Inside Asian Gaming

insid e asian gaming M Arch 2016 4 EDITORIAL Steven Ribet We crave your feedback. Please email your comments to steven@asgam.com . Inside Asian Gaming is part of www.wgg9.com Inside Asian Gaming is published by Must Read Publications Ltd +853 2883 6497 For subscription enquiries, please email jh@asgam.com For advertising enquiries, please email dt@asgam.com or call +853 6688 7214 Printed by Cochin Advertising Printing Service Co., Ltd. Est. Nova da Ilha Verde 180 r/c R www.asgam.com ISSN 2070-7681 Chief Executive Officer Andrew W Scott Managing Editor Steven Ribet Editor at Large Muhammad Cohen Other Regular Contributors Paul Doocey, Kareem Jalal, Rui Pinto Proença, I Nelson Rose, Andrew W Scott Graphic Designer Rui Gomes Photography Ike, Gary Wong, James Leong, Wong Kei Cheong Founder and Adviser Kareem Jalal ◊ Chief Marketing Officer Derrick Tran Chief Operating Officer Michael Mariakis Director and Administrator Cynthia Cheang Administrative Assistant Suie Ng China: Friend or Foe? W elcome signs that Macau’s gaming slump is at last bottoming out after 20 months of declining revenues last month prompted a rally in the shares of its gaming operators. Although it is far from a safe bet, if the operators assume the worst is now over, they might be taking stock of the downturn and deciding on how best to approach the future. Unfortunately, a wrong-headed way of thinking seems to have emerged in the industry. Namely: one that sees the fall stemming in part frommeddling by China. Some executives have even gone so far as to criticize Beijing for reneging on the “One country, two systems” promise it made for Macau’s transfer of sovereignty. Under the principle, the Portuguese colony was guaranteed a high degree of autonomy. China has violated that autonomy, the critics say, through high-handed interventions in the Special Administrative Region’s main industry. Instead Beijing should let Macau choose its own path. Of course this path would be decided through agreement reached between the government on one side and the gambling concessionaires and local power elites on the other. But uncorrupted by the billions of dollars at issue, Macau’s leaders would be impartial and free of Beijing’s interference to decide on what is best for Macau and its people. Among the concessionaires, Steve Wynn has been the most vocal of China’s critics. Last October the tycoon described the government’s policy of caps on table numbers at new casinos as “preposterous”, “bewildering” and “irrational.” Beijing’s caprice, he implied, was causing Wynn to “refocus our energies here in America.” The trouble with saying that mismanagement by China will prompt operators to reconsider investing in Macau is, of course, that nobody believes it. Profits from Macau have already propelled Wynn’s rival Sheldon Adelson into the ranks of the world’s very richest men. Most analysts say Wynn’s next Macau mega-resort, Wynn Palace, will be his most profitable venture yet. As for “one country, two systems”, the principle’s main point was surely to preserve Macau’s capitalist way of life. Compared to before the transfer of sovereignty, the pillar industry underlying that way of life seems to be doing quite okay thank you. In any case, industry professionals’ judgments on “one country, two systems” won’t make a jot of difference. China will dictate gaming policy in Macau as it sees fit, heedless of outbursts by foreign critics. A more constructive attitude towards Macau’s future suggests itself in light of these considerations. Instead of blaming China, operators might see the downturn as a correction necessary for long-term growth. They might admit that a large part of VIP play, the collapse of which accounts for almost the entire downturn, was mainland corruption money and therefore neither desirable nor sustainable. “Slowdown” when applied to China’s economy still means robust growth by western standards. Macau has 16,000 hotel rooms under construction and better infrastructure on the way, so the future of its mass market seems well planned for. And instead of seeing China’s Communist Party as irrationally opposed to gambling in Macau, operators would better acknowledge Beijing has both talented policymakers and a long-term interest in ensuring the city’s prosperity. As David Green of Newpage Consulting puts it, “If you look back on comments made by Xi Jinping as far back as when he was Vice President you can hear him clearly urging Macau to diversify. The writing has been on the wall, but until now no one has applied themselves to understanding what it means. Macau’s challenge is to look beyond China for its future and expand into an international destination.” Beijing’s consistent demand, in other words, has been that Macau’s gaming operators must develop non-gaming attractions, following the example of Las Vegas which today makes most of its money through non-gambling revenues. It’s a message that will surely be repeated over the coming weeks with the release of two important documents. The first will be the Mid-term Review the government has commissioned from the University of Macau’s Institute for the Study of Commercial Gaming. The report will look at what has been achieved by the six concessionaires since the liberalization of gaming in the city in 2002. Specifically, it will examine whether or not they have really delivered their promised integrated resorts, or just casinos with a few non-gaming tack-ons. For the long-term, the Macau SAR Government’s Committee for the Development of a World Centre for Tourism and Leisure recently closed public consultation for its first Five Year Plan covering 2016 to 2020. The document is due for release in the second quarter and will outline seven aspirations, including maintaining economic vitality, developing the structure of local industry and optimizing infrastructure in pursuit of creating an international tourism city. Until now operators have been listening mainly to industry analysts. (StevenWynn may well have been speaking for consumption by his shareholders.) Morgan Stanley summed up the approach last October when it noted that “Non-gaming is a crowd puller, but a margin drag.” For the sake of a harmonious relationship with China, as well as Macau and its future, however, they might start paying more attention to documents like those outlined above.