GBA Brief

Are Macau’s casinos in the crossfire if trade row with Washington isn’t resolved?

Legend has it that the house always wins in the gambling business. But a group of Macau’s casinos are worried that that the trade war might see them lose their edge when gaming concessions come up for negotiation next year.

Talk about a gold mine. Gaming mogul Sheldon Adelson recouped the entire $265 million investment in his newly opened Sands casino in Macau less than a year after it opened in 2004. He had secured one of the six gaming concessions in the enclave, the only part of China where casinos are legal. Red-hot play from tens of millions of baccarat fans has made Macau into a moneymaking machine. But the gaming concessions are coming up for renegotiation during a time of Sino-US trade tensions, with speculation that American-owned casinos could be press-ganged into lobbying on Beijing’s behalf – or suffer the consequences.

Three of the six main operators are US companies, including Sands, MGM and Wynn (though the latter sold a 5% stake in its New York-listed unit to Hong Kong’s Galaxy last year). Their lucrative gaming licences will start to expire in March next year, beginning with the pair held by MGM and local tycoon Stanley Ho’s SJM.

Macau’s gaming laws actually allow for just three concessions and SJM, Wynn and Galaxy were picked out of 21 bidders to get the original licences in 2002. Competition was nasty – at one point Galaxy chairman Lui Che Woo claimed that a coffin had been left at his hotel’s front door. 

In a spectacular change by regulators later that year, the Macau government announced that three new sub-concessions were to be spun off from the main licences. As a result Sands operates with a sub-concession issued by Galaxy, for which it paid nothing. SJM granted another sub-licence to MGM for $200 million and Melco, run by Stanley Ho’s son Lawrence, paid Wynn $900 million for the final sub-concession.

Macau is set to select a political leader (or chief executive in local parlance) before the end of 2019. But instead of leaving the licencing issue to the next government, incumbent Fernando Chui has been under pressure to iron out the details on the renewal process.

There is no certainty that existing operators will get to renew their licences automatically. Indeed, Chui hinted last year that his administration might trigger a new bidding process. A revision of the number of concessions on offer is possible too.

“In all likelihood, the central government [i.e. the Chinese government] will take on an influential role in deciding the way forward, especially in the face of China’s escalating trade war with the US,” local newspaper Jornal San Wa predicts, ignoring rather blithely that Macau, like Hong Kong, operates under the so-called ‘one country, two systems’ principle that allows it a high degree of autonomy from Beijing.

Others wonder whether casino groups like Sands or Wynn will take collateral damage from the trade row, especially if they don’t show commitment to campaigning for the Chinese side.  “Should relations [between China and the US] deteriorate further, Beijing may ask itself why it needs to tolerate so much money being repatriated by the US casinos,” Steve Vickers, who runs a corporate risk consultancy in Hong Kong, told the South China Morning Post. “It would surely be better from Beijing’s perspective that the gaming proceeds go to more loyal and local champions, not foreign firms. And especially not to those controlled by China’s main economic rival.”