Professor Glenn McCartney takes a look at the impending Macau casino re-tendering process and why the government’s criteria for issuing licenses will shape the city’s tourism future.
Macau’s casino concession and sub-concession contracts will all end in a few years’ time (2020/2022), or be delayed for a maximum of five years by the Macau Chief Executive. The issue of casino policy in 2020 and beyond is therefore increasingly critical as it will determine Macau’s future tourism landscape, with a particular emphasis of getting the new terms into the public setting for greater debate and consensus forming.
The re-tendering process presents a rare window of opportunity for the Macau Government to put policy in place to address the gaps and lessons learnt from the past few decades while providing a visionary document on the Cotai Strip for years to come – and to differentiate and provide the Cotai Strip with a unique standing within the Greater Bay Area.
A crucial point is that this will be a casinore-tendering, not a contract renewal. This means that as well as the six current casino companies in Macau, others can also bid for a license.
Casino liberalization in early 2000 saw 18 qualified companies bidding for a Macau casino contract. Incredibly, Macau now rakes in the same amount of gross gaming revenue every three or four weeks as it did in one full year during Macau’s handover era. Needless to say, Macau’s casino market is a highly attractive financial proposition.
The current casino concessions, who have built massive integrated resort infrastructure and committed huge fiscal investments on the Macau Peninsula and the Cotai Strip, will of course all re-tender, while there is no doubt others will see this as a rare and lucrative opportunity unlike any other. But this must be balanced within increasing Chinese Government sentiment and a wish to see Macau diversify beyond gaming.
Before Macau’s handover, Chinese visitation to Macau represented less than 10% of the city’s tourism, today it’s over 60% of total annual visitation. Macau’s dependency on Chinese visitation and high net worth gamblers has meant, as seen in the massive casino revenue drop in 2014- 2015 caused by the corruption crackdown in China, that Chinese Government policy will continue to impact Macau.
The economic “Dutch disease” phenomenon and the squeezing out of other major industries due to the huge financial impact of the gaming industry inthe past 20 years has meant that Macau’s major diversification has all been tourism and hospitality related and therefore reliant on the casino companies as to how this has occurred.
Macau’s public finances have also become increasingly reliant on taxes and fees from the gaming industry. In 2017, Macau Government data showed that 85% of its total taxation revenue came directly from the gaming industry, compared to less than 50% during the handover in 1999.
The regional casino and tourism environment has changed enormously in the two decades since the liberalization of Macau’s gaming industry. Chinese tourists, now so crucial to Macau’s casino tourism success, have multiple destination choices available to them compared to the 1990s when Macau and Hong Kong became Special Administrative Regions (SARs) of the People’s Republic of China in 1997 and 1999 respectively. These two SARs were the first to be granted “approved destination status (ADS)” permitting increased Chinese visitation.
But integrated resorts are now part of the tourism scene in Singapore, the Philippines and Vietnam, with Japan also having just passed legislation to establish integrated resort development aimed at stimulating tourism.
Undoubtedly Macau will remain the key Asian location for integrated resort development based on casino revenues, but the question is: What will the Cotai Strip look like in 2020 and beyond? It is a process that must be strategically planned and managed through appropriate policy, again accentuating the importance of the terms contained within the new casino contracts.
While some casino concessions will expire a few years before others, it is most likely that the Macau Government will extend SJM and MGM’s licenses, which expire in 2020, until 2022 to fall in line with the other four.
The new contract renewals will take place under the rule of Macau’s next Chief Executive, whose term will begin after 20 December 2019.
In the meantime, speculation is starting to grow as to the possible terms and conditions to be contained in the government’s new gaming contracts. Interlinked within this will be the various weighted criteria for the “request for proposals” which the government will use to award the new casino concession contracts.
The outcomes of these will obviously impact the future of the Cotai Strip and how it is positioned within the Greater Bay Area.
Globally, the stewardship of a dynamic and healthy tourism industry is one built on public support and trust through a transparent consultative process. This collaborative and equitable approach can take time to collect and assess feedback, but also presents an opportunity for important historical data to be gathered from Macau’s tourism and hospitality stakeholders – be they casino concessionaires, small businesses or individuals – as well as gathering regional perspectives on issues such as destination competitiveness and Macau’s brand image impact.
When I started working in Macau’s gaming industry in the late 1990s and later researching and consulting on Macau’s gaming industry during the liberalization period, I had to reach out to global sources and jurisdictions in an attempt to make assessments in the Macau setting.
Twenty years on, the many issues relating to the economics, social, political and legislative impacts (and complex topics requiring much greater analysis and discussion outside this brief article) of Macau’s casino tourism development have cultivated their own extensive body of knowledge. The journey that the Cotai Strip takes after 2020, and particularly the tone set by the upcoming re-tendering process, should be one that reflects upon these lessons learnt.