FOCUS

However, there will be light at the end of the tunnel and our focus section in this edition of Asia Gaming Briefings tries to offer a path towards recovery.

In our first article, we report on comments made by Canadian entrepreneur Earle Hall in the inaugural session of our webinar series in April. Hall, who is CEO of Axes Network, points out that periods of great creativity and opportunity have historically followed great upheaval. Although much of the world’s population is undergoing enforced isolation, this is not something that will leave a long-term imprint as human beings are social animals and crave contact, he argues. Ultimately this bodes well for land-based casinos, although in the short term, it’s likely to be the local properties that will benefit rather than those reliant on tourism and travel.

In our second article, gaming lawyer David Green tackles some of the regulatory changes that we may see emerging in the industry. Online gaming companies, both social gaming and for cash, are seeing a surge in activity that’s going to be hard to reverse even when travel returns to some degree of normality. Authorities may need to take another look at potential regulation to ensure fairness and transparency.

Green also points out that the crisis has highlighted the vulnerability of land-based casinos, which will need to be factored into future feasibility studies. It may even have an impact on how much the Macau government can demand of the concessionaires during the license renewal process, given this business risk.

Staying in Macau, the operators have all stepped up to the plate to help out the local community, donating millions of patacas in aid, as well as medical and other supplies to help the needy. We take a look at their efforts, which have all been undertaken at a time when they are generating close to zero revenue due to the closure of the borders. How are they allocating funds, to which sectors of society and have they done enough to help?

Lastly, casinos across Asia will eventually open their doors again, though the outlook will remain far from certain. Companies will need to optimise their operations to keep costs to the minimum while the revenue picture improves. We speak to experts about what tools can be adopted to help managers ramp up their various properties.

That is one of the takeaways from Earle Hall, CEO to get up and go out. 4000 years of humanity won’t of Axes Networks, appearing on the inaugural change because of a pandemic,” he argues in response session of Asia Gaming Brief’s webinar series. to a question from the audience. Hall is an entrepreneur and visionary speaker who was invited to give his outlook on how the current pandemic will shape the way we live and work.

Although the bulk of the world is in isolation in an attempt to stop the spread of the virus, with borders closed, the crisis won't eradicate the basic human need for interaction. Isolation is toxic for the human race, he says.

“People need to be in a social setting. People want to get up and go out. 4000 years of humanity won't change because of a pandemic," he argues in response to a question from the audience.

Hall argues that local casinos are likely to get back to speed quickly, perhaps with additional support coming in from technological tools to support player engagement and retention. There may also be more impetus for convergence between the land-based and online gaming sectors given the vulnerability of the former to the type of shock we are now seeing.

However, he adds that there are concerns over Las Vegas and resorts that rely on tourism and major MICE events for revenue generation.

“Las Vegas, where travel, hotel and expensive restaurants are included and where conferences are the main motor of this, we’re going to have to have incentives to get people moving again,” he said.

The inaugural webinar was focused on key ways that the current crisis may change our work and lifestyle patterns and not just on gaming. The tone was upbeat, with one of the key messages being that great opportunities spring from great crises once the panic and fear subside.

“Online everything” will be a key mantra and any business that is not already operating on the cloud will be forced to do so. In the retail sector this will have major implications, especially for the lower end of the market, which may struggle to survive the shift and where we may see major consolidation. At the higher end of the spectrum, however, there is likely to be continued demand for bricks and mortar.

Hall argues there will need to be a rethink of global supply chains, with the run on toilet paper highlighting the crisis in the just-in-time model that has been so successfully deployed by major retailers. Some kind of stockpiling for pandemic readiness will need to be considered.

This doesn’t mean the end of globalisation, or ultimately of travel. While there is likely to be a greater embrace of locally sourced goods, once the pandemic fear begins to fade, economics will take centre stage, with consumers seeking out cheaper alternatives.

“Local sustainability is going to be a big thing and it’s going to stick around. While people like to pretend they are loyal to local, they are loyal to price,” he says. “If the local product can be built and distributed at a competitive price then local will be awesome, but once people forget about this, the size of your wallet will determine the product you buy.”

Hall argues that there will be a rise in socialism. “Health is not a luxury item. We have seen way too many people dying from this virus. I really do think there will be a way of rethinking health as a basic need.”

