Macau Gambling – Market Analysis, Opportunities and Development

Author: Sudhir H. Kalé, Ph.D.

The casino industry in Macau has, barring a couple of years, seen two decades of spectacular and unabated growth in revenues and profits. Despite the high gaming taxes, the landbased casino industry grew from 11 venues and just over 400 tables in 2003 to 41 casinos and almost 7,000 tables in 2019. The uncertainty surrounding license renewals was put to rest in December 2022. However, the six concessionaires in Macau will face strong headwinds in their valiant attempts to recover from the havoc wrecked by COVID-19 and Mainland China’s restrictions on access to gambling funds for Chinese visitors.

Current Economic Status of the Macau Gambling Market

It is two decades since the Special Administrative Region of Macau (SAR) opened up the country’s casino industry to foreign competition. Since then, the perceptions of Macau casinos have alternated between optimism and cynicism, between irrational euphoria and dire uncertainty. Despite COVID-19 and the stifling restrictions placed on Chinese players by the Mainland China Government, the six casino license holders have no choice but to continue to invest in Macau.

To the lay observer, it makes little sense to splash more money into Macao at a time when the gaming revenues have dropped 87% from their pre-COVID levels. The junket business, which made up bulk of the casino revenue in the early days of market liberalization, has all but disappeared. The “new” mass market, comprised predominantly of Chinese from the Mainland, does not exhibit the same penchant for gaming that it did during pre-pandemic years. China’s economy now seems to be in a long period of economic downturn.

Why, then, are casino operators still wanting to invest in Macau? In order to understand the vagaries of the casino industry in Macau, some minimal understanding of Macau’s history and evolution is in order.

Brief History and Statistics for Las Vegas of the East

Macau gambling goes back to the days of Portuguese domination in the sixteenth century. In 1847, the enclave's governor, Isidoro Francisco Guimares, legalized games of chance. Back then, the gambling industry was dominated by Chinese games such as Fantan and Pai Gow. By 1899, gaming made up 47% of the colonial government’s revenues, not including 2.7% from the Holy House of Mercy’s lottery. This revenue was not only crucial for the local economy but it was also used by the Portuguese to aid their other colonies in Asia.

To keep gambling revenues going, Portugal made sure to promote Macau as the ideal tourism and holiday destination, capitalizing on its reputation as the land of sin and vice. In 1962, the government awarded a monopoly gambling concession to Sociedade de Turismo e Diversões de Macao (STDM). Under the leadership of its founder, Dr. Stanley Ho, STDM retained its casino monopoly for forty years.

In 1999, control of Macau reverted back to Mainland China, and the territory became a Special Administrative Region, wherein the “one country, two systems” form of government was introduced. In 2001, just as STDM’s casino monopoly was set to expire, the government invited new bidders to participate in the territory’s casino industry.

Initially, three new concessions were awarded, one to SJM (a subsidiary of STDM), one to Wynn Resorts, and one to a combination of Galaxy Entertainment and Las Vegas Sands. With further intricate maneuvering involving the selling of concessions and sub concessions, the territory eventually ended up with six operators—SJM, Wynn, Galaxy Entertainment, MELCO, Sands China, and MGM.

On May 18, 2004, Sands China opened its first casino on the Macau peninsula. Costing a mere US$240 million, the company recovered its investment in less than a year. Thus began a feeding frenzy never seen anywhere before in the casino and iGaming industry. The operators simply could not build casinos fast enough. From 11 casinos and 339 gaming tables in 2002, the industry quickly grew to over 40 casinos having more than 6,000 gaming tables in 2022. Casino revenues grew from just over US$2.7 billion in 2002 to a peak of US$45 billion in 2013.

After 2013, casino revenues gradually declined until 2018, largely due to Mainland China’s tightening its control of funds that its citizens could access for gambling in Macau. In 2019, the full year prior to COVID onset, Macau generated just over US$37 billion in casino revenues. COVID-19 took a huge toll on the Macau casino industry due to the “zero tolerance” policy of China. Casino revenues plummeted by almost 80%, and all operators reported losses running into hundreds of millions from 2020 through 2022.

Macau’s Casino Industry: 2002-2022

Source: Adapted from Macau DICJ Data and UNLV Gaming Library Data

The table above presents relevant data for the casino industry in Macau from 2002 through 2022. Note that the Global Financial Crisis of 2008 had zero impact on the Macau gaming industry. COVID-19, however, almost totally decimated Macau, known as the gambling capital of the world. Revenues in 2022 were just over 11% of the peak casino revenues in 2013. Despite the sharp decline, the six casino operators redoubled their bets on Macau in December 2022, when their licenses were renewed for another ten years, beginning in January 2023.

