Morgan Stanley Weighs in on How New Macau Limits Impact Business

This year has been very important for the gambling industry in Macau. It’s been two years since the country basically closed its borders to outsiders, and lockdowns during the height of the pandemic meant businesses were severely crippled. As part of its preparations to recover, Macau has made some significant changes in its legislation, which continue to prove that the SAR is not ready to simply give up just yet.

Morgan Stanley Weighs in on New Caps

Some of the new changes see the number of gaming tables fixed at a maximum of 6,000. Gaming machines have been limited to 12,000, and the minimum casino revenue for 2023 was set to levels similar to those of 2022, namely MOP$45.6 billion ($564 million). As per the government’s website, these limits are meant to “ensure orderly and healthy development” in the sector, and the revenue limits are supposed to be rather easily attainable.

However, if an operator is for some reason falling short of these limits, they must pay the difference, as the government is setting the minimum limit to ensure a certain amount of tax money will be generated by the industry. Furthermore, as per the latest statement, the gross income for each table or slot machine is also now capped at $866,122 and $37,120 respectively.

According to a Morgan Stanley analysis of these changes, Sands China and SJM Holdings would be the ones hit the hardest from the gaming tables cap, while Wynn Resorts and MGM China will be seeing benefits from the same change. As for the slot machine numbers, Sands is again going to be suffering from the changes, accompanied by Melco and Galaxy this time. That leaves Wynn, MGM and SJM as the remaining three operators in the region, with potential gains in this sector.

It’s safe to say that if the new number of slots and tables is evenly distributed, Sands China will be probably very unsatisfied with its new limitations of 2,000 slot machines and 1,000 tables, especially given the fact that it had been operating close to 6,000 machines before the pandemic hit, making for a horrific 2/3 reduction in capacity.

Macau Casino Business Outlook Unclear

There are many points of discussion surrounding the new changes in the gambling legislation of Macau, with MdME Lawyers publishing a very extensive overview of what is named the Amendment to the Macau Gaming Law and Public Tender Regulation. National security is often referred to in discussions, as new regulations seem to be falling close in line with Beijing’s comfort zone. This seems to be a general direction in which the SAR is going, as businesses, in general, are being mandated to align with China’s preferences on multiple points of interest.

Junket operations in Macau were shut down and mere days ago the SAR’s Statistics and Census Service has put out numbers, outlining an expected consequence – a massive increase in unemployment. The numbers are extremely difficult to link to a single factor, as the region is also still struggling with its COVID-19 measures. Although international travels to Macau have been restored, quarantine rules still apply. This means that even if tourism slowly picks up, the knock-on effect on casinos will be even more unhurried.

Reuters reported that the SAR’s licensed operators’ contracts are set to expire by the end of the year. This means that even if business picks up, the largest operators will be facing a big dilemma in the face of their desire to recover more quickly, conflicting with the new limits on their opportunity to generate revenue, namely capping the number of tables and machines they can operate. Of course, that’s only going to pose a real problem if the country gets through its COVID breakouts. Without that, this is going to be a moot point, as lockdowns will be preventing businesses from operating normally anyway.