It’s an exciting time for Macau with operators formally signing 10-year casino concession contracts with the Macau government on Friday afternoon and all six concessionaires announcing their investment plans on Saturday.
The Macau SAR Government has made no secret of its desire to increase the number of “foreign customers” visiting Macau. With Hong Kong and Taiwan understood to count as part of China (or greater China, if you prefer) according to the Macau SAR government definition, “foreign” is understood to mean visitors from outside the mainland, Hong Kong, Taiwan and, of course, Macau.
Those in the investment community without deep domain industry knowledge have made much of the proposed reduction in GGR-based charges by the Macau government of up to 5% for revenue generated by foreign players, but it has been demonstrated that this initiative is essentially meaningless, not even moving the needle when it comes to the commercial realities of the concessionaires’ business model.
But credit where credit is due, the Macau government is to be congratulated for prioritizing the acquisition of foreign players (let’s stop putting quote marks around this expression).
One of Macau’s fundamental and structural problems is the conflict of interest which exists between itself and the mainland regarding capital flight out of the mainland. When players come from the mainland and spend money in Macau, the mainland sees that as a potential drain on its wealth – that’s capital which might ultimately be sent overseas in the form of dividends to foreign operators.
On the other hand, when a foreign player comes to Macau, the exact opposite is true. This will be perceived as a transfer of wealth from outside China to within China, something which Beijing would be delighted with!
At the moment, Macau is on the wrong side of this equation, with the Gaming Inspection and Coordination Bureau (DICJ) estimating that in 2019 (the last pre-pandemic year) just 3.58% of Macau GGR was from foreign players. This figure is unsurprising given 70.9% of Macau visitation is from the mainland, with 18.7% from Hong Kong and a further 2.7% from Taiwan. These figures are also from 2019 but have been quite stable for many years.
If we in Macau can truly turn Macau into an internationally recognized destination and create a meaningful increase in foreign visitation (and therefore foreign expenditure), that is absolute gold for our reputation with the central government – and could lead to a relaxation in the posture towards Macau. And if international visitation does significantly increase, even that proposed reduction in GGR charges might start to become statistically significant – or at the very least not statistically insignificant.
As a first step, the Macau government has asked the concessionaires to double foreign customers over next decade. The sentiment is admirable, and the Macau government is to be commended on it, but the operators could well be justified in trying pass the task back to the government, after all it is the government that controls most of the levers that affect foreign visitation. How so? Read on.
Yes, it is true that to achieve the goal of increased foreign visitation the operators need to create offerings within their resorts that are attractive to foreign visitors. But they have already been doing that for many years, and that is only part of the story. To successfully achieve the goal, there needs to be a truly cooperative partnership between the operators and the government – with the operators providing the necessary attractions and the government providing the necessary infrastructure and citywide environment that will make foreigners want to come to Macau.
Those with long memories will remember that the operators – particularly the foreign operators – did in fact create several Las Vegas style non-gaming amenities within their resorts way back at the start of the previous concession period. Put your hand up if you remember Tryst nightclub at Wynn or the Playboy Club at Sands! These amenities didn’t work because there simply weren’t enough foreigners coming to Macau to support them.
So why don’t foreigners come to Macau? And how can we fix that? Good questions, and fundamental ones. As a foreigner who has been living in Macau 13 years and visiting 18 years, these are questions I might be able to shed some light on. At the risk of costing IAG some consulting revenue, here are the five main reasons:
- Poor infrastructure
- An unwelcoming environment
- Lack of community buy-in
- No consistent or coherent city-wide strategy
- Tactics formulated to attract foreigners tend to be implemented poorly
Let’s quickly examine each.
Infrastructure in Macau is famously lacking and has been so for decades. This is quite a challenge, because Macau is extremely densely populated in places, lacks international skill sets in city planning, and doesn’t seem to want to import such skills from overseas. The airport has long been inadequate and the HZM bridge is massively underutilized, although the pandemic policies are mainly to blame for this right now. Taxis are notoriously lacking, offering poor quality vehicles and a poor experience, although there have been some improvements in recent years but arguably that has mainly been because of a huge pandemic-driven drop in demand. The true test for taxis will come if demand surges again.
Macau has a very unwelcoming environment for foreigners and indeed for anyone unfamiliar with Macau. Signage is poor and almost never in English (the lingua franca of the world), it’s difficult to navigate and people are, to put it bluntly, not particularly friendly. The situation is much better in the larger resorts because of years of training to improve service quality but get out onto the streets and the average foreigner very quickly gets lost – both directionally and psychologically.
The general community does not see foreigners as valuable. In fact, there is considerable zealotism and even xenophobia in Macau – sometimes foreigners are seen as a threat rather than an asset. People in Macau have learnt to put up with and even be pleasant to visitors from the mainland – at least to their faces even if it is sometimes different when backs are turned. Mainlanders are perceived as valuable contributors to the Macau economy, but no such courtesy exists when it comes to foreigners, especially westerners. Changing that narrative is not easy, but it’s essential if foreigners are to truly embrace Macau as a global destination. Social media is powerful and foreigners are quick to share their Macau experiences – good and bad – with the rest of the world.
I’m yet to hear of a consistent or coherent city-wide strategy to encourage foreigners to come to Macau. This seems to have been delegated to the concessionaires, but the business reality is that those six companies are competitors – and these days quite fierce competitors – so how can the six of them formulate a coherent and single-minded strategy? Answer: they can’t. Only the government, or perhaps a semi-government authority, could lead such a common vision. Imagine if Macau had a respected “foreign visitation supremo”, who regularly communicated the benefits of foreign visitation to the people of Macau and who was empowered to formulate and implement policies to make this a reality! What a difference that would make.
Tactics formulated to attract foreigners tend to be implemented poorly: see previous paragraph! It’s one thing to enunciate and formulate a strategy, but it’s a totally different thing to bring this vision into reality. That takes efficient and capable senior managerial skills, something that Macau is still struggling with. And with the constant emphasis on promotion of locals, foreigners in very senior leadership positions in Macau are sometimes looked upon with suspicion.
It’s not the purpose of this article to criticize Macau just for the sake of it. Instead, these are constructive suggestions. It’s fantastic that Macau wants to increase foreign visitation and lessen its reliance on the mainland. As stated above, the fact that the government wants to do this is cause for celebration, and I am sure all six concessionaires will enthusiastically embrace this policy goal.
The real question here is this: is Macau prepared to do what really needs to be done to transform this initiative from mere policy goal to achieved reality?
