The six licensed casino operators in Macau have revealed the terms of their new, 10-year gaming concessions granted by the special administrative region’s (SAR) government.
Under the agreements SJM Holdings, Galaxy Entertainment, Melco Resorts, MGM China, Sands China and Wynn Macau will each pay an annual fixed premium of MOP30m (€3.5m) and a variable premium related to the number of gaming tables and machines operated.
The variable premium will consist of MOP300,000 per VIP gaming table, MOP150,000 per mass gaming table and MOP1,000 per gaming machine on each operator’s premises.
The total variable premium for each operator may not fall under the amount required to operate at least 500 gaming tables and 1,000 electronic gaming machines.
Assuming all of those 500 gaming tables are mass tables rather than VIP, the figures suggest a minimum annual variable premium of MOP76m in addition to the MOP30m fixed premium.
Melco chairman and CEO Lawrence Ho: “Melco pledges its commitment to supporting the healthy and sustainable development of the tourism and leisure industry in Macau as we continue to work with the government over the next 10 years to contribute to the city’s development as a preeminent, global tourism destination.”
In addition, the concessions demand a special gaming tax payable at a rate of 35% of GGR, in addition to contributions of 2% of GGR to a public fund for the promotion, development and study of cultural, social, economic and other activities, as well as 3% towards a separate fund for urban development, touristic promotion and social security.
Furthermore, the operators have agreed to implement both gaming and non-gaming investment projects worth billions of Hong Kong dollars.
“On behalf of Melco, we are honoured and grateful for the Macau SAR government’s granting of the ten-year gaming concession to the company, and we are thankful for the government’s running of a smooth and transparent process,” said Melco’s chairman and CEO Lawrence Ho.
“Melco pledges its commitment to supporting the healthy and sustainable development of the tourism and leisure industry in Macau as we continue to work with the government over the next 10 years to contribute to the city’s development as a preeminent, global tourism destination.”
Market reactions to the details of the concessions suggest investors may have been hoping for more favourable terms for the operators.
Shares in all six firms fell by between 3.9% and 13.4% after the market opened today (19 December). Still, over the past month, shares in the operators are trading up significantly, as prices have increased between 15% and 80%.
Shares in Macau casino operators jumped today after the region’s government confirmed all six incumbent operators would have their licences renewed for a further 10 years.
Wynn Resorts Macau, MGM China, Sands China, SJM Holdings, Galaxy Entertainment and Melco International Development all saw their valuations increase off the back of the news.
In September, the six companies above – in addition to Genting Malaysia, which did not previously hold a licence in Macau – submitted bids to be awarded one of six licences to operate casinos in the region, beginning 2023.
It was announced on Saturday (26 November) that the six incumbents would have their licences renewed for a 10-year period, while Genting’s attempt to secure approval was rejected.
Wynn Macau saw the largest share price rally of all the approved operators, as shares traded some 15.1% higher when the market opened on Monday (28 November).
Shares in MGM China jumped 13.1%, while Sands China, Melco International Development and SJM Holdings saw their share prices increase by 8.4%, 8.2% and 7%, respectively. Shares in Galaxy Entertainment Group rose by just 0.5%.
Sands China chairman and CEO Robert Goldstein: “In the coming decade and beyond, we will remain steadfast in our strategy of continuous investment in Macau – in its economy, its people and its community.”
The six successful bidders will now negotiate with Macau’s government to finalise the terms of their new agreements, which are expected to be signed before the end of 2022 and become effective in January under a new gambling law in the region.
Several of the licensees expressed their gratitude and continued dedication to the region of Macau in response to the news.
“Our commitment to Macau has never wavered and we are honoured to continue the partnership we began with the government and people of Macau 20 years ago,” said Sands China chairman and CEO Robert Goldstein.
“In the coming decade and beyond, we will remain steadfast in our strategy of continuous investment in Macau – in its economy, its people and its community. Macau’s future as an international tourism destination remains bright and we look forward to furthering our leadership role in helping it reach its full potential.”
Macau’s casino sector has faced one hurdle after another since the onset of the Covid-19 pandemic in 2020.
