Macau’s Non-Gaming Investment Policy Questioned On Effectiveness

Summary

• The six casino operators will initially invest $13.6 billion in non-gaming projects
• Some analysts believe non-gaming investments will be an extra burden for operators
• The concessionaires have no track record in non-gaming endeavors

Gaming analysts have expressed skepticism about Macau’s new policy concerning non-gaming investments designed to attract more overseas tourists. On Dec 17, 2022, the six incumbent casino operators who each won a fresh 10-year gaming concession in Macau laid out their non-gaming investment plans, pledging to spend billions on new establishments aimed at boosting international visitation to the region.

Galaxy Entertainment Group will build an amusement park, MGM China will focus more on art projects and hosting world-class entertainment shows, while SJM Holdings plans to expand its hotel establishments. Sands China’s non-gaming investment will include a glass conservatory in Cotai, while Wynn Macau Ltd will create a theatre and an interactive entertainment center.

Analysts Divided on Earnings Impact of Non-Gaming Projects

In its latest assessment, JP Morgan Securities (Asia Pacific) Ltd stated it is difficult for now to figure out the impact of these non-gaming amenities in terms of earnings due to the “lack of details”.

The advisory firm believes though that the non-gaming projects should help increase the volume of foreign tourists to Macau over time, which during the medium term will help drive incremental earnings before interest, taxation, depreciation and amortization (EBITDA).

Analysts at Morgan Stanley Asia Ltd hold a different view, saying the non-gaming investment “could represent a much larger burden” for some operators when it comes to free cash flow to equity (FCFE) and EBITDA.

The amount of money that Macau’s casino concessionaires will spend on non-gaming projects in the next 10 years will depend on their annual gross gaming revenue (GGR). As announced at the weekend, the operators will initially invest a combined MOP108.7 billion (almost US$13.6 billion) in non-gaming initiatives. That figure could increase by up to 20 per cent if annual GGR hits MOP180 billion.

Analysts Gareth Leung and Praveen Choudhary of Morgan Stanley said there’s a high possibility the target will be reached given that it had already been achieved in 2019 and discretionary spending in China has remained at more than 20 per cent above 2019 levels.

Operators Have No Track Record in Non-Gaming Investment

David Green, the founder of Newpage Consulting Ltd who previously served as gaming regulator in Australia and gaming adviser to the Macau government, doubts if these new non-gaming amenities will have strong earnings potential. He said the existing operators are all set up as “gaming companies”, meaning they don’t have a solid background when it comes to other non-gaming investments apart from food and beverage and hotel accommodation.

Green said Macau will stay as a gambling spot and will likely struggle to successfully reposition itself as a non-gaming tourist destination.