David Green: “Macau was a victim of its own success”

Focus Gaming News talks to gaming and governance consultant David Green about the recovery and future prospects of Macau’s gaming sector.

Exclusive Interview.- Macau’s gross gaming revenue (GGR) for 2023 was MOP183.06bn (US$22.75bn). That’s a rise of 333.8 per cent when compared to 2022. December’s GGR was up 15.8 per cent month-on-month from MOP16.04bn to MOP18.56bn (US$2.3bn).

It’s a decent recovery after the impact of the Covid-19 pandemic but still some way off 2019 figures. Meanwhile, authorities seek to avoid such drastic impact in the future by putting more focus on non-gambling attractions. Is this transition still necessary now the pandemic is behind us? We asked David Green, a gaming and governance consultant and current CEO of Newpage Consulting, about Macau’s prospects, the financial state of the city’s casino operators and potential new regional competitors.

How do you see the gaming industry’s recovery in Macau? 

The recovery is being led largely by the mass and premium mass market segments. Direct VIP play is also a factor, though since it is largely reliant on credit, there is a somewhat reduced appetite for it. 

The junket market is largely defunct, with there now being only 16 licensed junkets in Macau. Without the assumption of credit risk by former large junket operators such as Suncity and Tak Chun, direct VIP play is arguably riskier, due to the unenforceability of gaming debts in the PRC, but also now potentially more profitable, as no intermediaries are taking a commission or revenue share. 

Given Macau only re-opened from its Covid-19 quarantine in January 2023, the resilience of the market is certainly strong. 

In light of these figures, do you believe the Macau government should proceed with the idea of diversifying its economy away from dependence on the gambling industry? 

Yes, and it has to. Macau was a victim of its success; in 2013, GGR topped US$44bn, which brought greater attention from the PRC, and undoubtedly contributed to the crackdown on corruption and breaches of capital controls that began in 2014. Many of the problems occasioned by disordered gaming and gaming-related crime were effectively exported back to the PRC in particular, and greater China in general.

While the gaming industry globally is in robust health, it does have the capacity to contribute to societal problems and to disturb good order. The PRC has been increasingly aware of this and is undoubtedly keen to see a much greater investment in non-gaming activities in Macau

On the back of 2023 revenue, operators will need to increase their investments in non-gaming attractions. Do you think that’s sustainable?

My concern is that the casino concessionaires are just that…gaming operators with a sideline in F&B, entertainment etc. In Nevada, the situation is somewhat reversed, at least for the major multi-jurisdictional operators like MGM Resorts and Wynn. The concessionaires will initially at least be subsidising their non-gaming operations, but the unresolved question is how many of those investments will prove to be sustainable?

Macau has very limited resources, especially land, and is a relatively high-cost jurisdiction in Asia, so any labour-intensive new industries are unlikely to survive. It does, though, have access to the PRC market, and the potential to make Hengqin island a hub for tertiary industry. If the concessionaires use partnering arrangements effectively, they can at least share the risk associated with those new investments.

The gaming industry has experienced strong growth in countries such as Singapore and the Philippines. What is your analysis of their outlook? 

Macau is again by far the world’s largest commercial casino jurisdiction, and it will retain that mantle through 2024, with externalities such as pandemics, wars etc excepted. Singapore’s GGR has largely plateaued; the Philippines is growing, but off a low base, and without the international brands that exist in both Macau and Singapore.

I expect Macau to generate around US$32bn in GGR this year, which will make it almost 4 times larger than Singapore and the Philippines combined. As VIP business declines relative to other segments, profitability should increase on gaming operations in Macau. 

In Japan, Osaka and Nagasaki are working on resorts. Do you believe this will encourage other countries in the region to regulate gambling? 

Japan’s legalisation of casinos has to date been at least 20 years in the making. Macau opened its first large-scale IR (Wynn Macau) in 2006; Singapore opened its casinos in 2010. So, there are plenty of precedents available for the government serious about attracting major IR developers and operators.

Countries such as Vietnam, which have casinos, are still struggling with how best to regulate them. Cambodia has leaped forward though it remains to be seen how effectively it will enforce its relatively new gaming law. South Korea is somewhat in the same position as Vietnam.

The thing is, to enable major international casino brands, especially those which are licensed in the US, to enter a new market, it must have not just the appearance, but the substance of properly regulated gaming, set in the context of a sound and stable public policy framework.