MACAU

The government has not yet provided details on how it intends to handle the renewal process when the licenses expire in two years. Yet at the time of the interim review, the operators were judged on many aspects of their business including promotion of locals and sourcing from Macau’s small-to-medium sized businesses.

However, Klebanow Consulting’s Andrew Klebanow, who argues that operators have become more skilful at amplifying their CSR efforts via media platforms, insists that casinos “understand the importance of being good corporate citizens” regardless of the renewals process.

“One could take a cynical view and see these contributions as a way to curry favour with the central government ahead of licensing renewal, but it is in the casinos’ best interests to support the communities in which they operate,” he says.

Klebanow, who adds that Macau’s casinos have a lengthy track record in CSR, highlights how casinos collectively contributed more than MOP215 million (US$27 million) towards relief efforts following Typhoon Hato, which struck South China in 2017, with Las Vegas Sands alone donating MOP65 million. “That’s a lot of money just for goodwill,” he says.

Of course, CSR initiatives have reputational benefits, encouraging loyalty from staff as well as customers, but the implications of failing to commit to such schemes have become blindingly obvious to Macau’s casino giants.

According to a newly published legal guide by Rato, Ling, Lei & Cortés, “repute and probity” are among the attributes that have become “absolutely mandatory requirements” for concession-holders in Macau.

Cari Wong, public relations manager at MGM in Macau, echoes Klebanow’s comments that CSR has been a long-term commitment by casinos: “At MGM, we believe in creating great moments for our community and city. This belief has guided our every action and activity, and we have been assimilating art and entertainment into daily life since 2007.”

Last year, MGM organised 106 community events, benefiting more than 1,500 senior citizens, over 570 young people and more than 870 persons with disabilities, as well as 1,000 low-income and single-parent families. Since 2013, MGM has also reduced greenhouse gas emissions by 16.4 percent, energy consumption by 16.7 percent and water consumption by 10.9 percent.

Last year, one of the CSR exhibitions hosted by MGM explored the ‘beauty of Chinese embroidery’, with the operator separately describing the “celebration of traditional Chinese arts and culture” as a “fundamental theme” of the operator’s art programme.

Similarly, Wynn Macau, which organises various CSR activities, strengthened its links with China by organising educational tours to Kunming and Nanjing, as well as a scholarship agreement with Fudan University, while Wynn Macau celebrated the 70th anniversary of the founding of the People’s Republic of China (PRC), as well as the “20th anniversary of the return of Macau to China”.

CSR initiatives can also be internal, as well as external. Experts such as Carlos Siu Lam, an associate professor in gaming education and research at the Macau Polytechnic Institute, says that how operators have treated staff, through to how they have “promoted upward mobility for local workers,” will be taken into account when the licence renewals are being weighed up by the authorities.

Moreover, at Sands China, in 2016, a five-year plan was set out, with a special focus on three of the United Nations’ 17 sustainable development goals: clean water and sanitisation; affordable and clean energy; and responsible consumption and production.

The level of commitment from operators can be illustrated by the length of their annual CSR reports. For example, Galaxy Entertainment Group, which describes itself as “a patriotic, Chinese-owned company” provided a mammoth 152-page offering in 2018, detailing dozens of actions.

The operator’s projects included introducing the China women’s volleyball team to local youngsters, hosting community walks, arranging a trip to the liaison office of the Central People’s Government in Macau and a “patriotic” educational study trip to Beijing, as well as a women’s fitness carnival.

Two of Galaxy’s CSR strategy pillars – ‘protecting our Earth and natural resources’ and ‘sculpting a bright and responsible culture’ – shine a spotlight on challenges regarding the environment and responsible gaming.

There is a broad consensus across the back offices of Macau’s casinos that these two specific areas require greater focus, even though priorities change over time.

The 2016 white paper, ‘Corporate Social Responsibility in Macau’s Gambling Industry’, said that whilst operators concentrated on workforce and community activities, stakeholder engagement, marketplace activities and supply-chain activities were areas that required improvement.

The following year, the Macau-based study, ‘Measuring Corporate Social Responsibility in Gambling Industry,’ outlined how the issues of ‘environment’ and ‘community’ had been relatively neglected.

With the environment becoming a more pressing issue globally, and especially in China – commonly labelled as the world’s biggest polluter – green initiatives are only going to become more important as the renewal deadline looms.

The licensing process, though, will look beyond the scope of CSR activities.

“I think what is far more important than the amount of money casinos contribute to CSR initiatives is the capital investment they are making to their properties to further diversify their hospitality and entertainment offerings,” Klebanow says.

“Both the Macau government and the PRC have long stressed the importance of making Macau an international tourism destination that is less reliant on casino gambling. It is not the millions of dollars that casinos invest in CSR initiatives that impress the government, but the billions of dollars they are spending to expand their properties. It is that commitment that will have a far greater influence on licensing renewals.”

However, having established comprehensive CSR plans that already cover a plethora of touchpoints, there is little doubt that operators are already aware that inaction in this area is not an option.

Now the challenge is to demonstrate to the decision-makers how they are on the front foot when it comes to being socially responsible in an industry in which occasional negative headlines are inevitable.

SJM Holdings (880:HK) has 22 casinos in Macau, though the former monopoly has been losing market share to new IRs on Cotai. The company is scheduled to open its $4.6 billion Lisboa Palace resort in January 2021.

Morgan Stanley expects the long-delayed resort to to generate gross revenue of HK$13.3 billion and EBITDA of HK$1.8bn in the first year of operation. This compares with MGM Cotai’s revenue and EBITDA of HK$7.1bn and HK$0.9bn, respectively, when it opened in 2018.