“How do we create some new safeguards in the social safety net to make sure we have access to a healthier life.”

The crisis will also accelerate trends that are already underway, such as a move to digital currencies and towards greater use of artificial intelligence and robots, “which don’t get sick.”

This greater use of AI will mean improved standards of service in the casino industry.

“AI is all about predicting who you are and what you love so we can give it to you better, faster and more, so that the experience is unforgettable. It’s about personalised individual marketing and the sooner this message gets to the casinos so they stop sending out those stupid coupons and stop destroying trees.”

While at present, it seems hard to envisage getting back to normal, or what the “new” normal may be, Hall is clear that it doesn’t have to be negative.

“Crisis is opportunity, it’s just disguised as fear. Once you get past being scared to death there is opportunity everywhere.”

Prof. Dr. Wolfgang Georg Arlt* | Founder and Director, COTRI

They will still combine long-term strategies of investment in real estate and in the education of the next generation, with the short-term strategy of changing their luck with cards or dice. The admiration of mindless bling-bling consumption might have taken a hit. Nevertheless, the Chinese passion for the thrill and fun of gaming has survived condemnations from Confucius to today and it will not be ended by a virus.

There is no doubt that the world will change in the post-Covid-19 period, as open borders, globalisation and fragile supply chains will be set back a decade or so to the disadvantage of the Chinese economy. It will take a couple years to climb out of the pit the global economy fell into in the first half of 2020.

For the 20 perfect of the Chinese population affluent enough to travel to Hong Kong, Macau and Taiwan and especially for the 10 percent of Chinese holding passports, who have already travelled further afield in recent years, the insouciance of spending will probably decrease a bit until the memory of Wuhan vanishes into oblivion. But their ability to spend will be less damaged, and it is rather wealth than income that fills the pockets - or Alipay accounts - of Chinese gamers.

One clear result of the Coronavirus crisis is the increase and acceptance of the use of IT and AI in controlling the movements of people and money in China and abroad in terms of face recognition, automated localization and cash flow control. Illegal activities will be easier to detect, helping the gaming industry to get rid of some black sheep.

What will the road to recovery look like for the Asia-Pacific region with regard to Chinese visitors? China declared in the first half of March that the worst was over and that Chinese airlines were already starting to open up again especially to neighbouring countries. Chinese citizens answered in surveys that they were already making plans for outbound trips during the May holidays.

The restart of Chinese outbound tourism within Asia seemed to be near. However, by the end of March this policy changed completely after imported infections, with China almost completely forbidding entries and exits to and from the country on a level not seen since the last century.

Still, the economic importance of the transport of goods and people to and from China in the Asia-Pacific region is so big that a reopening of borders at least within Southeast and East Asia will happen as soon as possible. It can be expected that everything will go back to normal in summer, with a bigger than ever number of Chinese outbound travellers going on the trips they postponed in the first third of the year.

Qualitatively, the group of Chinese outbound travellers insisting on quality and authenticity, on immersion and participation will grow further, with family groups of two or three generations more often travelling together. Countries which showed compassion and empathy for China during January and February will receive positive media coverage in China. For Europe and Australia, and especially the USA, it will take more time before travelling to these destinations will be perceived as safe again. Therefore the wave of post-virus Chinese travellers will rather have Thailand than Germany, and rather South Korea than the USA as preferred destinations.

As long as the White House insists that the “Chinese” virus is to blame and Overseas Chinese living in the USA, fearing racial attacks, feel the need to stock up on small firearms and ammunition, it is hard to imagine that Chinese leisure tourists will visit the country in large numbers.

UNWTO forecasted a decline of 20 percent for 2020 in international travel. If Asia manages to restart international travel by June, this forecast hopefully will turn out to be too pessimistic.

What becomes more and more clear is that trust will be one of the main elements we will have to rebuild, trust between people, who again can start to use tourism as a joyful way to meet new people and to make new friends across borders.

Therefore, all destinations and tourism service providers should use the opportunity to prepare for the new wave of Chinese visitors by training their staff and adapting their products more precisely for the different segments of the Chinese outbound market to prove to their future customers that they are still welcome.

* Prof. Dr. Wolfgang Georg Arlt is the founder and director of COTRI China Outbound Tourism Institute. He first visited the People’s Republic of China in 1978. From 1991-1999, he owned Inbound Tour Operator China-Europe.