With widespread restrictions on travel and hospitality, operators in the region have taken several successive quarters of financial strain as visitor numbers to properties have remained historically low.
For the most part, share prices of operators in the region remain at least 50% below pre-pandemic prices.
Las Vegas Sands chairman and CEO Robert Goldstein insists “the party is just starting” in Singapore as the region generated the lion’s share of the operator’s $1.01bn net revenue in Q3 2022.
Sands’ flagship Marina Bay Sands property generated $756m in net revenue, more than tripling the $249m generated in Q3 of last year, and $343m in adjusted property EBITDA, up from just $15m in the prior-year period.
Those figures brought Marina Bay Sands’ revenue for the first nine months of the year to $1.83bn, up from $1bn during the same period in 2021.
Sands’ Macau properties, however, did not fare so well during the latest quarter, as revenue in the region dropped by 58.1% year-on-year to $258m.
That was the result of continually changing restrictions in Macau, particularly relating to travel into the region, which has plagued Sands’ Chinese-facing business since the onset of the Covid-19 pandemic in 2020.
The impact of the pandemic upon the business appears to be letting up, however, as increased revenue from Singapore helped the land-based operator begin to narrow its quarterly losses.
Q3 saw the business declare an operating loss of $177m, down from $316m in Q3 2021, and a net loss of $239m, down from $368m.
Las Vegas Sands chairman and CEO Robert Goldstein: “I think Singapore is just beginning. I always joke for the guys here that the party is just starting in Singapore.”
Indeed, the company remains bullish on its prospects in the Singapore market, having earned pre-Covid annual EBITDA in excess of $1.66bn from its Marina Bay Sands property in 2019.
Speaking to analysts on the firm’s Q3 earnings call, Goldstein said: “I think Singapore is just beginning. I always joke for the guys here that the party is just starting in Singapore.
“The truth is that Singapore is going to grow, and for a couple of reasons. One is that the destination is getting more powerful than ever, and our building is getting better than ever.
“And I think when you see a rebound from China and the rest of Asia, $1.6bn will look very small and our ability to grow will be much larger than that. I think we can keep going to $2bn in the next couple of years if we get it right and the market fully recovers.”
In a statement, he added: “Our investments in our team members, our communities and our industry-leading integrated resort property portfolio position us exceedingly well to deliver future growth as travel restrictions subside and the recovery in travel and tourism progresses.
“We are fortunate that our financial strength supports our investment and capital expenditure programs in both Macau and Singapore, as well as our pursuit of growth opportunities in new markets.”
Indeed, the business still has access to unrestricted cash balances of $5.84bn and a further $2.95bn available for borrowing under its revolving credit facilities.
As of 30 September 2022, the firm’s total outstanding debt was $15.27bn.
Shares in Macau’s land-based casino operators have stooped after being ordered to close due to climbing Covid-19 cases.
Today (11 July) marks the first day of a week-long lockdown order issued by Macau’s government after 93 new cases of Covid-19 were confirmed in the region on Sunday.
This brought the total number of new cases recorded during the outbreak beginning on 18 June to 1,467. That figure represents some 0.2% of Macau’s 650,000 residents.
As a result, the government has ordered all non-essential businesses – including casinos – to remain closed, while residents will face further restrictions including limits on the number of people allowed to enter public markets at one time, and mandatory PCR testing for service workers such as security guards and cleaners.
The response is similar to China’s method of dealing with Covid-19 infections, relying on mass testing and the confinement of residents to prevent transmission.
This has created difficulties for businesses in the region since the onset of the pandemic in 2020, after which months of continued closure ensued for casinos and other businesses alike.
Repeated changes to lockdown regulations, introduced in an attempt to curb transmission of the illness according to the latest available information, have now left businesses in Macau in limbo for upwards of two years.
The gaming sector – which accounts for some 80% of Macau’s GDP – has perhaps been hit hardest of all.
Bloomberg Intelligence analysts now predict GGR in the jurisdiction may reach just 9% of 2019 levels between now and September.
The reduction is a combined result of the closures themselves and the further impact they may have on the willingness of international visitors to plan trips to Macau in the short- to medium-term.
