Numerous casino operators offering lucrative severance packages in China’s gambling enclave Macau indicate that the city’s high-rollers expect that the downturn caused by the COVID-19 pandemic will last into next year.
Galaxy Entertainment offered a $47,500 one-time payment to casino floor workers in April. This was equivalent to a year’s salary. If they refused, the payment would be refunded. Melco Resorts offered 12 months of pay in May to encourage staff to accept voluntary redundancy. Suncity Group, a junket operator, approved voluntary redundancy packages equivalent to 15 months.
“Casinos won’t offer that outlay if things return to normal within a few years,” Ben Lee, managing partner of Macau-based gaming consultancy IGamix says. This is after the recent Delta outbreak has shattered hopes that the island’s borders will reopen soon.
Closed borders
Since the pandemic started, the Macao Special Administrative Region has only recorded 63 COVID-19-related cases. This is a record that baseline officials have achieved by keeping one of the strictest border closures in the world.
Only residents of Taiwan, Hong Kong, and mainland China are allowed to enter the gambling enclave located on China’s south coast. They must also pass a COVID test. Visitors from Hong Kong, Taiwan, or several provinces in mainland China that are currently fighting the Delta epidemics will have to endure a 2-week quarantine when they arrive in Macau.
What’s worse is the fact that meanwhile, the world has turned towards online gambling for numerous understandable reasons. Now, the Chinese will much prefer to play keno live at home in a 100% secure environment, with no restrictions and mandatory regulations, rather than risk catching the potentially deadly virus. After Covid-19 is gone, it’s still unclear how many of the current online gamblers will return for physical experience in Macau casinos.
Although Macau has been spared the worst of COVID-19’s effects, Macau’s strict border closure has hurt the SAR’s heavily casino-based economy. The city’s 41 gambling hubs saw their revenues drop 79% to $7.57 Billion in 2020, despite the fact that casinos were closed for two weeks in February 2020. Macau’s GDP fell 56% to $24 billion last year, with roughly half of it coming from gaming taxes.
Visitors are returning to this tiny Portuguese colony because there isn’t much else to do and Macau’s luxurious hotels offer rock-bottom rates. To attract more tourists to Macau, Macau authorities issued spending vouchers worth $36 million to Chinese tourists in December 2013.
Bloomberg reports that Macau’s tourist numbers are still below 10% of their peak in 2019. In August, Macau’s first COVID-19-related case in more than a year forced the city to lockdown for two weeks.
Lockdowns and restrictions
Four family members who returned from China on Aug. 3 tested positive for the Delta coronavirus variant. Fearing that the contagious variant could spread quickly in the densely populated city of Macau, where only 43% are vaccinated against it, authorities shut down Macau’s entertainment venues and ordered all 700,000 residents to be tested for COVID-19.
Within three days, the mass testing was completed. No new cases were discovered. Entertainment venues, such as bars, cinemas, and gyms, will reopen on Wednesday. The city’s lifeblood, casinos, were allowed to stay open during the lockdown.
Ho Iat-Seng, chief executive of Macau, stated that the government did not intend to close the casinos. After a worker at a casino tested positive for COVID-19, 2020 saw gambling halls being forced to close for two weeks.
Macau’s casinos suffered a loss of $937 million in revenue over the two weeks. This is only the second time that the government has closed down casinos in Macau. As global travel was shut down completely in 2020, gambling losses rose.
Although Macau’s casinos are starting to recover, they still remain at a low level compared to pre-pandemic levels. The Gaming Inspection and Coordination Bureau in Macau reported that gross gaming revenue (GGR), rose 528% year-on-year to $1.05 Billion in July. This is 29.2% more than GGR in June but still 65.5% lower than the casinos’ June 2019 earnings.
Compromise
Only six companies are licensed to operate casinos in Macau: Melco, SJM, Galaxy Entertainment, and Wynn Macau. Each company purchased a concession, which was auctioned off by the government and allowed them to open gaming areas. The six concessions will expire in June 2022.
Macau’s casino business was lucrative in the past. The city’s high-roller casinos generate three times as much revenue as the entire Las Vegas Strip. They also account for the bulk of global earnings. The value of a Macau concession is now harder to determine due to the Macau pandemic that has reduced take at Macau’s table.
Lee poses the question that If the government held the concession tender process on time, would they be in a position to attract the best candidates? Macau authorities want to diversify the local economy from gambling. They are increasingly requiring casino operators to invest more in entertainment venues that offer lower returns.
In normal circumstances, resort operators won’t spend money on entertainment facilities of low value. This is even more true when they are under stress from a pandemic-era depression. Many casino operators believe that the government will extend the expiry dates for at least one year beyond June 2022.
Wilfred Wong, Sands China CEO, stated that he doesn’t believe the government is in a hurry to renew licenses. He said this during the Q2 investor call. Other analysts agree that a decision won’t likely be made until September’s city legislative elections.
Current concession holders may have to endure empty casinos halls for a while longer.