Gaming | Vickers: 2020 Concessions Likely Postponed Two Years

The gaming concessions of Sociedade de Jogos de Macau (SJM) and MGM China Holdings Ltd, which are due to expire next year, will likely be postponed two years to align with contract expiration dates of their four rivals, according to the latest Asia Risk Assessment report, released yesterday.

Speaking to the Times yesterday, Steve Vickers, CEO of Steve Vickers and Associates (or SVA), a specialist political and corporate risk consultancy that prepares the annual Asia Risk Assessment report, said that there was no other credible option.

“Current thinking is that the government will want to extend the concessions until 2022, so as to deal with them all at once; such a move would buy time,” the SVA report noted, to which Vickers added “politically, with the chief executive changing, it’s not good timing,” and “little else is manifest.”

Postponing the license expiration dates will also allow more time for China and the U.S. to iron out trade differences – or allow the former to use the lucrative businesses and Republican-party supporters as leverage in negotiations.

“The U.S. gaming organizations are sitting on a geopolitical fault line,” warned Vickers, as in previous years. “Spiralling tensions with the U.S. could spur Macau to dilute U.S. casinos’ sectoral dominance, not least given the links between the gaming tycoons and the Republican Party.”

“It’s not a Macau issue, but a China-U.S. issue [… and] from the Chinese point of view, there is no pressure from their side. The US operators will be more wary about the situation as the expiry date approaches.”

“The Macau government might call for Chinese companies to buy into, or take over, existing businesses, or might simply refuse to grant a new right to current concessionaires,” the report continues.

The 2019 Asia Risk Assessment report supposes that the most likely replacement for Macau Chief Executive Chui Sai On, who is due to step down in December, is current Legislative Assembly President (AL) Ho Iat Seng.

For Vickers, the election of Ho Iat Seng to Macau’s top post would represent continuity in the political landscape of the MSAR – “whoever they pick will continue to tow the party line” – but the current AL president’s unexplained dismissal of two Portuguese legal advisors last year might foreshadow a “similar ‘Sinification’ of the gaming sector.”

Echoing the warnings of previous years, SVA made reference in the 2019 report to the prospect of a terrorist attack in the Macau SAR, as well as the enduring involvement of triad and illegal activities in junket operators; “a perennial problem positing serious criminal and reputational threats to investors.”

“The prospect of a terrorist attack on a casino is also a chronic worry, although Macau has recently taken some steps to limit the danger,” noted the firm.

Last year the pace of economic growth in Macau slowed to 6.8 percent on the back of softer domestic demand in China, which also saw a growth deceleration.

The prospect of new measures from the central government to curb capital outflows will continue to worry casino operators in 2019, said Vickers, but in their absence the economic uncertainty of the mainland will not necessarily trickle down to Macau.

“Macau’s politics should therefore stay stable, even as China’s economy slows, but the geopolitical risks facing the gaming concessionaires will climb sharply in 2019. Investors should take note.”