Macao’s streets are bustling again during the Lunar New Year, with tourism as the mainstay of its economy. Due to the Chinese mainland relaxation of entry and exit restrictions, a large number of mainland tourists flocked to Macau, restoring the “gambling city” to its former bustling scene.

According to data provided by the Macau SAR government, Macau received more than 318,000 tourists in the first five days of the Lunar New Year holiday from Chinese New Year’s Eve January 21 to the fourth day of the Lunar New Year (January 25), a surge of more than 300% over last year. Among them, 71,678 passengers arrived on the second day of the Lunar New Year (January 23), the highest number of single-day arrivals since the outbreak of the epidemic.

According to the statistics of the Macau Public Security Police Force, more than 180,000 tourists came from Chinese mainland, an increase of 155% over the previous year. About 118,000 people came from nearby Hong Kong, a growth rate of 2,700%.

According to foreign news reports, hotel executives said that many hotels and resorts on Macau’s famous Cotai Strip were fully booked during the Lunar New Year holiday.

The surging crowds have caused additional crowding on St. Paul’s Street, Macau’s famous souvenir street, and the authorities once imposed crowd control, allowing only citizens or tourists to walk forward to the Ruins of St. Paul’s alone. Because they didn’t expect so many tourists to arrive, some shop owners admitted to AFP that they did not prepare enough goods, and taxi drivers described the number of tourists in an interview with Bloomberg as “crazy”.

The rise and fall of Macau’s gaming industry

It remains to be seen whether Macau’s tourism recovery will continue after the New Year holiday. What is certain is that Macau is currently trying to wean its economy off its dependence on the gaming industry.

Macau is the only place in China that is licensed to operate a gaming business. After Macao “opened up gambling rights” in 2002, the local gaming industry entered a period of extraordinary development, replacing Las Vegas in the United States as the world’s number one gambling city in 2006.

In 2019, before the pandemic, Macau’s government had a total revenue of 133. 5 billion patacas (S$21. 8 billion), of which gaming taxes accounted for nearly 80%. The gaming sector also contributes 50% of Macau’s gross domestic product (GDP) and more than one-third of employment. To Macau’s economy, the gaming industry is like a goose that lays golden eggs.

However, Beijing’s anti-corruption campaign and control of capital outflows in the past 10 years, as well as the crackdown on illegal online gambling and cross-border gambling in recent years, have gradually affected the energy of this goose laying eggs.

After the outbreak of the epidemic, Chinese mainland strict “zero” policy and lockdown measures have made a greater impact on Macau’s gaming industry, according to Bloomberg, Macau’s total gaming revenue in December 2022 fell 56% from the same period in 2021 to 3. 48 billion patacas, the lowest annual revenue since 2004.

Macau’s famous St. Paul’s Street was crowded with people during the Lunar New Year, and Macau authorities once imposed crowd control. (Reuters)
Now, with the return of mainland tourists, some analysts expect Macau’s gaming industry to recover strongly.

According to gaming website Asia Gaming Brief, JPMorgan analysts predict that Macau’s total gaming revenue will reach US$960 million (S$1. 26 billion) in January, close to one-third of pre-pandemic levels.

Goldman Sachs also estimates that Macau’s gaming revenue during the Lunar New Year will recover to 60% of the total revenue for the same period in 2019.

Macau strengthens control over the gaming industry

However, some gaming giants are not optimistic, because Beijing has not changed its attitude towards cracking down on corruption, gambling and capital flight, and Macau authorities have been looking for ways to reduce its dependence on gaming and diversify its economy.

According to Agence France-Presse, a gaming consultant said Macau is currently facing a dilemma: on the one hand, the Macau SAR government needs to express its support to Beijing for the latter’s position that it does not promote gambling; On the other hand, Macau is an open micro-economy, and the Macau government needs to ensure that this tax revenue is maintained.

He said it was hard to imagine that China’s only city legally operating casinos would abandon an industry that brought huge taxes.

Macau’s gaming industry will also usher in the biggest change in nearly 20 years in 2022.

In July 2022, the authorities launched a new round of open bidding for gambling licenses, and in December re-licensed the gambling licenses to the existing six casino operators, extending the franchise period by 10 years.

More crucially, Macau’s legislature passed a new gaming law last June, which allows the government to regulate casinos more, including the law that in the future, casino management companies can only charge management fees, and cannot share profits with entertainment venues or collect commissions.

In addition, the new Gaming Law continues to tighten the business of junket companies, further restricting the functions of gaming junkets (commonly known as stackers) and third-party VIP rooms. The VIP room operating model, which was original to Macau, emerged around the 1970s and 1980s and was the winning weapon of Macau’s casino boom. In most of the years between 2002 and 2020, VIP room gaming revenue accounted for more than half of Macau’s total gaming revenue, and in some years even more than 70%. Under the new Gaming Law, the special era of gaming junket system as the core and VIP rooms all over Macau has officially come to an end.

Just last Wednesday (January 18), the “casino tycoon” and founder of Suncity Group, Zhou Zhuohua, who was sentenced to 18 years in prison by the Macau court, is the “big man” of Macau’s gaming junket. He was arrested in 2021 and charged with 289 counts of money laundering and illegal gambling, demonstrating the authorities’ attitude towards cracking down on casino junkries.

According to Macau’s Li Pao, the president of the Macau Society for Comprehensive Social Research, Chief Ge Wanjin, pointed out that the gaming industry relies on ordinary guests and high-end guests, and the number of high-end guests in Macau is still very small.

He said that VIP room services for high-end guests in Macau casinos have largely ceased for now; Although there are still junkets providing this service, under the new gaming law, there are only 36 junket licenses, a far cry from the more than 300 in the heyday.