David Green* | Principal, Newpage

Unlike earlier iterations of coronavirus pathogens, likelihood of a snap-back to the way things were when the such as SARS (2002-2004) and MERS (2012- virus disappears, or is eradicated by mass vaccinations. 2014), COVID-19 threatens to provide COVID-19 has laid bare the serious distributional an epitaph for the passing of globalisation disadvantage associated with bricks-and-mortar casinos and connectedness as we have known it. Infections in an online world. have now been reported in more than 200 countries. Borders are sealed, tourism is virtually non-existent, freedom of movement has been severely curtailed and equity markets are highly volatile. The implications for the casino industry globally are profound, and I see no likelihood of a snap-back to the way things were when the virus disappears or is eradicated by mass vaccinations.

COVID-19 has laid bare the serious distributional disadvantage associated with bricks-and-mortar casinos in an online world. The oft-quoted mantra supporting the Integrated Resorts arms' race globally has been "Build it and they will come". The underpinning assumption is that people can come, and that it is safe for them to do so. Events of the past couple months suggest that the assumption is not immutable. Pandemic risk needs to be factored into financial sensitivity analyses. So too does the risk of massive patron and revenue leakage to online gambling sites, and to social gaming platforms.

The flip side of crisis is opportunity, and the rising volume of spam hitting my inbox for every conceivable form of online betting or social play suggests that those operators are enjoying a substantial uptick in business.

Migration to online gaming, both hard and soft, will be difficult to reverse. Regulated sites generally provide reasonable to high levels of game integrity and cyber protection for personal data and monetary transactions. Of course not all countries allow their residents to access or play online games, but rapid cycle technological developments, and the sheer inventiveness of players and operators alike makes it extremely difficult to effectively enforce such prohibitions. For many years, banking transactions were only conducted over-the-counter. Banks, casinos close cousins, have been abandoning branch networks across the globe in favour of electronic and online platforms.

I anticipate that online social gaming will be looked at afresh by governments to see whether, and how it should be regulated. Operators argue that it is not gaming, because no prizes are ever paid out. However, many sites offer simulated casino gaming, using virtual coins. Successful platforms, like Double Down and High 5 reportedly enrol thousands of new players daily, and generate revenues in excess of US$50 million annually. Given their low cost structure, broad range of games, both stand alone and tournament, and accessibility, these are comparatively high margin businesses, when compared with terrestrial casinos. Without regulation, there is no certainty that the games are fair, that payment mechanisms (sometimes activated through social media) are secure, or that players exhibiting disordered gaming are identified and supported.

I expect fresh impetus for the elimination of cash entirely in casinos. Contactless, cardenabled payments have become the new norm for consumers, as evidence of the longevity of the virus on metallic surfaces has emerged. While there has been an inexorable trend towards cashless gaming, and the adoption of either pre-paid “dumb” or smart, incrementedvalue cards to enable play, and to link to loyalty programs, constraints are often encountered. These include the cost and development time of back-end systems needed to support cards, such as loading value into cards, whether by electronic funds transfer, credit or debit card, transferring money from the cards to patron accounts and providing adequate cyber security to prevent hacking attacks. Moreover, who should regulate such cards? If bankingstyle transactions are involved, then it may be inappropriate for a gaming regulator to be the primary regulator of the transactions and systems which support them. Smart cards have significant benefits. Biographical data can be captured and stored, and used to generate AML reports, without the need for supplementary ID checks. Customers can be barred simply by having their player card cancelled or suspended. All play is digitally recorded, without the need to agglomerate information from multiple sources. And cages and count rooms could be consigned to history, just as catwalks were when camera surveillance was adopted.

There are ramifications also for the concession re-tender process which is expected to get underway within the next 12 months in Macau. How will concessionaires and prospective new participants dimension the risk that a new pathogen may emerge to decimate their business? Is the government ready to make allowances for the likelihood and magnitude of this risk in setting its own expectations for what tenderers should pay for new concessions? Beyond Macau, will we now see a US$10 billion integrated resort developed in Japan?

It is hard to see investor sentiment being as supportive now as it may have been before COVID-19. And who will be left standing anyway among major casino operators? Like the virus itself, so many questions, so few answers!

* David Green is a principal at Newpage Consulting, experts in gambling regulation. The company advises in the three key areas of regulatory frameworks, market analysis, and taxation regimes.

