Gravity pull of Macau new casinos limits satellite venues

Oct 10, 2017 Newsdesk Features, Latest News, Macau  

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The recent arrival in the Macau market of a new so-called satellite casino – one that relies on the gaming permit of one of the city’s six licensed operators but is managed by a third party – has raised questions about whether there might be a fresh proliferation of such venues. It had widely been understood in Macau that there was a moratorium on fresh satellite venues.

But several commentators have told GGRAsia that not much has changed to make the satellite business proposition – typically involving a low-cost hotel venue with little in the way of non-gaming amenities, some VIP gambling and a modestly-sized mass gaming floor – any more attractive than it was during the recent downturn in Macau casino gross gaming revenue occasioned by China’s reported anti-corruption drive.

The Royal Dragon Casino – referred to by the local regulator as “Casino Royal Dragon” – was the latest satellite casino to emerge on the scene in the local market. The property, located in the downtown district of Macau, opened on September 27 under the licence of SJM Holdings Ltd.

The casino at the new Macau Roosevelt Hotel in Taipa – effectively a “relocation” of Casino Macau Jockey Club according to the local gaming regulator – is another gaming venue using SJM Holdings’ licence. It started casino operations on June 29.

Another satellite venue that opened recently – albeit one long flagged in filings by Hong Kong-listed firm Macau Legend Development Ltd – is casino hotel Legend Palace at Macau Fisherman’s Wharf. It opened on February 27 and also relies on the gaming licence of SJM Holdings.

Limited impact

Grant Govertsen, analyst at Union Gaming Securities Asia Ltd, stated the brokerage did not think such launches meant a “resurgence” of satellite gaming venues.

He said Legend Palace and the casino inside Macau Roosevelt Hotel Jockey Club did “not represent the [fresh] introduction of gaming within their specific parcels of land, given that casinos have existed for many years at each of their respective sites”.

He added in an email to GGRAsia: “With this in mind, we do not view the recent changes in satellite casinos as being indicative of any resurgence.”

SJM Holdings has said it has “no plan” to expand the number of these third-party promoted casinos. That is according to the firm’s chief executive, Ambrose So Shu Fai, in comments to local media at a company event on October 3. Despite this, it appears from the local regulator’s website that Casino Royal Dragon is a new venue – albeit one without fresh gaming table allocation under Macau’s table cap – and not a “relocation” of an existing casino in the manner of the facility at the Macau Roosevelt Hotel.

SJM Holdings’ Mr So had stated: “We have no plan in fact to expand the number of satellite casinos, because the satellite casinos’ contribution to the bottom line of SJM is minimal.”

Most of the existing Macau satellite venues piggyback on SJM Holdings’ licence, although Galaxy Entertainment Group Ltd – at Casino Waldo, Rio Casino and Casino President – and Melco Resorts and Entertainment Ltd – at Casino Taipa Square – also share their respective licences with third-party hotel owners.

According to the latest available information from the Macau casino regulator, the Gaming Inspection and Coordination Bureau – also known as DICJ – SJM Holdings currently provides gaming rights to 16 active satellite casinos: Casino Kam Pek; Casino Jimei; Casino Diamond; Casino Casa Real; Casino Taipa; Casino Lan Kwai Fong; Club VIP Legend; Casino Grandview; Casino Fortuna; Casino Golden Dragon; Casino Emperor Palace; Casino Babylon; Casino Ponte 16; Casino Le Royal Arc, Casino Legend Palace; and Casino Royal Dragon. A further two suspended casinos, Casino Macau Palace, a floating venue, and Casino Greek Mythology, have also previously relied on SJM Holdings for gaming rights.

Under pressure

Union Gaming believes that gaming revenue growth for the satellite casinos in Macau will remain “flattish” for the time being.

“We continue to believe that the wholly-owned (i.e. non-satellite) casinos will continue to take market share and capture virtually all of the gaming revenue growth for the foreseeable future. More specifically, we expect most of the gaming revenue growth to happen in Cotai, while the peninsula area (including virtually all of the satellite casinos) remains flattish in terms of gaming revenue growth,” said Union Gaming’s Mr Govertsen.

Two operators of Macau satellite casinos spoken to by GGRAsia indicated they faced a challenging business environment, especially in the light of competition posed by the new large-scale casino resorts on Cotai.

“We’re operating under a certain level of pressure, for sure,” remarked Frederick Yip Wing Fat, executive vice president and head of casino operations for Macau Legend.

“The Cotai casinos are equipped with more supporting [non-gaming] facilities, and they also have a good transport network,” Mr Yip told us.

“Guests like going to Cotai, including the package tourists… Compared to the wholly-owned casinos, it’s not as easy for us to cultivate our own source of clients,” he added.

Macau Legend is in process of redesigning construction plans for a new casino hotel – Legendale Hotel – as part of its redevelopment programme for Macau Fisherman’s Wharf, according to the firm’s interim report filed in late September. The firm currently operates Casino Pharaoh’s Palace – referred to on DICJ’s website as Club VIP Legend – in the Landmark Macau hotel; along with Casino Babylon and Casino Legend Palace at Fisherman’s Wharf.

Niche, legal status

Hong Kong-listed casino investor Success Universe Group Ltd promotes the Ponte 16 casino hotel at the city’s Inner Harbour via SJM Holdings’ gaming permit. Pictures of Ponte 16’s gaming floor flooded with water were flashed around the world via social media following the tidal surge caused by Typhoon Hato in late August.

“As a satellite casino, we feel a bit more disadvantaged in the sense that we have to pay an extra cost on top of a [gaming] concession – by this cost we mean the profit that we have to share with the gaming concessionaire,” said Hoffman Ma Ho Man, executive director and deputy chairman of Success Universe.

Success Universe has seen a decline in adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) for its flagship property Ponte 16 since the financial year 2015. But the firm’s executive believes that the satellite casino can “gain its niche” in the market given enough effort on “good-quality service” and the “right location”.

Macau-based scholar Wang Changbin reckons that while satellite casinos do not take a significant share of the city’s gaming earnings, a review is needed regarding the nature and legal position of such venues.

“Macau’s casinos are established by the basis of the grant of concessions – namely the three gaming concessions and the other three sub-concessions,” said Mr Wang, director of the Gaming Teaching and Research Centre at Macao Polytechnic Institute. He was referring to the fact that the three original concessions under the current arrangement were SJM Holdings, Wynn Macau Ltd and Galaxy Entertainment Group Ltd, while MGM China Holdings Ltd, Melco Resorts and Sands China Ltd were technically their respective sub-concessions.

“But outside such a [concession] system, the third-party operators had a way to cut into the local market with service agreements,” noted Mr Wang.

“Now, when the Macau government is having a mid-term review of the local gaming concessions, I think they should review the legal position of the satellite casinos,” the academic told GGRAsia.

The scholar also believes that a suitability check is needed for the operation of satellite casinos, and that the government should also require higher transparency regarding information on the ownership of a satellite casino hotel property.

“This is to safeguard against the likelihood that there are unfit people running a [satellite] casino, or even the participation from people with background of organised crime,” Mr Wang added.

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