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Macau Business: Special Report – Satellite… of love?

Special Report – Satellite… of love?

By João Paulo Meneses

If the Government’s initial idea was, in the medium term, to do away with satellite casinos, this proved to be very controversial, not least because, before the pandemic, they represented almost 10 per cent of gross gaming revenues. For now only two out of the 18 satellite casinos have closed.

Macau Business | July 2022 | Special Report | Gaming in Macau: The new era Among the various changes proposed by the new legislation that will regulate gambling in Macau, the one that aroused the most controversy was undoubtedly articles that would put an end to so-called satellite casinos, at least, as we’ve always known them (see our story on the discussion that took place in the Legislative Assembly).

In the proposal initially submitted to the Legislative Assembly, the Government tied the ownership of the satellite casino venues to the new gaming concessionaires, allowing to a three-year grace period for the issue to be settled.

Another contentious proposal was that entities now known as “management companies” would, if running a particular satellite, only be able to earn a fixed “management fee” instead of a share of the casino revenue.

Over the last months, the Government has shown flexibility with respect to changing its initial proposals, including one that would oblige the city’s satellite casino promoters to tie the ownership of their respective gaming floors to one of the new concessionaires.

For the industry, one of the positives to come from this Government proposal was that a discussion was finally opened on the role of these casinos that are operated by third parties and operate under the concessionaires.

Still, in the eyes of gaming law expert António Lobo Vilela the writing is on the wall. “Although some legal engineering may be attempted, they [satellite casinos] will probably close as no sharing of gaming revenue is allowed,” the former senior advisor to the Secretary for Economy and Finance told Macau Business.

“Most satellite casino owners are local or Hong Kong-based entrepreneurs, but their casino management experience and credentials are largely unknown to the public,” Professor Ryan Ho Hong Wai, a lecturer at the Centre for Gaming and Tourism Studies of the Macao Polytechnic University, noted in a recent research paper.

According to Ho, Macau satellite casinos are “fraught with opacity and undesirable business practices” and have long been seen as a “regulatory loophole” of the local gaming sector.

The Macau-based scholar also stated: “There have been no specific regulations governing their suitability, financial capability, casino experience and other regulatory standards.” Another Macau gaming scholar, Davis Fong, also noted that these satellite casinos, as we know them, are not positioned in the “developmental direction” Macau has been moving towards.

In defence of the current status quo, several people responsible for some of the 18 satellite casinos in Macau came out, concerned that the proposed law would require that these facilities only be installed in properties owned by one of the concessionaires. In other words, they would have to sell the existing properties or close the gambling areas within them.

According to one of t sources quoted by Chinese language newspaper Macao Daily News, owners of this type of space were very concerned, because they considered the proposal “unfair and harmful.”

This official explained that the owners had invested greatly in the various hotels and would be forced to sell in a position of fragility, not only because the deadline was so short but above all because they would have to sell at a time when the industry is undervalued due to the pandemic.

On the other hand, Melinda Chan, executive director of the company Macau Legend, which manages casinos Babylon and Legend Palace, appealed to a need to “respect history”, and Jay Chun, chairman of Paradise Entertainment which runs the Paradise Kam Pek casino, argued they have “a valid business model,” because many are on the peninsula and are surrounded by restaurants, hotels and souvenir shops which depend on the casino traffic, not to mention what closure would mean in terms of loss of local jobs – sources linked to this industry speak of employees numbering around 10,000.

In favour of investors’ arguments in this business is a recent report by the Macau Gaming Research Association, which published its 2021 Gaming Service Index (GSI) to monitor the service level of the gaming industry.

The association noted that the overall GSI score in Macau was the same as it had been the previous year (130). However, on the Macau peninsula (where almost all the 18 casinos in question are concentrated) the GSI index was 139, higher than that on Cotai.

In March, Macao Daily News reported that at least seven of the 18 satellite casinos could close by the end of June. At the end of the day only two – President and Rio both under Galaxy’s concession – shut down their business, with the remaining seeing their management service agreement extended until the end of the year.

“Politically powerful”

The issue of satellite casinos has been the hottest topic at meetings of the Legislative Assembly Standing Committee that discussed the changes to the gambling law.

So it’s no coincidence these businesses were unequivocally termed “very politically powerful” by gaming consultant, Alidad Tash, in a statement to Asia Gaming Brief.

Several deputies suggested extending the transition period for satellite casinos from three to five years.

When the law was approved at first reading (in January), several legislators made their voices heard.

Angela Leong, who is also the director of SJM, left questions in the air: “We need to know what will happen to the satellite casino workers. Will they pass to the new concessionaires?” Zheng Anting, a legislator with political links to Chan Meng Kam (who operates three of these casinos), appealed to the Government to respect the history of Macau: “It must be remembered that these satellite casinos had a very positive effect, because before Cotai existed, they contributed to the economy of the territory.”

In the few words he has said to date on the matter, the Secretary for the Economy and Finance stressed he “does not want the satellite casinos to close” and hopes that they “have room to continue operating according to the law”, according to committee chairman, Chan Chak Mo.

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