, said the authorities forecast Macau’s 2024 GGR to reach MOP200 billion. That is past the MOP180-billion threshold that would trigger extra non-gaming investment under the concession rules.

“We believe the investment commitment under the concession should be manageable given the expected cash flow recovery for the rated issuers,” remarked associate director at S&P Global Ratings Inc, Aras Poon, in comments to GGRAsia.

Mr Poon added: “This also considers that issuers can spread the commitments over the 10-year term of the new concession. We expect our rated issuers to see their EBITDA [earnings before interests, taxation, depreciation and amortisation] recovering to at least 80 percent of their 2019 levels in 2024. This should help them restore credit metrics to closer to 2019 levels by 2025, while funding the capital-expenditure and shareholder-return requirements.”

The up to 20 percent extra spending on non-gaming and overseas marketing could amount to as much as MOP21.74 billion.

A key question is how such money might be “strategically spent”, said Glenn McCartney, associate professor in international integrated resort management at the University of Macau.

‘Debt reduction should be priority’

A senior executive in the Macau gaming market, who requested anonymity, cautioned that the financial health of the gaming operators could be hurt if any non-gaming investment additional to what has already been pledged had to be directed to “areas that do not effectively contribute to income”.

The person stated: “For most of the operators, it will be relatively more effective for them to deploy such funds to reduce their debts, and therefore lower their respective interest-payments burden, and as a result, enhance their dividend payout capacity.’

The executive added: “From where we stand now, I would say that the amounts we [already] allocated to entertainment and MICE [meetings, incentives, conferences and exhibitions] events and the like are sufficient under the circumstances, and the priority now should be to build more rooms and facilities for visitors to the integrated resorts.”

Andy Choy, managing director of Hong Kong-based Choy Consulting Services and a former gaming executive in the Macau market, told GGRAsia: “There is no denying Macau sorely needs more non-gaming amenities and events to help attract visitors from different demographic groups beyond the core gaming enthusiast.’

He added: “Given the sheer size of the Chinese market, there are undoubtedly untapped segments of potential customers who have yet to visit Macau.”

Non-gaming in Macau would always be “welcome” and was unlikely ever to be “too much” for the market to bear, remarked António Lobo Vilela, a gaming law expert and author of “Macau Gaming Law – Annotated with Comments”. The former advisor to the Macau government also believes the market would be able to “correct” any oversupply.

There are wider structural challenges that Macau’s casino resort operators face. Mr Choy remarked: “The city currently has a shortage of hotel rooms and inadequate transportation infrastructure to grow [the tourism market] to its full potential.”

Structural issues are for government

The industry consultant added: “The shortage of hotel rooms has led to exorbitant rates in the past few months, making a trip to Macau out of reach for many consumers. What good does scheduling world-class concerts and entertainment offers do if interested patrons cannot afford a hotel room?”

The senior Macau gaming executive that GGRAsia talked to shared similar views on the current challenges facing integrated resorts. The person remarked: “The government has to grant us more GFA [gross floor area] to build more hotel rooms and recognise such investments as our non-gaming contributions.”

Availability of land resources is an issue in Macau: the city – with a total land area of just 33.3 square kilometres (12.9 sq miles) – is already one of the most urbanised places in the world. In addition, casino resorts on Cotai are subject to height limits due to safety considerations for the nearby Macau International Airport.

The gaming executive spoken to by GGRAsia on condition of anonymity said overall transport-infrastructure improvement was a task beyond the remit of the resort operators.

“The government has to deal with it by fast-tracking the transit system. The government wants the integrated resorts [IR] to feed tourists to the local communities and let them share the prosperity of the tourism industry. But it is a common knowledge that travelling from the IRs to – and then from – local tourist destinations is not a good experience because of the traffic jams.”

For his part, Mr Vilela noted that, currently, the city’s casino operators are also being asked on occasion to invest in areas where they “don’t have expertise”.

“Casino operators…are required to develop tasks that are public in nature which the government should directly pursue,” said Mr Vilela. The concept of “health tourism” – as outlined in one of the several non-gaming projects in the bidding requirements for the fresh gaming concessions – is an example, the legal expert noted.

The government should also work with the casino operators to foster a more efficient public-private partnership for initiatives that are beneficial for Macau’s economic development, Mr Vilela suggested.

He told GGRAsia: “Just think of the greater efficiencies from a public-private partnership for the Macau airport expansion project. The government and the casino operators could have implemented a project to take full advantage of Macau’s privileged position [with] Southeast Asia [consumers] and reduce its dependence on visitors from mainland China. A gaming operator-led negotiation with established airlines could quickly boost scheduled flights or even the start of a new airline to serve Macau.”