MACAU BUSINESS
“The community needs to manage their expectations for the gaming revenue,”
says academic Ricardo Siu Despite its little coverage about junket operators, the
recently published report on the public consultation about the local gaming regime undertaken between September and October 2021 pointed out that the vetting mechanism on gaming concessionaires and promoters would be strengthened in the future. Zeng Zhonglu, professor at the Centre for Gaming and
Tourism Studies of Macau Polytechnic Institute, also thinks gaming promoters could cater their services to patrons from other jurisdictions except the mainland, as it is impossible to do so now across the border.
2019 ceiling
“Given the efforts by the central government in cracking down on cross-border gambling activities in recent years, as well as the pandemic, the local junket activities have already declined before the latest incidents,” Professor Zen adds. “Thus, the closure of VIP rooms might not have a huge impact on the local gaming performance in the short-run but it will severely affect the gaming revenue and other related sectors like high-end retail and hoteling in the long-run.”
“The local gaming industry will continue heading toward
the direction of healthy and stable development but it’s just extremely difficult for the sector now to be back to the pre-pandemic level,” he continues, referring to the gross gaming revenue of MOP292.46 billion in 2019. Though the share of mass market in the overall gaming
revenue has been on a constant hike from less than 30 per cent in the early 2010s to 53.8 per cent in 2019 to 65.2 per cent in the first three quarters of 2021, the rise is more about the plunge in VIP revenue, which was generated mostly by junkets except 10-20 per cent coming from the VIP rooms directly managed by gaming operators, as analysts pinpoint. Making up as much as over 70 per cent of Macau’s gross gaming revenue and generating over MOP200 billion a year in the early 2010s, VIP revenue declined to just 46.2 per cent in 2019, when VIP revenue totaled MOP135.23 billion, the DICJ data said. Brokerage Sanford C. Bernstein estimated in a recent
research note that, amid the absence of junket operators, between 15 per cent and 30 per cent of junket VIP business would shift back to premium mass and direct VIP by gaming operators. But gaming revenue would likely only resume to account for 69 per cent and 79 per cent of the 2019 level — or between MOP201.8 billion and MOP231 billion — in the post-recovery era based on the current fundamentals, the investment bank added. Professor Siu of UM also acknowledges that it’s “difficult” for the industry to post the 2019 results again, let alone the peak of MOP360.75 billion that it reached in
18 FEBRUARY 2022
2013, with little or no contributions from junket operators. “No one could be certain what will happen, but I don’t see this will occur at least in the next five years,” he says. “The community needs to manage their expectations for gaming revenue.”
Shortfall in finance
The fall in gaming revenue has an underlying impact for local public finances, which rely on gaming tax receipts that account for about 70-80 per cent of the total government revenue. Currently, the direct tax on the gross gaming revenue of Macau casinos stands at a rate of 35 per cent, but there are other levies on casino gaming for the purposes of public welfare and social and cultural affairs, making the total tax rate on casino gaming 39 per cent. Due to the annual government expenses averaging
MOP100 billion a year in recent times, analysts pinpoint that Macau’s annual gaming revenue has to reach at least MOP200 billion a year for a balanced budget should the current conditions remain unchanged. For instance, the 2022 government budget forecasts that gross gaming revenue would reach MOP130 billion this year and that MOP30.34 billion has to be taken out from the fiscal reserve again for a balanced budget. The authorities have forked out about MOP100 billion
from the fiscal reserve, which still had MOP650 billion as of September 2021, in the past two years for supporting public finances. “What Macau could do is to expedite non-gaming development,” says Professor Zeng of the Macau Polytechnic Institute. Asked about the impact of the declining junket segment in gaming revenue and public finances, the city’s CE, Mr. Ho, noted in late December that the target of MOP130 billion in gaming revenue in 2022 could be reached should the pandemic situation remain stable in the upcoming 12 months. The latest DICJ data show that the territory’s casinos raked in MOP78.9 billion in revenue in the first 11 months of 2021, up by 49.9 per cent year-on-year but only representing 60.7 per cent of the MOP130 billion target. Professor Siu also believes that the MOP130 billion
target for 2022 is feasible even when the junket sector has little or even no contributions to gaming revenue. “Part of the junket VIP revenue will shift to the premium mass segment or the VIP rooms directly managed by the gaming operators,” he says. “As it is also likely that part of the traffic between Hong
Kong and Macau will resume [in 2022], the Hong Kong market, which contributed to about 20 per cent of the gross gaming revenue in the pre-pandemic times, could have a positive impact on the gaming industry as long as the pandemic situation remains stable,” he continues. Since the onset of the coronavirus outbreak two years ago, the city has only remained in a quarantine-free travel arrangement with the mainland.
In the meantime, the junket sector is just waiting to see what lies ahead for it. “We will comply with what the government asks us to do,” says Mr. Lam, a veteran junket investor. “Even if the government says it’s the end for us, we could do nothing but just accept it.”
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