Closing VIP rooms signals big changes for gaming industry

The government’s strict regulation of the gambling industry, highlighted by the new Gaming Law, has led to a complete transformation of once-glorious VIP rooms and satellite casinos, prompting concerns over whether abandoning these key revenue sources amounts to cutting off their lifelines.

Macau has been granted six gaming licenses. However, many satellite casinos have allegedly operated through the city’s gaming concessions in a legal gray area, relying heavily on “VIP rooms” as their core business.

In June 2022, the Macau Legislative Assembly passed amendments to the Gaming Law, prohibiting non-licensed operators from running VIP rooms.

The six 10-year gaming licenses issued under this new law took effect on January 1, 2023, further pushing VIP rooms toward closure.

Meanwhile, under the new Gaming Law, the transition period for satellite casinos will conclude by the end of this year. These venues will no longer be allowed to operate through revenue-sharing or commission-based models; instead, they must charge management fees as they transition into management companies.

Since 2022, several satellite casinos in Macau have closed, leaving 11 in operation.

The three-year transition period for satellite casinos has concluded, and they will now be phased out following the law.

When Chief Executive Sam Hou Fai announced his candidacy for a fifth term, he was asked how he would promote economic diversification. He stated that the gaming industry had undergone “unregulated expansion” over the past decade.

Having lived in Macau for four decades and witnessed its profound changes, Sam noted that “even during the Portuguese colonial era, the economy was heavily reliant on tourism and gaming, which dominated employment and government revenue.”

Following the handover, the “opening of gambling rights” fueled operators’ ambition, leading to rapid growth in the tourism and gaming sectors.

However, this expansion was marked by periods of “disorderly development,” which drained human and social resources and affected young people’s career choices.

Sam emphasized that the dominance of a single industry is detrimental to the long-term development of the Macau Special Administrative Region and has created significant adverse impacts.

Yet, is Macau’s gaming industry truly experiencing the “unregulated expansion” described by Sam?

Zeng Zhonglu, chairman of the Asia Pacific Association for Gambling Studies, told the Times in a recent interview that this claim should be assessed within specific time frames of the industry’s development.

“If we are discussing 2013, 2014, or earlier, there were indeed issues, as [Sam] mentioned. Many companies in the gaming sector were small-scale and faced challenges in capital and operational management,” he acknowledged that the gaming industry in Macau experienced a period of rapid growth in its early stages.

Zeng also pointed out that Macau’s development is closely tied to central government policies.

“At a certain stage, the mainland primarily considered Macau’s prosperity and stability, maintaining a relatively lenient stance toward some unregulated gambling practices. However, these policies began to be gradually revised.”

He cited examples such as the mainland’s Civil Code, the Procuratorate Law, and judicial interpretations by the Ministry of Public Security, explicitly mentioning cross-border gambling rather than transnational gambling.

This means that online gambling is now also subject to regulation, while previously mentioned instances of gambling abroad are excluded. Macau is no exception.

In Zeng’s view, the development of Macau’s gambling industry has become more regulated since then. Particularly, Macau’s VIP rooms and intermediaries can no longer recruit customers from the mainland, resulting in a significant decline in gambling revenue.

“To this day, our VIP rooms have not been able to return to their previous levels, currently reaching only 20% of what they once were,” he noted.

When Sam delivered his Policy Address in April, he explicitly stated the need to “promote the lawful, healthy, and orderly development of the gaming industry,” effectively signaling the inevitable end of the satellite venue model.

His outlined measures involve multiple government entities, such as strengthening coordination mechanisms and breaking down departmental barriers.

Given that Macau has set the goal of diversifying its economy through a “1+4” industrial development strategy, the key priority moving forward is to guide and encourage the city’s six gaming companies to allocate more resources to non-gaming development such as culture, sports, conventions and exhibitions, and healthcare, thereby fundamentally breaking free from the long-standing reliance on a single industry.

Macau is currently undergoing a crucial period of economic transformation. In advocating for appropriate economic diversification, Sam previously emphasized that this is not merely a topic for discussion but a pressing challenge that must be addressed. While promoting the diversification of the tourism industry is a commendable goal, it raises the important question of how to effectively transform the region into a vibrant cultural and commercial hub.

The next Las Vegas?

Speaking to the Times recently, Simon Sio, president of the District Development Promotion Association, cited Las Vegas as a prime example of transformation – from a small railway town to a world-renowned entertainment hub.

He urged the Macau government to carefully consider how to ensure the healthy development of gambling as an appealing tourist attraction.

“In the past, Las Vegas relied entirely on its gaming industry, but over time, it generated significant revenue and developed numerous non-gambling elements, transforming into a city that is no longer solely focused on gambling. While it is still called the ‘Gambling City,’ many visitors now go there for the overall experience. Despite its extreme climate and geographical challenges, people choose it as a preferred tourist destination,” he said.

Sio emphasized that Macau’s proximity to mainland China and its support from a vast population of 1.4 billion, particularly from the Guangdong-Hong Kong-Macau Greater Bay Area, puts it in an advantageous position. However, he noted that as neighboring countries enhance their gambling industries, Macau must urgently improve its gambling offerings and simultaneously develop non-gambling tourism experiences to maintain its attractiveness as a destination.

While drawing inspiration from Las Vegas is valuable, Sio noted that certain aspects cannot be fully replicated due to differences in environment and competitive landscapes.

“We are a small city with a dense population and towering skyscrapers, so we must rethink how to provide unique leisure tourism experiences,” he emphasized that Macau’s cultural industry needs to be strengthened. Although the government has made some efforts, the results appear to be lacking.

He suggested attracting external resources to engage individuals willing to invest time and effort in the cultural and creative sectors, allowing them to learn, become experts, and ultimately leverage their skills to benefit Macau’s development.