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Macau Business: Non-gaming: do more with less money Special Report – Non-gaming: do more with less money By João Paulo Meneses July 17, 2022

“It is about time for operators to reconfigure and refurbish the existing amenities, and each redevelopment is going to cost billions; otherwise, tourists will simply go elsewhere,” according to a Macau-based scholar

Macau Business | July 2022 | Special Report | Gaming in Macau: The new era

During the second of four public consultation sessions hosted by the Macau SAR Government to discuss changes to the gaming law, someone from the public asked for an explanation of what is meant by non-gaming.

In response the Gaming Inspection and Coordination Bureau’s (DICJ) Deputy Director, Lio Chi Chong, said: “There is no concrete definition of a non-gaming element yet. We want more opinions to see how we should define non-gaming elements.”

It is likely that this definition will be better understood by the time the public tender is launched, but it seems certain that the Government currently faces a dilemma: how to demand more non-gaming elements from concessions that are expected to be less profitable?

“Generally, concessionaires will invest more in non-gaming when they are more profitable,” Changbin Wang, Director, Professor, Centre for Gaming and Tourism Studies, Macao Polytechnic University, agrees in a statement to Macau Business. Market expert Alidad Tash concurs: “More non-gaming, otherwise known as diversification, is not new. It makes sense, but it’s hard to pull off, especially with less GGR and EBITDA supporting gaming companies.”

Kevin Clayton, former CMO for Sands China and Galaxy Entertainment, was more specific, linking future investment to the context of the pandemic in a statement quoted by the Asia Gaming Brief: “After more than two years of expenditure cuts including marketing, for some period of time, there will be very little appetite to increase resort advertising and promotions. Instead, marketing investment will continue to focus on relationship management, as this has a direct impact on revenues.”

A recent IMF report noted that “the collapse of the economic activity [in 2020], mostly on account of weak services exports, highlighted the Macau SAR’s overreliance on the gaming industry.”

A “multiprong package of structural reforms is needed to bridge the gap in skill composition and overcome barriers to economic diversification. Advancing the government’s diversification agenda will require investments in skill building and infrastructure, including for digital infrastructure, enhancing the effectiveness of public institutions, and improving the business environment,” the report continued.

Ryan Ho, Lecturer at the Centre for Gaming and Tourism Studies, Macau Polytechnic University, explains: “The COVID-19 pandemic has disrupted the local gaming industry, and Macau casinos have yet to see recovery. Pandemic aside, it is yet to be seen whether or not the forthcoming concessions will be less profitable, but what is certain is that the mass market-oriented business model will definitely be more sustainable for Macau casinos in the long run.

“While the business focus will gradually shift away from the junket model, it will take some time for the gross casino receipts to go back to pre-pandemic levels,” Mr Ho adds in a statement to Macau Business. “The mass market relies on a steady flow of tourists and their patronage. Most operators have been putting considerable effort into developing non-gaming amenities to attract guests over the past two decades. It is about time for operators to reconfigure and refurbish the existing amenities, and each redevelopment is going to cost billions; otherwise, tourists will simply go elsewhere.”

It is in this context that the Government’s proposal to consider a cut to the aggregate effective tax rate on casino GGR arises, one of up to five percentage points if the city’s casino industry is able to bring in players from outside China.

A measure, by the way, consistent with what Chief Executive Ho Iat Seng said in his last Policy Address, when he blamed the tourism industry for what he considered its excessive focus on Chinese tourists. “Hengqin does not need more generic hotels”

“Instead of simply replicating the Las Vegas concept, Macau should formulate its optimal model to best suit the local context and regional environment. The Greater Bay Area initiative is going to deepen and widen Macau’s economic integration with the Mainland. Casino operators and other tourism businesses will benefit from China’s rising middle class and their demand for tourism products,” Ryan Ho, Lecturer at the Centre for Gaming and Tourism Studies, Macao Polytechnic University, explains.

He tells Macau Business, “Macau-based operators and the like can collaborate with their Hengqin counterparts to provide all-inclusive vacation packages with transport, accommodation and activities included. Macau and Hengqin can complement each other in the supply of different tourism products, marketing Macau-Hengqin as a potential tourist destination for domestic and foreign travelers.”

Sport tourism could be a good example, as “this type of leisure-based travel attracts spectators and participants to a particular destination. As opposed to building new arenas, Macau can partner with Hengqin to host national and international sporting events.” Ryan Ho expects there will be non-gaming investments made by some Macau-based casino operators and other local enterprises. “This will definitely help with the diversification process, alongside the regional economic integration initiative.”

But “Macau and Hengqin must work better as complements, rather than competitors, to offer tourists a unique multicultural experience. Hengqin does not need more generic hotels. It is already a crowded lodging market, there. Any non-gaming investments such as themed resorts and attractions must differentiate from the others and provide a strong linkage to Macau, ultimately attracting more visitors to the enclave.”

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