Shares in Sands China are down more than 8% today, while MGM China and SJM Holdings are down by 5% and 7%, respectively.
Looking at the year-to-date, shares in those three businesses have fallen by 5%, 13% and 37%, respectively.
Las Vegas Sands is in the process of building out its digital team in what it described as a “growth and investment stage” for its online business.
The operator will continue to pursue opportunities to develop large-scale casino resorts in the US and Asia and to create its digital presence, COO Patrick Dumont told analysts on a Q1 earnings call yesterday (27 April).
Sands is focused on building these opportunities, rather than buying via M&A, he said, suggesting the firm will not be looking for immediate acquisitions in the land-based or digital sectors.
On the question of digital, Dumont said the firm is still at a very early exploration point.
“We’re really in a growth and investment stage,” he said. “When we have something to talk about we’ll definitely start discussing it, but at this point, it’s very early stage. We’re building a team and looking forward to the future.”
The casino operator reported net revenue of $943m for the first three months of the year, down 21.2% on Q1 2021’s $1.20bn.
With $1.25bn in operating expenses, down slightly from $1.29bn in the prior year period, the business posted an operating loss of $302m for the first quarter, widening from a $96m loss in Q1 2021.
After other expenses including interest and tax-related costs, the firm declared a net loss from continuing operations of $476m for the quarter, compared to a $280m loss in Q1 2021.
LVS COO Patrick Dumont on the digital business: “When we have something to talk about we’ll definitely start discussing it, but at this point, it’s very early stage.”
Sands finalised the $5.05bn sale of its Las Vegas properties during the quarter. After accounting for a $2.86bn gain on the sale, and $46m of income from the properties’ operations, both net of tax, net income attributable to Las Vegas Sands Corp came to $2.53bn, equal to $3.31 in net income per share.
Of its continuing operations, the Singapore-based Marina Bay Sands continued as the firm’s biggest earner, bringing in $399m during the quarter compared to $426m in the prior-year period.
Sands’ Macau operations generated a further $551m, down from $777m, with The Venetian and The Londoner generating the majority of revenue at $227m and $121m, respectively.
Sands said the downturn in revenue from its Asian business was a result of continuing Covid-19 travel restrictions in Singapore and Macau. However, the operator is confident it will return to positive cash flow as restrictions ease and travel continues to recover.
Customer demand and spending in Macau remain consistent, and are in-line with pre-pandemic levels, the operator said.
Stocks of land-based casino operators with a presence in Macau rallied today after the jurisdiction’s government unveiled the details of its new regulatory regime on Friday (14 January).
In September, authorities in the Chinese territory wiped billions off the value of US-based listed operators by suggesting business-friendly legislation could become significantly more authoritarian.
Proposed restrictions on operators included the appointment of government officials to monitor business activity from inside companies, including a seat on the board in some instances, while many operators also began to fear for the renewal of their licences.
It was suggested that Macau would fall prey to a wider crackdown on gambling activities across China, and that the nation’s government was unhappy that US shareholders were making profits on foreign turf while taking money out of the local economy.
Instead, draft measures announced on Friday were kinder than anticipated for the industry. Share prices immediately rebounded for major operators including Sands China, MGM China and Wynn Macau.
Officials revealed on Friday that the authorities will offer six casino licences with terms of up to 13 years by public tender, when existing licences expire in June.
While this represents a reduction in term length from the current 20-year contract, analysts expect all of Macau’s dominant players to retain a presence in the market.
In addition to allaying fears around the issue of licensing, Friday’s announcement also reassured investors that Macau would not raise its gaming tax as previously suggested.
Further, it would not require a government observer to keep an eye on operators from within.
Share prices for the region’s major operators reflected increased confidence, with Sands China, Wynn Macau and Galaxy Entertainment Group up 14.6%, 11.9% and 7.0%.
“Some of investors’ biggest fears should now be alleviated,” said analysts at JP Morgan.
“We were surprised the government’s stance on some contentious topics has become far less onerous, if not surprisingly accommodative, in this draft gaming law versus initial plans during the public consultation.”