As a precondition for licensing, the six operators collectively committed to pumping almost US$15 billion in additional investments, with 90% going to non-gaming sectors of their business. All operators had to also commit to specific non-gaming projects with a view to increase international tourism, develop MICE business, and hold major sporting events in Macau, among others.

The 2022 Licensing Process and Outcomes

Prior to receiving fresh tenders for casino licenses, the Macau government and gaming regulation had made it clear that only six licenses would be issued for a period of ten years. All existing operators—SJM, Galaxy, MELCO, MGM, Wynn, and Sands China put in their tenders along with another entity, Genting. After a thorough review, the existing operators were announced as winners, while Genting ended up being the loser.

The government also made it known that it was reducing the number of tables and slots that would be allowed in Macau casinos. Under the new policy, the number of gambling tables would be capped at 6,000 (a 13% decrease from the former cap of 6,925 tables under the previous concession which expired at the end of December 2022). Likewise, the number of permissible slots was reduced to 12,000 from the previously allocated 12,387 machines (a decrease of 3%). Not all operators fared equally well under the new allocation. The table below lists the current allocation of tables and slots for the six operators.

Table and Slots Allocation Under New License

Source: Scott, Andrew (2022), “Allocation of Macau’s 6,000 Gaming Tables and 12,000 Slot Machines: Winners and Losers,” Inside Asian Gaming, December 22.

Clearly, MGM has benefitted the most under the new allocation of tables and slots, whereas SJM has lost the most. However, given the current sluggish recovery in casino revenues post COVID 19, it is unlikely that the operators who have seen a decrease in gaming positions would feel much aggrieved.

In their application to win the casino concession, each of the six operators pledged significant amounts of money to be directed toward their non-gaming business. These items of investment were dictated by the SAR Government, and operators had zero choice in choosing the areas in which they would like to invest.

Specifically, the Macau Government demanded that non-gaming investments be made with the following goals:

• Increase international tourism
• Develop MICE business
• Create and develop entertainment options
• Hold major sporting events
• Promote arts and culture
• Develop health-based tourism
• Create themed amusements
• Promote Macau as a “City of Gastronomy”
• Develop community-based tourism
• Develop maritime tourism
• Support other projects such as technological innovation and economic diversification.

While some of the investment objectives, such as promoting gastronomy and arts, are attainable, others, like health-based tourism and maritime tourism, make little sense. Macau, the gambling mecca near Hong Kong, simply does not have the landmass, the infrastructure, or the scenery to make some of the government’s objectives viable.

Macau Casino Industry – Future Revenue Prospects

The current condition of the casino industry in Macau is far from healthy. All six concessionaries have accumulated huge debts, particularly during the COVID-19 pandemic. The total debt across all six operators is estimated to be around US$23 billion. The gaming revenues for 2022 were the lowest since 2004, at around USD$5.2 billion.

While the Mainland Government has started reissuing travel visas for individuals and groups wanting to visit Macau, several explicit and implicit controls are still in place to monitor and control the frequency of visits. Tourist arrivals in Macau jumped 101.3% year-on-year to 1.397 million in January 2023, the highest since January of 2020, thanks to the easing of COVID curbs for entry into Macao and the Lunar New Year holidays. However, it is going to take several years for Macau to equal the almost 40 million in annual visitor numbers attained in 2019 prior to the pandemic (see Figure 1).

Macau Visitor Arrivals:2012-2022

The junket business, which during the early 2000s, accounted for almost 70% of Macau’s gaming revenues, is all but dead. The prospects for non-gaming revenue growth aren’t very bright either.

Best efforts of the government and the operators notwithstanding, non-gaming revenues have seldom accounted for more than 5% of an operator’s total gross revenues. While operators have been compelled to invest huge capital in non-gaming amenities, the return from these investments will be quite dismal.

The scenario with COVID-19 also remains hazy. Some casino executives privately confided not long ago that almost half their staff on duty has been infected with the virus. In the best-case state, COVID-19 will be a bad dream, and all will soon be well with Macau casino staff and the hordes of visitors coming to casinos. In the worst-case situation, we may have life imitating art as in Steven Soderbergh’s 2011 movie Contagion.

After the billions of dollars that have been invested in integrated casino resorts in Macau over the last two decades—and billions more in additional investment demanded of the new licensees—one would hope that COVID-19 was merely a speedbump in Macau’s legendary journey to economic glory.

However, with the demise of junkets, the Mainland Government making access to gambling funds increasingly difficult, and the impending slowdown in the Chinese economy for years to come, one cannot but feel apprehensive that Macau’s best days as the beacon of casino-led economic prosperity are probably behind it. Even the SAR Government estimates that 2023 gross gaming revenues will be just around US$16 billion. It is totally unrealistic to expect that Macau will recover from the pandemic at the same pace and trajectory as the United States or Singapore.