Predictions: Brick-and-mortar gaming in 2022
While the land-based sector saw Las Vegas make a triumphant recovery in 2021, the picture elsewhere was mixed. Experts from Europe and Macau discuss the current situation.
In Europe, lockdowns stretched deep into 2021, and in Macau, travel restrictions and the adherence to a zero Covid policy slowed recovery.
Below, executives and experts from Europe and Asia have their say on what comes next.
Alidad Tash, managing director, 2NT8 Limited
Robert Cairns, chief financial officer, Les Ambassadeurs
While much of the year has been focused on recovery, what stands out for you as the potentially transformational developments of 2021?
Alidad Tash (AT): For Macau, 2021 can be divided into two distinct periods:
The optimism period, from January to May 2021: Ever-increasing vaccination, visitation, gaming revenues, and optimism. May 2021 was the best month of the year, generating $1.3bn in gross gaming revenue, versus only $221m in May 2020.
The figures are a far cry from May 2019’s $3.24bn, but the recovery was on its way. Like most places in the world, it appeared that vaccines were going to defeat Covid-19, and recovery was around the corner.
Then came the uncertainty and pessimism period, from June to December 2021.
Delta dashed all optimism. First appearing in June in mainland China, the Delta variant resulted in reduced visitations to Macau, which brought about lower revenues. In August, Macau experienced its first internal Covid cases after 16 months, which led to mandatory nucleic acid test for every resident. This was repeated in Sep and Oct 2021 as more cases appeared. Schools, bars and other entertainment locations (but not casinos) were closed for a few weeks until the second half of October.
Travel into Macau – already restricted – was further tightened. As a result, October, normally one of the three strongest months, registered $546m, the lowest gaming revenue in 13 months, 40% below Oct 2020’s $914m, and 83% below Oct 2019’s $3.3bn.
November brought on the Omicron variant world-wide, which was followed by the December arrest of Alvin Chau, the CEO of Suncity, the largest junket operator.
Having seen the handwriting on the wall, the six gaming operators have been forced to close the junket business, which accounted for 30% of their pre-pandemic gaming revenues
Robert Cairns (RC): There are three standout transformational developments in 2021 and sadly not all are good news for the land-based UK casino sector.
The first has been the changing of consumer habits accelerated by multiple Covid-enforced lockdowns, resulting in more people choosing to use their phones for gaming. This has resulted in an overall expansion in online revenues and also interestingly an increase in free-to-play types of game products being offered as a way to differentiate the smaller operators.
Historically free-to-play games are seen as more for entertainment but commonly players pay a small fee to upgrade their favourite game to access certain features which results in revenue to the provider.
Secondly, cryptocurrencies continue to feature in the gambling industry, with more and more online platforms accepting crypto.
Traditional payments are still necessary and the lifeblood of all land-based casinos but as cryptocurrencies replace current payment methods, we all have to be ready and versatile to embrace change, which includes regulators who need to be ahead of the crypto curve to ensure we are able to transact in crypto when servicing our established client base.
Finally, we’ve seen an acceleration of industry semi-standardisation with know your customer (KYC) and customer due diligence (CDD), land-based casinos have had more time to adapt to this regulatory and society expectation during the pandemic lockdowns.
Where do you see potential headwinds for the casino sector?
RC: Where shall I start? There are a number of challenges ahead in 2022 but by far the most impactful will be the Gambling Review White paper’s recommendations, due to be delivered end of the Spring.
The industry is optimistic that sensible commercial improvements on gaming machine numbers could be forthcoming, but we remain concerned that this is likely to be offset by mandated standardised and very draconian affordability checks that could set at unreasonably low levels across the whole casino industry.
The threshold for affordability checks needs to be realistic and deliverable, otherwise we will end up having to reject customers who refuse to share financial information for relatively low levels of spend, thus loosing valuable research insights into player behaviour and play patterns.
Additionally, the regulator’s preference for one process for all widens the challenge further when you look at high end vs mass market.
AT: Headwinds for Macau comprise of the following:
- Delta, Omicron and upcoming variants: This factor affects every region, not just Macau. As we all know too well, the world was getting ready to open up in the summer of 2021, until Delta and possibly Omicron set everyone back months, if not years. Unfortunately, we don’t know if they will be defeated, or will be replaced by even worse variants.
- Zero-Covid strategy: China has decided that it will pursue a zero-covid strategy for the foreseeable future. As such, Macau and Hong Kong, which are part of China, will follow suit. Effectively, zero-covid makes movement with each region free, but travel to / from the outside cumbersome. This is in contrast with other places in the world, where they alternate between lockdowns and “living with Covid”. Since gaming revenues are correlated with visitation, and the decision of when to open up to outsiders is still up in the air, Macau’s casinos are bracing themselves for a challenging year ahead.
- Expiration of gaming licenses: Macao’s six gaming operators will all have their 20-year licences expire in late June 2022. There is still a lot of uncertainties about how many of them will be granted licenses, how long the new licenses would last, and whether there would be additional requirements (such as higher taxes). There is also a chance that a decision may not be reached before June, which will result in an extension of the decision. All this adds to the uncertainty for 2022, acting as a disincentive for operators to spend capital.
Do you feel that the upheaval experienced since 2020 has changed what and who the casino industry caters to?
AT: Yes. Many lessons were learned because of the upheaval. Macau learned that it would have to:
- Rely more on Mainland China and Hong Kong visitors, especially small and mid-range players
- Rely less on junkets (not because of the pandemic, but because the Chinese government has been discouraging the sector more than before)
- “Try” to increase its non-gaming revenues since the government keeps emphasising it.
- Rely more on local talent in senior management positions than expats, many of whom were let go in 2020.
- Do more with fewer employees. In these troubled times, the excesses of the past are long gone.
Unlike other jurisdictions, gaming revenues cannot shift online, since online gaming is forbidden. Furthermore, Macao’s reliance on baccarat – where more than 80% of its gaming revenue comes from – is unlikely to shift to other tables games or slot machines.
RC: Looking ahead, we expect the current shift in consumer behaviour brought about by the pandemic to continue into 2022 and perhaps beyond.
With fewer people visiting brick-and-mortar venues we predict the displacement of consumers’ disposable income into e-commerce to exponentially increase.
Undoubtably land-based casino-only companies will have to build a digital world presence for transacting with their customers, especially for those who used to visit frequently.
More than 18 months of lockdowns and restrictions have led to the biggest behavioural experiment in history. It is widely acknowledged that some industries won’t fully recover, there are other sectors which have benefited, such as delivery services and home entertainment.
The work from home options (for some) has transformed our society’s way of life, and with the continued fear of more Covid variants to come we suspect will prolong the ‘stay local’ mentality further into the future. This has forced some in the casino industry to change their models to adapt.
This has resulted in a pivot to a more localised customer base whilst travel restrictions continue to be enforced. None more apparent that in the high-end sector where casinos remain closed or have changed focus to servicing local residents often at a cost to profits.
Our focus is on supporting multiple stakeholders and good causes with prevention, education, and treatment being the priority.
At Les Ambassedeurs Club, our board just ratified our decision to increase our voluntary gross gaming yield (GGY) donation from 0.01% to 1%. Our board also ratified the decision that all proceeds from our GGY will be given to Gambleaware for calendar year 2022. We are the first UK land-based casino operator to these steps.