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Did the ending of the state-granted monopoly, held by Stanley Ho, and the commencement of the bidding process for the concessions and subsequent sub-concessions, mark a significant departure from traditional casino market norms?


Rui Pinto Proença: A major difference between the system in Macau and other international licensing systems is that by law, and this has been like this for a very long time, casino gaming and other forms of gambling are an economic activity that is reserved, and can only be pursued, by the State itself. Tis is where concession derives its name. A private operator is able to offer gambling in Macau because the State government concedes that right. Such a system ensures that the role of the government is both absolute and essential.


Secondly, in both controlling the method by which concessions are awarded and the means by which the market operates, the obligations under which private operators function are derived not only from the laws and regulations of Macau, but also from the concessionary contracts agreed with the government. Tis contract between the operator and the government regulates the right to pursue this economic activity. Te concessionary contracts are essentially a coupling of state and private enterprise. Te state’s role in determining that gambling should continue, shifting from a monopoly to a system essentially driven by six operators, has unquestionably shaped the subsequent economic growth of Macau.


Ben Lee: When Hong Kong and Macau became self-autonomous regions following their respective handovers, Hong Kong adopted the role of international financial centre, whereas Macau was to become a centre for hospitality and tourism. Had Hong Kong the ability to open up casinos, not only would it have leapt at the chance, but the industry would also have been much more efficiently managed too. However, they were restricted to the Hong Kong Jockey Club and a handful of lotteries, while Macau was handed the prize of casino liberalisation.


Was a more liberalised market with relatively light regulation a deliberate move to accelerate the growth of the industry and to achieve economic development?


Rui Pinto Proença: Absolutely, and I think you have to place this decision in a historical context. As the transition from Portuguese to local government control under Chinese sovereignty took place, an exodus of locals to Portugal saw Macau enter a period of economic recession. And there was no clear path as to how to improve the economic circumstances. Most of the industries that had previously flourished, such as the garment industry, had already moved or were in the process of moving across the border into China, incentivised by reduced labour costs.


I think it was essential, therefore, to put in place a driver for economic growth, one guaranteed to generate sufficient tax revenue and greatly increase employment. And importantly, gambling was an established industry in Macau. Furthermore, it was the only place in China where casino gambling was legal and regulated. Te intention was to attract not only foreign


Ben Lee: No absolutely not. Te growth we saw peak in 2013 at US$45bn was totally unprecedented and, I believe, unanticipated. Since then, we’ve seen various initiatives, announcements and edicts from the northern side of the border, all designed to temper the gaming industry in Macau.


Rui Pinto Proenca, Managing Partner, MdME


Rui Pinto Proença is Managing Partner of MdME Lawyers and head of the firm’s Corporate and M&A practice. He specializes in mergers and acquisitions and also focuses on the gaming sector where he regularly acts for gaming companies in Macau and across Asia-Pacific region assisting government in emerging markets developing their gaming policies and regulatory frameworks. Rui is the global chair of the Lex Mundi Gaming Solution, a network of law firms covering over 25 gaming jurisdictions around the world and a member of the Board of Trustees of the IAGA.


www.mdme.com.mo rpp@mdme.com.mo


“The concessionary contracts are essentially a coupling of state and private enterprise. The state’s role in determining that gambling should continue, shifting from a monopoly to a system essentially driven by six operators, has


unquestionably shaped the subsequent economic growth of Macau.”


Rui Pinto Proenca


investment by means of capital investment, but also experience and brands to take the gaming industry is to the next level. However, I don't believe anyone foresaw the extent to which this would eventuate.


So the authorities had created a roadmap?


Ben Lee: Te Macau government had identified a wish list, with at least one, if not two, US-based operators that they believed could help propel the industry to a much higher level. Te incumbent, having operated a monopoly for many years, had no interest in growing the industry at that time, content as they were with the size of the pie they’d been sliced. Authorities on both sides of the border had a hand in making sure the proposition attracted enthusiastic entrepreneurs who they believed would grow the industry.


Do you believe the authorities during that initial period could have foreseen the future levels of growth?


Andrew Klebanow: I don't think anyone in the Macau government envisioned how massive the industry would become or the phenomenal impact that concept had on Macau’s fortunes. Macau has subsequently become the largest gaming jurisdiction in the world within in a couple of years. Te opening of Sands Macau was a pivotal event. Te fact that the project paid for itself in six months drew the attention of the entire industry. Tey recognised that there was something special here.


Te growth of Macau snowballed. Wynn opened and then Star World, Grand Lisboa and developments on Cotai island swiftly followed one another. And then, just as Cotai opened up with phenomenal growth, a global recession hit.


How did the recession impact on Macau? Was it relatively immune?


Andrew Klebanow: Te recession in 2009/2010 brought the industry to a standstill. Galaxy World in 2010 was a half-built structure with nothing moving or getting built. Across the street, Sands Cotai Central, the three hotel towers didn’t have a single construction worker scrambling over them. Te financial crisis severely impacted gaming operators, but what was crucial was that it was short-lived and by 2012, Macau was back in business. Projects were completed, Galaxy World opened, Sands Cotai Central's is completed and construction moved forward on Paris, Studio City, and the Encore project on the peninsula was completed by 2013/2014. All of these properties are up and running and making a lot of money.


So that was an important period around 2010.


According to the Gaming Inspection Coordination Bureau, Macau’s revenue peak was in 2013. Up until this point, despite the fact that local governance may not have foreseen such growth, how embedded in the industry were the foreign operators?


Rui Pinto Proença: From the perspective of Macau and its economy, these are extremely important players; we’re talking about the six biggest employers bar the government. In addition to employing a substantial number of people directly, they also employ an even larger number indirectly through service providers; they are an integral part of life in Macau. Tese companies generate almost 80 per cent of the enclave’s tax revenues. So, I don't think they could be more embedded in Macau’s economy or society.


In terms of the individual operators, SJM is a local business. Tey don’t operate anywhere else. Galaxy is in the same position, albeit with a few minority shareholdings in overseas markets. Melco is another home-grown operator, but it’s expanding beyond the borders of Macau. Finally, you have American capital for which Macau represents a substantial part of each operator’s worldwide revenue. Taking all of this into


WIRE / PULSE / INSIGHT / REPORTS P39


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