“High-end customers generally use junket services, so if junket services do not fully recover, it is expected that the recovery of the gaming industry will only return to the previous 60% to 70% at most,” he said. ”

This also means that Macau’s gaming industry will struggle to recover to the heights of the 2010s.

Macao promotes economic diversification

The Macau government has realized that the economy needs to continue to develop and transform more actively in the future, and can no longer rely solely on the gaming industry.

According to Reuters, the Macau government has put forward conditions for operators in last year’s gambling license auction, requiring license holders to give priority to protecting local employment, developing Macau’s overseas tourism market, and increasing investment in non-gaming sectors.

This is a big bet for these six groups that have managed to obtain Macau gambling licenses. Because, the strict lockdown of the past two years has cost them billions of dollars in profits. So far, these groups have invested $14. 9 billion to build theme parks, exhibition venues, gourmet restaurants and other entertainment venues.

Sands said in a note to investors on Wednesday (Jan. 26) that the company will invest at least US$3. 8 billion in Macau over the next 10 years as part of the renewal of its concession to operate casinos in the Macau market. About 92 percent of planned spending will go to non-casino attractions, including meeting space, recreational facilities and a new garden attraction.

In his Policy Address for the 2023 fiscal year, Macao Chief Executive Ho Iat Seng, pointed out that Macao’s two urgent tasks in the economic field are to accelerate economic recovery and promote moderate diversification. He set a goal for Macau’s diversified business development, aiming for the non-gaming industry to account for about 60% of GDP in the future.

Ho Yicheng described that moderate diversified development is the only way to solve the deep-seated contradictions and problems in Macao’s economic and social development. “This process cannot be achieved overnight, but if this hurdle is not passed, the same problem will be faced in the future. “

However, analysts believe that Macau’s non-gaming business has been underperforming over the past few decades, and it will be a challenge to make significant profits from these areas.

Li Zhongliang, managing partner of Macau’s gaming consultancy IGamiX, said that Macau’s non-gaming revenue accounted for an average of about 5% of overall gaming revenue before the pandemic, and this figure must increase to more than 30% in the next 10 years. “In the last 20 years, no operator has been able to make any significant progress in this area,” he said. ”

Li Zhongliang said that Macau’s consumption pattern is different from Las Vegas, and it cannot make the same profits through non-gaming industries. He believes that Galaxy Macau, City of Dreams and Sands have more experienced and mature management teams in this area and may perform better in terms of business diversification.

Las Vegas used to be the most famous gambling city in the world. But now this “city that never sleeps” has achieved a magnificent transformation and transformed into a “world entertainment capital” with diversified tourism and entertainment elements.

Las Vegas also has already exceeded the share of gaming revenue. The Motley Fool reported in August 2022 that Las Vegas gaming revenue accounts for only about a quarter of the revenue of these hotels and resorts. Over the past 20 years, these companies have moved away from relying on high-end gamblers as before, and travel venues have focused more on non-gaming activities such as hotel accommodation, restaurants, entertainment and shopping.

In fact, the desert-edge city has also undergone two major phases of transformation in its nearly 100-year development to cater to market demand.

The first stage was in the late 70s of the 20th century, when the Las Vegas tourism industry shifted from focusing on the gaming industry to “family-type Las Vegas” due to external market competition. The second stage focuses on the beginning of the 21st century, when the tourism industry shifts from family leisure to a comprehensive tourism industry that integrates diversified tourism and entertainment elements such as gaming and leisure, adult experience, high-end shopping, and business exhibitions.

During this period, Las Vegas also increased its investment in the exhibition industry, and with the international reputation of the gaming industry, it attracted high-end exhibitors to hold exhibitions, and the gaming and entertainment industry formed a benign interaction with the emerging exhibition industry.

Macau’s current non-gaming attractions are mainly focused on retail and dining, with some entertainment such as Melco’s nightclub, Galaxy cinema, Sands’ Venetian and Parisian-themed properties and their exhibition galleries. Compared to Las Vegas, Macau’s non-gaming attractions are relatively inferior.

Las Vegas has daily entertainment and attracts a large number of international travelers. Relatively speaking, more than 90% of Macau’s visitors come from Chinese mainland and Hong Kong, which is why the Macau government will step up efforts to attract foreign tourists to new contracts with casino operators.

David Green, head of Macau gaming consultancy Newpage, believes that Macau’s lack of transportation links to international markets, aging infrastructure and lack of skilled staff make Macau casinos face more difficult challenges in developing the non-gaming industry.

Green added that Macau rarely has direct flights from potential markets outside Chinese mainland, and transportation within the city is limited. “I don’t see any indication that the government is addressing or intending to address these issues,” he said. Taking into account a range of public administration issues . . . This will make these casino operators less attractive to hold exhibitions. ”

Macau’s lack of land has also hindered the development of the non-gaming industry, while competition for conferences and exhibitions is fierce in cities such as Hong Kong and Singapore, as well as in China.

Lee Tat-seng, managing director of Hong Kong-based gaming consultancy 2NT8, said the biggest challenge for Macau operators is that Chinese mainland can already attend meetings, restaurants, shows and shop in their own cities. “They come to Macau mainly for one thing, which is something that is not legally allowed in China: gambling. “

There are various indications that Macao’s people’s livelihood economy will return to normal, and it may depend on the gaming industry in the short term. In the long run, Macau needs to address some of the limitations of local hardware so that the non-gaming industry can gradually develop. However, as in Las Vegas, any transformation will require a significant investment of resources and time, but success will depend on whether the authorities can introduce products and services that can attract more tourists and build a unique travel experience in Macau.

• based on a report from Zaobao.com.sg