New gambling law passed for Macau

Macau already surpassed Las Vegas years ago in terms of popularity and is therefore considered the largest gambling center in the world. At the same time, Macau has been fighting against gambling crime for a long time. All this leads to the fact that the government has now passed a new law. Because of this law, the government now has more control and gambling operators have to pay a higher tax rate. However, there are other changes.

Flexibility in the tax rate

The new law comprises 55 pages. Accordingly, some changes seem to have been planned and implemented for a long time. For gambling operators, this could mean a heavy workload if numerous new regulations have to be implemented. In this context, there is the added problem that the currently valid licenses expire at the end of this month. A call for tenders would have to be issued for new licenses. Since these have not yet been published, the government has decided to extend the current licenses for six months. This gives gambling operators the opportunity to deal with the new law and address it in their application.

The tax rate has only been increased by a percentage. This tax in Macau is calculated on gross revenue. If a gambling operator manages to attract foreign players to the casinos, the government has the option to reduce the tax by five percent. This tax reduction option can also be used if players from mainland China are prevented from gaining access to Macau casinos.

Strict financial requirements

The new law states that any gambling operator that obtains a license must have a certain amount of equity in the next few years: More than five billion patacas must be owned by the operator. This is equivalent to 618 million US dollars. The fixed sum must be available over a period of ten years. This corresponds to the license period. There are currently six gaming groups in Macau, five of which have the required sum: MGM China, Galaxy Entertainment, Melco Resorts, Wynn Macau and Sands China. One gaming operator that currently holds a license does not have the required equity. This is SJM Holdings.

However, equity is not the only financial challenge. Gambling operators must pay just under six million US dollars to renew their license. It can be seen from the Reuters press release that all casinos together have taken in a much higher sum in recent years. In 2019, all casinos have generated a turnover of 36.5 billion US dollars, which exceeds the turnover of Las Vegas by six times.

Macau struggles against revenue losses

The revenue just mentioned could not be reached in the last two years. This was due to several reasons. For example, there were significant travel restrictions due to the Corona pandemic, which automatically reduced the turnover in the casinos. At the same time, Macau was also affected by lockdowns. During this time, locals were also unable to visit the casinos. Additionally, turnover has decreased recently as the Chinese government fights against junket operators. The crime associated with these businesses is a thorn in the government’s side. However, by banning junket operators, Macau has suffered significant revenue losses.

All junket operators combined generated about 25 percent of Macau’s total casino revenue. For Macau casino operators, it means that they will have to come up with ideas to compensate for the revenue generated by junket operators. In addition, no one can currently estimate how the Chinese government will react to a license renewal. There may be other conditions attached to it that are not yet known. Should the fears materialize, further problems would arise for the operators on Macau. They are currently struggling with significant revenue losses, which could be exacerbated by conditions imposed by the Chinese government.

SJM Holding needs loan from parent company

As revealed by Reuters online newspaper, SJM Holding is struggling with financial problems regarding the required equity. SJM Holdings needs to get a loan from the parent company. This statement was made by DS Kim, an analyst at JP Morgan in Hong Kong. SJM was founded in 2006 by Stanley Ho and owns some casino resorts. However, this news is not the only one that has been released at the moment. The Macau-based Grand Emperor Hotel operates an in-house casino. SJM has reached an agreement with this hotel, according to which the casino will be managed by SJM from the Grand Emperor Hotel until the end of the year.

This agreement came about because the casino was to be closed due to the current difficulties in obtaining a license. The operator of the hotel, and therefore the casino, did not intend to apply for an extension of the license. For this reason, SJM is taking over the casino. For the continuation of the casino, SJM pays a fee of 21 million Hong Kong dollars to the Grand Emperor Hotel. In return, SJM is allowed to use the existing casino premises free of charge. The agreement is not for the time being until the end of this year. How things will continue after that and whether the hotel itself will apply for a new license cannot be inferred from the press release.

Wynn Macau also receives loan

As can be seen from various stock exchange news, Wynn has had a loan of 500 million dollars paid out by its parent company. Whether this is just due to the new licensing conditions or the general slump in casino sales is impossible to say offhand. According to stock market news, Macau casino sales plummeted to 18- and 19-month lows. Earlier this year in June, news was released that revenues plunged 68 percent. Similar news occurred two years ago when the Corona virus led to numerous lockdowns. At that time, sales plummeted 94.5 percent in August. Most recently, a lobbying lawsuit was filed against owner Steve Wynn.

These figures illustrate why, at the moment, two gambling companies need a loan from their parent companies. According to analysts, this could soon be the case with other companies. The uncertain situation and the high cost of license renewal could exacerbate the situation.