GGRAsia – Policy on Macau satellite ops needs clarifying: experts

Policy on Macau satellite ops needs clarifying: experts

Oct 27, 2021 Newsdesk Latest News, Macau, Top of the deck

Macau’s existing so-called satellite gaming venues are not likely to see their businesses discontinued by the city’s government as a result of a revision of Macau’s gaming law, suggested a satellite-property operator and several industry commentators in remarks to GGRAsia.But they added that the legal nature of such a satellite model, and public policy related to the model, were things that the city’s authorities needed to address.

The Macau government is currently conducting a public consultation – due to end on Friday (October 29) – on its proposed revision of the city’s gaming law. The government has said such a step is needed, to pave the way for a fresh public tender for Macau gaming rights.

The consultation document made no mention of satellite casinos. They are Macau gaming venues that run on a so-called service agreement reached between a third-party operator and one of the Macau gaming concessionaires. Currently, there are 18 satellite casinos in the city, with a majority of those running on the gaming rights of SJM Holdings Ltd.

The legal position of satellite gaming venues needs clarification from the government, said Ponte 16 boss Hoffman Ma Ho Man, an executive with an investor in one such property – Ponte 16, at the Inner Harbour – and which runs under the SJM Holdings licence.Gaming industry consultant David Green also said clarification was needed.

Mr Green, principal of Newpage Consulting – and who was also formerly part of a consulting team hired by Macau’s government to advise on casino-market liberalisation at the turn of the century –said: “Satellites are an historical remnant from the pre-liberalisation era.”

Referring to the existing gaming law, dating from 2001, Mr Green added: “If the government really does want to emphasise quality over quantity, as is suggested in its consultation paper on Law 16/2001, there will likely need to be some rationalisation of existing satellite operations.”

The Macau government would in likelihood maintain its recognition of the existing satellite gaming venues as legitimate businesses, suggested Ponte 16 investor Mr Ma, and local lawyer Jorge Menezes.

“The government may want to drive out some shabbier satellite casinos, but I believe it will still want to attract foreign investment and will continue to allow partnered developments with the gaming element to fuel diversification,” said the lawyer, of FCLaw Lawyers & Private Notaries.

But satellite casino operators may see new regulatory requirements, or a change in their licensing status in the future, suggested Ponte 16’s Mr Ma.

“A possible direction is that satellite operator firms will be required to have a certain proportion of equity ownership by local residents, and even by their respective [gaming] concession holder,” remarked Mr Ma, deputy chairman and executive director at Hong Kong-listed Success Universe Group Ltd.

“Another possible direction is that…the Macau government might create an entity that holds the gaming rights of all the existing satellite casinos, and by doing that the government would become the direct licensing entity for the satellites,” added Mr Ma.

Indefinite moratorium?

Macau gaming scholar Wang Changbin told GGRAsia he believed that the government did not want any further proliferation of satellite gaming venues in the city.

“I don’t think the government will stop recognising the existing satellite casinos as legitimate businesses… but I also don’t think the government will desire any approval for operators that would like to run a brand new satellite casino project in the city,” Mr Wang remarked.

It had been widely understood locally that Macau had a moratorium on satellite casinos, introduced in 2008 during the time of Macau’s first chief executive, Edmund Ho Hau Wah. The moratorium was flagged as being designed to limit market expansion.

The opening in 2017 of Royal Dragon Casino – which was not using a licence transferred from another property, as had occurred previously with some ‘new’ satellites – raised the question of whether the moratorium still applied.

“The then chief executive [Edmund Ho] announced in 2008 that there would be an indefinite moratorium on new satellite casino approvals. That seemed to be a sensible policy then, and I see no reason for this administration to depart from it,” Mr Green remarked to us, referring to the current Macau government, led by Chief Executive Ho Iat Seng.

The gaming consultant added: “The concessionaires don’t need the satellites to increase their market penetration, and in fact they would likely optimise their returns on their invested capital if there were fewer satellite properties operating.”

In the case of SJM Holdings, their satellite casinos used to contribute “around 30 percent” in earnings before interest, taxation, depreciation and amortisation (EBITDA) prior to the Covid 19 pandemic, according to a September 19 memo from banking group Goldman Sachs, citing remarks from SJM Holdings’ management. The casino concessionaire anticipated the contribution of the satellite venues under its licence would shrink in the future, with the opening of Grand Lisboa Palace in Cotai, the group’s first large-scale resort.

Were the current revenue-sharing agreements between SJM and the respective satellite casino operators terminated, the casino concessionaire would take back the tables deployed at those satellite venues and allocate them to the firm’s self-promoted casinos – either at Grand Lisboa, Hotel Lisboa, or Grand Lisboa Palace – where SJM Holdings would expect to generate “higher margins”, the Goldman Sachs note mentioned, citing the group’s management.