The firm expects the stock to begin to outperform in 2020 ahead of the addition of the new capacity, in line with historical trends in the market ahead of prior openings.

During Q3. the company operated an average of 286 VIP gaming tables down from 291, 1,503 mass market gaming tables, up from 1,408 and 2,563 slot machines.

Wynn Macau (1128:HK) operates two resorts, with its $4 billion Wynn Palace opening in 2016. The company’s original property is on the Macau Peninsula. The Wynn Palace has 1,700 hotel rooms and 90 percent of the resort is non-gaming.

According to Bernstein Research, the company is likely to benefit most from the rise in the premium consuming class in China.

“We expect this to drive sustained, high-end demand growth and believe several intrinsically differentiated brands with strong consumer equity can capitalize on this growth and generate sustained superior returns.”

Wynn Macau, whilst often perceived as a VIP brand catering only to the highest-end consumers, only sees a 20 percent contribution from VIP to the company’s EBITDA.

“In fact, Wynn has a strong positioning in the Mass sector and has shown stronger overall growth in its Mass tables business than the overall market in every quarter for two years since Wynn Palace opened.

MGM China (2282:HK) is operating two casinos, with its MGM Cotai IR opening in February last year. The HK$27 billion IR features 1,400 hotel rooms and suites, meeting space, high end spa, retail offerings and food and beverage outlets and its ramp up has helped the company gain market share in the latter half of 2019. MGM Cotai was named by Emporis Skyscraper Awards as the “world’s best new skyscraper” for 2018. It is the first building in Macau to have been given this honor. Designed by Kohn Pedersen Fox Associates, the resort was selected from almost five hundred new skyscrapers around the world for its overall innovative and spectacular design.

Recently, co-chair and executive director Pansy Ho has been selling down her stake in parent company, MGM Resorts, having sold 2.45 million shares since the end of November. As a result, Ho’s stake in the casino operator is down to 1.78 percent.

Sands China (1928:HK) has five properties in Macau. The company has 12,000 hotel rooms and suites, making up for 48 percent of hotel rooms run by casino operators in Macau.

The company’s large room count puts it in the strongest position to gain market share in the high-margin mass market segment, especially when its rebranded Londoner property comes on line, with attractions expected to be rolled out progressively from 2020 to 2021.

This year, two new hotel towers will open at the Four Seasons and some new room supply at The Londoner, helping ease some capacity constraints in Macau. Bernstein Research estimates Sands will be the biggest market share gainer in 2020, helped by the new hotel supply. “Sands should benefit from its redevelopments and continue to ride on the strength in the Mass market. Valuation looks attractive on top of a 5 percent dividend yield,” it said.

Galaxy Entertainment Group (27.HK) has three main properties and runs three City Club casinos inside hotels. The company’s Galaxy Macau Phase 2 and Broadway at Galaxy Macau opened on May 27, 2015, almost doubling the capacity of the resort.

Along with Sands China, the company has the largest share of the Macau gaming market, though analysts expect that to have slipped in recent months due to the softening of the VIP market.

Bernstein expects Galaxy to produce the highest return on invested capital in 2020. However, there are few new drivers for growth ahead of the roll out of facilities under its Phase 3 expansion from 2021. The development will add some 1,400 new hotel rooms. Galaxy has the largest land bank for further development among Macau’s six operators.

Melco Resorts & Entertainment (6883.HK) has three casinos and the Mocha Clubs. The company operates the City of Dreams and Studio City in Macau and the City of Dreams Manila.

The company opened its new Morpheus property, designed by the late architect Dame Zaha Hadid in June last year, which is now a significant revenue driver.

CEO Lawrence Ho told Bloomberg Television in a recent interview that the company’s rising profits at a time the overall market is declining demonstrates its strategy is working.

“It’s really a validation of our strategy over the last ten or fifteen years, which is to focus on the rising middle class in China, rather than focusing on the junket rolling VIP business. And so while the market is down, we are enjoying a record year,” Ho said. “I’m bullish for the future as well, because with the integration of Macau into the Greater Bay Area, and the massive infrastructure improvement projects that have been years in the making but are coming to fruition… I think the future of Macau really as the tourism capital within the Greater Bay Area is solidified.”

A Macao Government Tourism Office (MGTO) study has found that the Hong Kong-Zhuhai-Macao Bridge (HZMB) has “led to a shift in the travel pattern of visitors to Macau, including less frequent use of ferry terminals.”

“Figures collected in the study revealed that 42.7 percent of visitors to Macau stated that they would use ferry terminals (Taipa Ferry Terminal and Outer Harbour Ferry Terminal) less frequently because of the opening of the bridge.

The travel pattern (by land versus by sea) has shown more drastic change especially among visitors from Hong Kong, with 60.6 percent expressing that they would use ferry terminals less frequently following the inauguration of the bridge,” a summary of the report explained.

The report also found that “23.7 percent of visitors who entered Macau via the bridge (Zhuhai-Macau Port) left the city via Macau International Airport.”

Those surveyed were largely quite positive about their experience using the HZMB itself, also there was considerably less satisfaction about the supporting transportation between the port and urban districts.

GameSource has made its debut in MGM Macau with eight fixed terminals and four hand-held computer tablets.

At present, these terminals include seven of the approximately eighty possible game titles for the cloud-based gaming platform. Anthony Ip, chief executive of Macau-based International Alliance Systems, the owner of GameSource, told reporters, “We’ve been working hard for the last four to five years. It has been a long journey.”

GameSource is a platform that allows any pre-registered PC-based display device to be used as a player terminal, with a personalized interface, allowing operators to choose from various slot, sports, and other games.