“Reactivating a moth-balled business operation, particularly one as complex as a casino, major club or hotel isn’t just as simple as opening the doors and turning on the lights, taps, tables, machines, burners,” said Geoff Wohlsen, an Australian gaming consultant.

“Property operations will be like an athlete going back to the field after some time off with injury. Things will be clunky. Some key staff team members won’t be there to paper over the deficiencies of new staff. So ‘Business As Usual’ conditions won’t be what you’ll get in the immediate post COVID world.”

Part of this process is figuring out the demand conditions of your market post-COVID-19.

Tangam Systems’ Ari Mizrachi, SVP of Casino Operations & Strategy recently delivered a webinar on casino reopenings in which he warned that uncertainty in demand will likely be one of the key challenges for operators.

“The industry has seen consistent and predictable year over year growth over the past six years, but the pandemic brings unpredictability in the future demand. Operators will need to be ready to adapt rapidly as demand conditions change to find the right balance between guest satisfaction, labour costs and profitability.”

“Are there still restrictions in travel, length of stay, has consumer sentiment improved, has disposable income from your target market improved?”

Wohlsen, who is looking mainly at the Australian gaming market, said he expects “pent-up” demand from customers in the post-COVID-19 period.

“They’ll want some light and excitement in their lives; a sense that ‘the war is over and that we can get out again and enjoy ourselves’. So be ready for big crowds and some anticipation,” he said.

This may not necessarily be the case, especially in Macau, which caters to foreign visitors, argues Andrew Klebanow of Klebanow Consulting.

“The closure and subsequent re-opening of casinos in Macau offers many valuable lessons. Just re-opening the casinos did not lead to a flood of customers returning. Macau’s casinos suffer from a dearth of customers who have been prevented from returning to Macau due to government restrictions on cross-border traffic,” he said.

“Each jurisdiction that re-opens will do so under different circumstances. Casinos in the Philippines, many of which are dependent in part on foreign visitors, also serve local residents and they will return more quickly than gamers from other countries. Korea’s casinos, with one sole exception, will experience a much slower path to recovery since they are wholly dependent on visitors from China and Taiwan.”

One thing is for certain though, the operating environment will change as a result of the COVID-19 pandemic.

The greatest challenge for operators is to assure customers that it is safe to return to their favorite properties and that they are taking every precaution to ensure their safety, noted Klebanow.

“Casinos, by design, bring a lot of people together into a fairly confined space, it was never designed to provide social distancing... The greatest challenge for operators will be to create and maintain space between customers as well as their employees.”

“Operators need to look at every place where employees and customers congregate and develop strategies to mitigate bottlenecks. Elevator lobbies are one such example. Queues at the Cashier’s Cage and player rewards center are other examples. Every place where there is a potential for people to get too close to each other needs to be examined and mitigated,” he said.

“In the post-COVID-19 world, we are all far more aware of hygiene and cleanliness,” adds Wohlsen. “Properties that are obviously and overtly clean and hygienic will do better than those that aren’t.”

Wohlsen suggests that casinos and venues should be ‘loud and proud’ about their hygiene policies.

“I can imagine that great properties will be making short announcements to customers like “Please have patience with our team members while they clean our slots in the interests of the health of our valued customers…” Properties may even appoint ‘hygiene team members’ whose sole role it is to ensure public areas are clean and hygienic. The words might even be on their shirts or badges. A brand new hygiene policy might be posted for everyone to see.”

And it’s the best time to be thinking about these things, says Wohlsen, comparing the COVID-19 crisis to a global “reset switch”.

Mizrachi said it’s a great time for operators to reassess your game mix, floor layout, pricing strategy, and operating procedures. Operators should also work now to become “data ready.”

“As an operator you may manage thousands of employees and are constantly putting out fires. Now for the first time ever as an operator, you have a chance to reset.”

“Let data help you drive your decision making when running your casino. Work with your current strategic analysis teams to build automated reporting. Take this time to ensure you are using your current systems to the best of their abilities, and more importantly to be agile,” said Mizrachi.

The coronavirus came down like a hammer blow on Macau's gaming industry, but the six operators remained core players in the local community, needing to step up in the time of greatest need.

There has been some variation in the approaches that the six operators have taken, including differences in the degree to which they have publicized their respective CSR activities. It is not clear that there has been much coordination between them.

