Macau to control expansion

Macau to control expansion

October 13, 2009.

The boom days that saw global gambling operators rushing to open lavish establishments in Macau may be gone following news that the Chinese government and existing licensees are considering restrictions on further expansion.

The offshore gambling haven off the Chinese mainland boasted in happier times that it out-gambled the famed Las Vegas Strip in terms of revenues, but it has been hit badly by the recession and Chinese visitor visa restrictions.

Reuters and the Chinese newspaper Xinghua, along with a host of Western publications, reported that Wynn Macau, rival SJM Holdings, Galaxy Entertainment Group and Melco International were all down slightly on share price following confirmation that there may be limits on table numbers and increased age limits for casino customers.

The news was confirmed by an official statement posted on the city's official website,

On Monday the six licensed casino operators in Macau indicated their support for local government's intention to further regulate the development of the island's gaming industry, with the aim to prevent over-expansion.

Ambrose So Shu Fai, chief executive officer of SJM Holding Ltd revealed that the six operators had agreed with government that the overall size of the gaming market cannot be expanded forever without restriction. "We'll explore ways and means as to how we should expand the business", he said.

The gambling executive was speaking after a meeting of operators with government officials, attended by representatives from Las Vegas Sands Corp., Wynn Resorts Ltd., Melco Crown Entertainment Ltd., Galaxy Entertainment Group Ltd., and MGM Grand Paradise Ltd.

He explained that the development of the once booming local casino industry has not only affected other industries in Macau, but has distorted the local labour market, and it was therefore reasonable and logical for the government and the licensed operators to reconsider their options.

The six operators were weary of what So called "destructive competition", and had signed an agreement to establish an industry association in July this year. However, this has not yet reached consensus and was still working on a government invitation to put forward proposals for the future of the industry on the island.

The new initiative has its roots in last year's statement by Macau's outgoing Chief Executive Ho Hau Wah, who said the government had decided it was necessary to freeze the development of the gambling industry at six operators, with barriers to the acquisition of further real estate by these companies.

The government also commenced a review of gaming policy, but the impact of the global financial crisis disrupted the process, according to TamPak Yuen, the government's secretary for economy and finance, who also attended Monday's meeting.

Macau's social and natural resources are very limited, Yuen pointed out, and the over-expansion of the gaming industry will have a negative impact on the diversification of the local economy, which is the long term goal of the government.

The implementation of the restrictions will be dependent on the completion of the government review and its recommendations, Yuen said. It was therefore likely that a final policy leading to a regulatory regime may not be possible within the term of office of the incumbent administration, which ends in December 2009.

Quoting unidentified official sources Monday, the Macau Daily Post reported that gambling operations in Macau generated revenues of 10.8 billion patacas (US$1.37 billion) in September this year, surging by 52 percent over the same period last year. Dr. Stanley Ho's SJM group, which owns 20 of Macau's 33 local casinos, was still the industry leader with a market share of 30 percent in September.

Macao's gaming revenues for the past two months and the first ten days of this month registered "relatively ideal" results, as significant year-on-year increases were recorded respectively in these months, Yuen told Xinghua.

He predicted that Macau, the only place in China that officially sanctions gambling, will see a year-on-year increase of over ten percent in gaming revenues for the third quarter this year.

In a further move to cool down the gambling market, the goverment has prevailed upon the operators to reduce and restrict the amounts paid in commissions to junket operators - agents that bring the high rollers who are the main engine driving the business - to the casinos. In return, the casino operators pay a percentage of bets placed by VIP gamblers to the junket operators as commissions.

The commission rate rose to a high of 1.35 percent as competition heated up after the liberalisation of Macau's gaming sector in 2002, compared with just 0.8 percent when the sector was still monopolised by SJM, Xinghua reports. Macau's six licensed gaming operators have now generally agreed that the maximum commission rate should be fixed at 1.25 percent, a number accepted by the government.

Yuen also revealed that the government was drafting new laws and rules concerning the age limit of persons entering local casinos and the location of slot machine halls. The draft bill will soon be submitted to the Macau legislature, and proposes an increase in the minimum age for casino entry to 21 years, a limit that will also apply to casino staff. The bill also contains restrictions on the setting up of new slot machine halls.

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