Macau Non-Gaming Efforts Slow Going

Posted on: March 24, 2023, 05:33h. 

Last updated on: March 24, 2023, 05:33h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

A centerpiece of Macau’s recently approved gaming laws and the 10-year concessions granted to casino operators there are plans to reduce the special administrative region’s (SAR) economic dependence on gaming. It appears those efforts will take some time to bear fruit.

Macau casinos
Casinos on the Cotai Strip in Macau. Non-gaming efforts there are expected to take time to develop.(Image: Bloomberg)

In a report out earlier today in which it affirms the SAR’s credit grade at “AA,” Fitch Ratings that while Macau’s economy is tipped to rebound sharply this year, that resurgence will be fostered by the gaming industry with limited contributions from other sources.

We expect the diversification into non-gaming industries to remain slow. Human capital constraints and skill gaps pose a key challenge for Macao to substantially reduce its high dependence on the gaming industry,” noted the ratings agency. “The authorities will seek to further leverage infrastructure and financial integration with the Greater Bay Area and closer collaboration with mainland partners.”

It’s estimated that over the next decade, Macau concessionaires will be required to spend approximately $15 billion combined on non-gaming projects. The SAR’s six license holders are Galaxy Entertainment, Melco Resorts & Entertainment, MGM China, Sands China, SJM Holdings, and Wynn Macau.

Non-Gaming Investments Essential to Macau Long-Term Growth

While Macau is in the midst of an intense gaming recovery following nearly three years of harsh coronavirus restrictions, authorities there view efforts such as nongaming amenities and luring visitors to the casino hub from Asia-Pacific nations beyond China.

It’s expected that over the coming decade, the bulk of the aforementioned spending will come by way of Sands China and Galaxy Entertainment, which are the two largest operators on the peninsula. Analysts say Sands China — a unit of Las Vegas Sands — has a lengthy record of directing capital to non-gaming projects.

Enhancing offerings such as cultural exhibits, family-friendly fare and meetings, incentives, convention and exhibition (MICE) inventory, are seen as essential to Macau’s long-term plans to ward off competition from other Asia-Pacific gaming markets, such as Singapore and potentially Japan down the road. For now, however, casino-gaming will be the primary piston in Macau’s economic engine.

“Macao is well placed to capture strong pent-up demand from mainland tourists, given its status as the sole legal gaming tourism destination across Greater China and its geographic proximity to the mainland,” added Fitch. “A faster-than-expected revival of visitors poses an upside risk to the recovery outlook.”

Current Lay of the Macau Land

To start 2023, mass and premium mass bettors are fueling the gross gaming revenue (GGR) resurgence in Macau and operators such as MGM China, Sands China and Wynn Macau are adding market share.

Looking at the SAR’s broader economic outlook, factors such as robust fiscal reserves and enviable external positioning could be supportive as 2023 moves forward.

“Under our projections, Macao will maintain its large net external creditor position, at 262% of GDP in 2023, a significant strength compared with the ‘AA’ median of 18.9%. We expect the territory’s sovereign net foreign assets to remain well above the peer median at roughly 297% of GDP,” concluded Fitch.