Nevertheless, at the initial stage in late January and February, it would seem that all six operators pledged about MOP20 million (US$2.6 million) to mainland China to assist its efforts to combat the coronavirus—made in coordination with the Liaison Office of the Central People's Government in Macau—and MOP5 million (US$650,000) for local efforts in Macau.

However, this initial uniformity appears to have diverged in more recent weeks.

Sticking to the operators about which a more complete picture of their CSR efforts is available, it can be noted that Melco Resorts & Entertainment was perhaps the earliest mover, announcing anti-infection measures on January 27 and a HK$20 million (US$2.6 million) donation to support anti-coronavirus initiatives for Wuhan and Hubei on January 29.

On February 16, it followed up with a MOP5 million (US$650,000) donation to set up the “Special Aid Fund for Workers in Need” in collaboration with Macao Federation of Trade Unions. The main beneficiaries of the fund were expected to be “workers and self-employed persons such as taxi drivers, coach drivers, and tour “family bonding” during the crisis period, guides, their families, and more.” There were few additional announcements, perhaps because Melco had effectively outsourced the specific uses of its donations.

A week later, on February 23, the company contest to enrich stay-at-home activities. announced a MOP 3 million (US$390,000) Somewhat related as well was Sands’ donation to Women’s General Association of decision to speed up its investment projects Macau as funding for in Macau, including forty surgical face masks and large scale construction an allowance scheme to benefit those including single mothers and families with children with special needs. It also supported a public health awareness and wellbeing online video series by Macau Daily News to further publicize the government’s coronavirus prevention appeal.

Finally, as a longer term initiative to support local people and to help minimize the socioeconomic impact of Covid-19, on March 16 the company announced the hiring of a hundred local resident construction workers, providing them with one-year employment contracts and on-the-job training. The program aimed to advance local talent and support sustainable development.

On April 14, Melco announced the donation of 500,000 surgical masks to the Macau government and the local community, with 200,000 such masks being donated directly to designated NGOs under the Social Welfare Bureau. The masks went to help vulnerable groups such as the elderly, single families, long-term patients, and medical patient support staff.

Many of Sands China’s local CSR efforts were directed through Sands Cares. The earliest initiatives were directed at families and children suffering the burdens of living under conditions of isolation, as well as financial support for a variety of local NGOs. Under the same fund, Sands Cares helped deliver hand sanitizer, medical gloves, and shower caps to local community organizations; as well as support a service for live-alone elderly during the epidemic involving telephone calls to ensure their well-being.

Sands China says it was the first operator— on February 1—to donate 500,000 surgical masks to the Macau government.

They also gave special attention to “family bonding” during the crisis period, sponsoring the Sheng Kung Hui Social Service Coordination Office for a donation of three hundred parent-child picture book gift kits, and jointly organizing a parent-child coloring contest to enrich stay-at-home activities.

Somewhat related as well was Sands’ decision to speed up its investment projects in Macau, including forty large scale construction and renovation projectsof The Londoner, Four Seasons Hotel, and St. Regis Hotel. By accelerating and increasing investment and construction, this was expected to support a large number of local enterprises, including nearly a hundred SMEs. Facility maintenance and repair projects, such as upgrading the company-wide computer software system, involves more than MOP100 million (US$13 million), expected to benefit many local enterprises, including more than twenty SMEs.

On February 2, Galaxy Entertainment announced its own donation of MOP20 million (US$2.6 million) through the Liaison Office of the Central People’s Government in the Macau, as well as a donation of MOP5 million (US$650,000) to support prevention initiatives within the Macau community, much like the others, but on March 5 followed up with a subscription of HK$100 million (US$13 million) of the SMEs themed Covid-19 Impact Alleviation Social Bonds issued by Bank of China’s Macau Branch, aimed at easing the operating pressures and providing assistance to local SMEs affected by the epidemic. Moreover, on April 13, Galaxy made an additional donation of MOP75 million (US$9.8 million) through the Galaxy Entertainment Group Foundation to mainland China’s campaign against Covid-19.

That meant Galaxy’s total contribution by mid-April was MOP200 million (US$26 million), apparently much larger than most of the other operators, based on the publicized statements of each company.

In these various ways, the six Macau operators have been making efforts to fulfill their social responsibilities as key pillars of the community.