account, I don’t think any operator would voluntarily leave Macau. Not only would it be an unwise decision from a business standpoint, I don’t think their shareholders would be too pleased either.
How has the PRC sought to temper the growth of gaming in Macau?
Andrew Klebanow: Cotai opened with the capacity to accommodate 600 tables, but the government allowed only 225 new tables to the market, forcing operators to steal tables from their peninsula properties and relocate them to Cotai. Te Sands Macau circa 2004 was floor after floor packed with hundreds of table games. However, visit today and the top two floors are barren, filled with concessions for jewellery and watch stores, because they had to relocate tables to their more profitable Cotai location. So, I’d say that the Macau government has unquestionably sought to temper the phenomenal growth of gaming.
What sort of intentionality is behind that, is it to stop currency leakage? Is it to boost diversification or a bit of both?
Andrew Klebanow: I think diversification. Macau’s dependency on gaming revenue is a concern for the PRC. Control lies in the hands of the state and the operators, but you always have the PRC in the background.
I believe that Macau, unfettered by regulation and activities from the PRC could have been a US$50bn gaming market by 2024 and could have eventually soared to $100bn. It could again, but by capping the number of new table games, imposing currency controls and pursuing anti- corruption campaigns, the government is very effectively tempering growth.
Post 2013’s peak, an anti-corruption campaign headed initially by Xi Jinping was followed by increased regulation of the industry in Macau. Did this moment represent a new era for the gaming industry in Macau?
Ben Lee: Yes, and it's not just the casino operators. Te most recent incoming administration, headed by Ho lat Seng, our new Chief Executive, represents a huge departure from previous norms. Macau’s first two executives, Edmund Ho and Fernando Chui, were both deeply connected with the old money network in Macau. Te current Chief Executive has very little connection with the ruling class. Tis also includes the various departmental secretaries, which are all politically aligned with China, as opposed to local interests. So yes, there is a deliberate effort to ‘decouple’ the gaming industry from national interests.
Rui Pinto Proença: Watching the events unfold at the time, I think it was clear that we were experiencing a significant slowdown, not just because of the broader corruption campaign, but also due to the fact that there were elements within Macau that were incompatible with the long-term goals of the campaign. I believe there was also a heightened perception of corruption that didn’t actually exist.
I would describe this period as a cooldown and correction of certain segments of the industry that were not contributing to a healthy industry.
P194 WIRE / PULSE / INSIGHT / REPORTS
Ben Lee, Managing Partner, IGamiX Management and Consulting Ltd
Ben Lee is the Managing Partner at IGamiX Management and Consulting Ltd based in Macau and is acknowledged as one of the region’s experts in the Asian gaming market and has extensive gaming experience all over Asia and Australia.
www.igamix.com
great.things@
igamix.com.
“Macau is a world gaming hub, the only problem is that this is not a positive. It’s actually a huge negative. China recently announced a blacklist on
foreign gaming jurisdictions and most analysts are of the view that Macau is not
considered as part of the mainland.“ Ben Lee
However, with the benefit of hindsight and perspective, I would not call this period a decoupling. I think this period, in the broader context, is one that is leading Macau instead towards diversification.
I think the period from 2013 onwards was clearly a moment where the industry needed to be cleaned up, as opposed to the start of a process to end the industry. Macau rid itself of certain behaviours and certain aspects of the business that were not healthy or sustainable. More stringent money laundering legislation and enforcement, including the barring of politically exposed individuals visiting Macau to gamble with dubiously obtained funds, these are behaviours that you don't want in the industry wherever they occur in the world. So I think it was a positive move and I think we're now into the second stage of that process.
Andrew Klebanow: Both the PRC and local government in Macau have had a profound effect on the gaming sector. An example of which and a seminal event in the story of Macau took place in June 2014, when President Xi implemented his anti-corruption campaign. Tis had a chilling effect on gaming revenue in Macau, impacting upon a run rate of about $47bn in gaming revenue, of which VIP was well in excess of 60 per cent. Te crackdown was severe, ripping the wheels off the wagon.
Not only did the crackdown affect public officials, who realised that they shouldn’t be spending so much time in casinos, it also affected what we call ‘conspicuous consumption.’ Anyone with wealth living in the PRC who came to Macau on a regular basis to gamble and shop also recognised that this was not a good idea. Combined, this realisation caused VIP revenue to collapse. During this period, Macau’s VIP traffic dried up; it has recovered, but there were some tectonic shifts post-2014. Junket operators saw their share of the market decline, which at one point contributed 72 per cent of the revenue in Macau, falling to 56 per cent in the last few years, and in 2019 it was at 45.6 per cent.
Were there any instruments used for the purpose of anti-corruption that were specifically targeted at Macau's gaming industry, or do you believe that this was just an extension of the broader Xi Jinping campaign?
Andrew Klebanow: I think it’s more the latter. Did the DICJ (Te Gaming Inspection and Coordination Bureau) tighten up the movement of money across the border? Yes. Old techniques, such as using Union pay to send money to Macau, is watched more vigilantly by the DICJ, but this is definitely driven by the PRC. It wasn’t so much the huge outflows of money going to Macau, but concern that it was flowing elsewhere. You can see a comparable example in the way in which the PRC has focused its gaze upon online gambling in the region and how it has used its influence to seek to exert control.
Te Philippines is currently a major online gambling hub. Estimates place gaming revenues wagered online somewhere north of US$8bn, perhaps as high as $20bn per year. And it’s leaking like a sieve out from the PRC into the coffers of gaming operators in the Philippines. So concerned is the PRC at this situation that the Prime Minister of Cambodia was kindly asked to close down his online gaming industry, and, obligingly, he did so on December 31, 2019. Online gambling in Cambodia came to an abrupt end, shuttering a $4bn per year gaming sector in the country.
Speaking of bans, China maintains a ban on gambling activities, while Macau has become one of the world's leading gaming hubs. Do you think China views Macau as a success or an aberration?
Rui Pinto Proença: I think that's a question the current Chinese decision-makers also pose themselves.
Te majority of Western jurisdictions and definitely the majority of Western thinking follows that while gaming is considered a vice with the potential to cause social harm, it is better to control gaming as opposed to leaving it unregulated and illegal. Legislation, regulation and taxation is a practical approach to the reality that if you prohibit gambling, you will never suppress it completely and never be able to control it the same way as when you legalise it.
Ben Lee: Macau is a world gaming hub, the only problem is that this is not a positive. It’s actually a huge negative. China recently announced a blacklist on foreign gaming jurisdictions and
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