How to Win a Casino License in Macau – IAG
Learning from the previous Macau gaming concessions tender 20 years ago, former Macau government adviser David Green explores what it would take to win a license this time around.
More than two years ago, while advocating for an extended postponement of Macau’s new gaming concessions tender, I wrote the following:
Although it is still unclear what the expectations of the SAR government are regarding the results of the second bidding process, as recently as last April, the Secretary of Economy and Finance let hearing that the government would expect more from the second round than it got from the 2002 process:
“Gaming liberalization in 2003 (sic) and re-tender in 2022 are two different discussions on different levels,” he said. “In 2003, Macau didn’t have enough conditions to make a choice, today we have more spaces and conditions to decide the direction of the game industry.”
The recent opening of the tender and the subsequent publication of the tender requirements confirmed that the government’s expectations of bidders probably far exceed the appetite of these bidders and their capacity. to answer it.
In 2001/2002, government expectations were largely limited to maximizing tax revenue from the operation of casinos. This is why the magnitude of the proposed investment in new properties and the experience of the tender respondents in delivering large casino-focused developments were given the utmost weight by the Commission d invitation to tender at the time in the notation of the tenders received.
Twenty years later, revenues remain strong, all the more so since the advent of COVID and the remorseless pursuit of the elimination of the SAR virus. As the government has depleted its coffers, it appears intent on transferring at least some of its core functions to future casino licensees, with no offsetting tax cuts. For their part, existing operators are stretched thin, increasingly dependent on the optimism of their majority shareholders and the patience of their lenders to see them through to better times.
It must be infuriating for concessionaires to look at the treatment given to local airline Air Macau, which in May 2020 had its exclusive concession extended for three years when it was due to expire in November of the same year. The continued existence of this concession now constitutes a major constraint to the development of major new markets for casinos in Macau. In fact, as early as 2008, the SAR government announced its intention not to renew the concession and to promote the liberalization of the roads. Given that the reason for the extension was largely “to maintain the stability of industry operations currently affected by the outbreak of novel coronavirus pneumonia”, one may well wonder why the government refused to delay the new tender and to extend the concessions of the casino. for more than six months?
As the saying goes, the situation is what it is. So how do you go about framing a winning auction? Incumbency will be a distinct benefit, though probably unquantifiable, of course, in part due to the reduced timeframe for the whole process. Although the government has said the bidding process will provide a level playing field, what that means is unclear. In 2001, the Tenders Commission developed its own scoring weights, which were not disclosed to bidders, and only became known when the Commission’s full report was released after the awards were made. 3 concessions. Incumbency is disclosed in this report as warranting a rating “bonus” for SJM, as the successor to STDM, which held the pre-existing monopoly concession of the casino.
Assuming the Tenders Commission keeps its scoring criteria and weightings behind closed doors this time around, bidders must speculate on which of the 11 articulated goals will be given the highest value in the scoring process. Rather than trying to cover all the bases, a more productive approach may be to consolidate the criteria and focus on two or three of these goals. Increasing international tourism is clearly an important objective, under which a number of other criteria can be subsumed, such as MICE, entertainment, major sporting events and gastronomy. Developing each segment involves establishing the starting point of baseline data, assessing the perceived value proposition that Macau represents for each segment, and comparing that proposition with the market leader in the segment. This is more difficult for markets outside of mainland China, as perceived value to mainland visitors already secures Macau near-market leadership once travel recovers.
It seems safe to assume that the government will examine the extent to which bidders identify the gap that will undoubtedly exist between segment leaders and Macau. The question then becomes how to fill the gap and the expected cost of filling it. Some assumptions will need to be made here, particularly with respect to government-funded infrastructure. Unfortunately, delivering large-scale infrastructure projects in a timely manner has not been a strong point of the SAR government in the past – remember the Pac On ferry terminal and light rail project? An important assumption may well be the expansion of the airport’s existing passenger-moving capacity, although given current policy this is unlikely to be critical until zero-COVID is contained. in the rear view mirror.
One outcome that any analysis must demonstrate is the likely return to government, in the form of tax revenue, private direct investment (in conjunction with or in lieu of government spending), reduced transfer payments (e.g. , unemployment or small business support programs ) and the macroeconomic multipliers of non-gaming spending. As the first Tenders Commission pointed out in its 2002 report, the fundamental principle of concessions is increased revenue generation. If it cannot be improved by the concessionaire, there is no point in the government granting the rights to operate the activity.
A sensitivity analysis that fits and tests key underlying assumptions will be essential. It will be beneficial to make support modeling as user-friendly as possible. When Singapore offered its casino licenses in 2005, the models had to be functional enough to run various scenarios as part of the bid evaluation. Although there may be no requirement to do so in Macau, it would suggest confidence in the robustness and feasibility of what a bidder is offering, and of course transparency.
Since the term of new concessions is to be 10 years, it is unlikely that any of the desired outcomes will be more comprehensive than a work in progress when it expires. This is the reality, and the Tenders Board should be aware of it. Building a house that will last long into the future requires investing in its foundation long before it needs a roof.