A man wearing face mask walks in front of Casino Lisboa, operated by SJM Holdings during COVID-19 pandemic in Macao, China, Dec 29, 2022. (TYRONE SIU / REUTERS)
HONG KONG – As casinos in Macao begin new licenses to operate in the world’s biggest gambling hub on Jan 1, the stakes are high on whether they will be able to successfully deliver on a government mandate to diversify away from their cash-cow: gambling.
For the last 20 years, Sands China, Wynn Macau, MGM China, Galaxy Entertainment and SJM Holdings have raked in billions of dollars from their casinos in the special administrative region, turning the once sleepy fishing village into a glitzy boomtown.
But their 10-year, shortened contracts come at a time when COVID-19 restrictions have decimated Macao’s gambling revenues, with 2022 the worst annual performance on record.
READ MORE: Macao casinos to invest $15b in 10 years, mostly in non-gaming
The recent easing of coronavirus restrictions in the Chinese mainland and Macao in December has also resulted in a wave of infections across the city, including many staff.
Upping the ante
Casinos have committed to investing a total of $15 billion in the coming decade, 90 percent of which must be spent on non-gaming.
For the past 20 years, none of the operators have managed to establish any significant progress in non-gaming.
Ben Lee, Founder, IGamiX
But operators will find it hard to monetize their non-gaming ventures given their poor track record since 2001, when the city first liberalized the industry, executives and analysts said.
Non-gaming revenues, which averaged around 5 percent of overall gaming revenues pre-COVID, must grow to more than 30 percent in the next decade, said Ben Lee, founder of Macao gaming consultancy IGamiX.
“For the past 20 years, none of the operators have managed to establish any significant progress in non-gaming.”
“Contrary to the vaunted Las Vegas model, non-gaming in Asia does not carry the same profit margin as spending behavior is quite different over here,” Lee said, while adding that Galaxy, Melco and Sands were likely to fare better at diversifying based on their track record and management team.
Macao's visitors have traditionally been male gamblers aged 30 and older, but more young families and women have started visiting in recent years.
A densely packed territory located on China’s southern coast, Macao is the only place in the country where gambling in casinos is legal.
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In December, following the formal awarding of their contracts, casinos unveiled non-gaming plans including indoor waterparks, health and wellness centres, art exhibitions and a large garden attraction by Sands, similar to Singapore’s Gardens by the Bay.
Macao’s current non-gaming attractions have focused on retail and dining, with some entertainment offerings such as Melco’s nightclubs, Galaxy’s cinema, Sands’ themed Venetian and Parisian properties and its exhibition arena.
But it pales in comparison to Las Vegas, which boasts daily entertainment and draws an international crowd. More than 90 percent of the city’s visitors are from greater China, prompting the government to require operators to attract foreign tourists as part of their new contracts.
New rules also stipulate that companies must routinely submit to the government the progress of their investment projects, the value of their investments and the execution period.
Increased regulatory oversight comes as Macao casinos face much higher debt levels versus 2019. Net debt increased four-fold to $23 billion in 2022 and it may only peak by end 2023 at $24 billion, Morgan Stanley said in a December note.
Compounding casinos' challenges, Macao lacks connectivity with international markets, has dilapidated infrastructure and a shortage of skilled labor, as well as reputational damage over its COVID management, executives said.
The SAR has few direct flights from potential markets outside China, while transport within the city is limited to move large groups of people around, said David Green, head of Macao gaming consultancy Newpage.
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A lack of land also hinders further development, while competition to hold conferences and exhibitions is rife from cities like Hong Kong and Singapore and within the mainland itself.
Alidad Tash, who worked as a senior executive in Macao’s casinos since 2006 and now runs consultancy 2nt8, said the biggest challenge for operators was that Chinese in the mainland already have access to conventions, restaurants, shows and shopping in their own cities.
"What they come to Macao primarily for is the one thing that is not legally allowed within China: gambling.”