The SARS-CoV-2 pandemic has altered the paradigm of the gaming industry in several aspects: it has delayed development timelines, pushed back the reopening of properties, and changed for the long term a number of protocols, especially those around health and safety measures for guests and patrons.
One of the events that has been caught in the current pandemic timeline is the Macau concession renewal process.
Macau was one of the first markets to enter the Great Shutdown, and as it continues to recover over the last 18 months, the concession renewal process presents more questions than answers as the clock continues to tick toward the 2022 deadline.
Macau opened up from the late Stanley Ho’s monopoly more than 20 years ago to allow six licensees, or concessionaires, all of which are due for renewal next year.
However, the process for these renewals is yet to be laid out for the existing operators in the market.
When the concessions were originally granted, they were staggered with Mr. Ho’s concession and his sub-concession that went to his daughter Pansy Ho and MGM Resorts International that began their 20-year term in 2000.
The other two concessions were granted in 2002 to Wynn Resorts, which later sold its sub-concession to Melco Resorts, and Galaxy Entertainment/Las Vegas Sands Corp. that split their concession.
While the initial concessions from 2000 were originally set to expire in 2020, all six are now on the same cycle as opposed to the staggered 20-year concessions.
Far from recovery
The market has been slow in its recovery from the pandemic and is still far from reaching 2019 levels. Part of this is due to the lack of international visitors to the market that would have to quarantine upon entering Macau.
The other major piece that is missing is the flow from Hong Kong that contributes significantly to the overall Macau gaming environment. While there have been discussions to create this travel bubble through the pandemic, it has yet to be finalized as case counts have continued to fluctuate and prevent the two regions from allowing individuals to flow freely.
The market is far from recovery, as are most other major gaming markets that have not seen significant return of key demand segments.
Because of current market conditions, both operators and outside stakeholders continue to take the approach that more time needs to be given to the existing operators to first let the market stabilize and then begin the process for granting extensions in the market.
However, it is still unknown what this will mean for renewal of existing concessions in the market.
Questions remain on influence from other Chinese companies by the existing operators, the further commitment to gaming and non-gaming amenities, and the leadership within these facilities that have driven a high level of growth over the course of the last 20 years.
Investment levels will still be a focus of the renewal process, but this will also come with further expansion of gaming offerings that will continue to be the economic engine that drives the market.
Since the market has been open, all of these issues have arisen at some point in time as visa renewals, blue card allocations, and other measures to control the market have been imposed by the government to shift the thinking within the gaming enterprise.
Non-gaming amenities may also carry over to mainland China. Melco just recently announced a development that focused on residential, entertainment, and other mixed-used hospitality development in Zhongshan, China. There continues to be a focus on Hengqin Island that is adjacent to Macau: various developments have been proposed over the years on the most accessible piece of real estate located just to the west of Special Administrative Region.
All of these developments have put a focus on residential, MICE, entertainment, sports, and other hospitality related projects.
While the focus over the years by the six concessionaires has not solely focused on these two areas, there will likely be other investments made that will assist in the process of their own individual renewals into the market.
It is likely that the process has largely been spelled out already but remains under wraps as the market continues to find footing in its rebound for the future.
It is wise to continue the delay, but it would also be wise to provide a roadmap as to how the process may play out over time, along with the critical aspects that will be included in the renewal process.
Investment levels will be the known denominator in the market, but what is unknown is the variables and timing over which investment can and will occur for the existing operators, or even the potential addition of new market entrants into the mix.
The mainland question
The challenge that remains is Beijing’s effort to add more controls to gaming. This is not just including access in and out of Macau, but also how money is controlled within mainland China’s borders.
The tightening of finances will continue to be an issue and help enforce the blacklist, which would further stifle the ability to invest in the market and prevent Chinese nationals from gaming in these jurisdictions.
While gaming is a widely acceptable form of entertainment, the Chinese central government and Xi Jinping believes that gaming presents a social imbalance to the harmony that they seek for the nation. These are further clouding the operations of the “one country, two systems” policy that applies to Hong Kong and Macau to be autonomous in their activity.
While the process remains hidden behind the curtain in terms of next steps, what is known is that they likely have a plan going forward for concession renewals.
The market in Macau will still be recovering for some time as it has been slow to reopen to other parts of China and to the world: Macau offers a robust gaming market that will likely still be the largest in the world, but it is yet to be determined how the market may shake out – both in its recovery and in operators.
While it is never ideal to delay a process, these are still unprecedented and uncertain times that call for a change in thought.
The delay is not ideal, but it would be good to have a solid footing for the next chapter of Macau. Taking more time to set a foundation to move forward is a prudent effort.
Brendan D. Bussmann is a Partner and Director of Government Affairs with Global Market Advisors (GMA).