Concessionaires likely to pay Macau government for six-month extension … but how much is too much?

One question yet to be answered – publicly at least – is precisely how much the concessionaires will have to pay the Macau SAR government for the extension of their concessions from 26 June to 31 December 2022. Both MGM and SJM had to pay MOP$200 million (US$25 million) for their extensions from 31 March 2020 to 26 June 2022, equivalent to around MOP$89 million (US$11.1 million) per year. If the Macau government were to use the same basis, this would imply a fee of around MOP$45 million (US$5.6 million) for each concessionaire for the extension to the end of 2022.

However, there are two good arguments in favor of a considerably lesser amount.

Firstly, when the MOP$200 million figure was made public in March 2019, Macau GGR was around MOP$25 billion (US$3.1 billion) per month. For the first two months of 2022, GGR has averaged just MOP$7.7 billion (US$960 million) per month, down a whopping 69% on the 2019 Q1 average. Whilst the optimistic amongst us hope that GGR in the second half of 2022 will be improved on what it is currently, if the past two years have taught us anything it is that predicting a date for pandemic recovery is an act of sheer folly. If the fee charged back in 2019 were adjusted for the reduction in GGR since then, the implied fee would be MOP$14 million (US$1.7 million) per concessionaire.

Secondly, the fixed component of the fee paid by each of Macau’s six concessionaires to the Macau SAR government under their concession contracts is MOP$30 million per year, implying a fee of perhaps MOP$15 million per concessionaire for the six month extension. Admittedly this amount was agreed to 20 years ago and according to IMF statistics global inflation over the past 20 years has been 84%. Adjusting for this inflation factor would imply a fee of MOP$28 million (US$3.5 million).

Whether the government decides the six-month extension warrants a fee of MOP$14 million, MOP$15 million, MOP$28 million or MOP$45 million – or indeed some other number – one thing is for certain: the Macau government will want something!