Several entities and experts have labelled this month as potentially the worst month on record for gross gaming revenue (GGR).
The closure of casinos for at least 12 days (between July 11 and July 22) adds to a month start which already had few patrons in casino venues due to the many border restrictions in force. Consequently, forecasts are not particularly positive for those rushing to meet the government criteria for the tendering of the new gaming licenses.
Interviewed by the Times, gaming industry expert, Ben Lee, says that the current situation indicates July 2022 will set a new record low for the industry.
On the same topic, the Hong Kong Shanghai Banking Corporation (HSBC), have forecasted for the same month (July 2022) an average daily GGR of 20 million patacas, due to the current lockdown situation.
To the Times, the managing partner of IGamiX Management & Consulting said, “[GGR of] July likely to be between 200 to 300 millon patacas. So yes, is it a new low compared to [the previous registered low] of 716 million patacas, in June 2020.”
In July last year, the GGR was 8.44 billion patacas, making it the second-best month of the year, only surpassed by May with 10.45 billion patacas.
If this is confirmed, the forecasts for the GGR of July 2022 represent a drop of around 90% when compared month-to-month with June which, despite being the lowest recorded month of this year, gathered some 2.48 billion patacas.
Additionally, the uncertainty regarding the measures to be implemented by the government for the upcoming week, especially when taken with the new outbreaks of Covid-19 in the neighboring cities of Zhuhai and Guangzhou and the continuing border restrictions to Hong Kong, does not paint an optimistic picture for August. Lee says therefore that the August GGR is unpredictable and impossible to forecast at this moment.
“There’s no way to predict August given that we can’t even predict if businesses will resume next week, or when quarantine-free travel from the mainland will be allowed to resume,” he said.
In the first half of this year, the GGR had already registered a year-on-year fall of 46.4% to a total of only 26.27 billion patacas. This figure represents a drop of 21% even when compared to the GGR accumulated in the first half of the year in 2020 when casinos were closed for 15 days.
If this trend continues, the 2022 annual GGR figures risk reaching less than half of what the government estimated at the beginning of the year when it forecasted some 130 billion patacas. The large majority of the analysts considered this estimation to be exaggerated, but both the Chief Executive (CE) and the Secretary for Economy and Finance, said it was “conservative.”
Closed casino doors help to slow down cash drain
Lee has also noted that the current CE order that keeps all non-essential industries and services closed, including casinos, has somehow helped to slow down the cash drain of the concessionaires by reducing the operating costs, namely the expenses of these major employers with staff.
“The closure is better for the operators as they don’t have to pay their staff salaries,” Lee said, noting the state of temporary lay-off or unpaid leave used by the local companies to save money, with wages of workers rendered unnecessary due to the order for the venues’ closure.
According to statistics collected by IGamiX, staff costs, including wages and other benefits such as transportation and meals, account for about 30% of the operating costs in Macau.
But as Lee noted, this “temporary reduction in costs” cannot last indefinitely. “At some point, some of the operators will run out of cash. The ones with high leverage will face the greatest pressure.”
On this aspect, Lee forecasts that Galaxy Entertainment Group (GEG) might be more favorably placed than its competition.
“Galaxy’s history of low gearing/high liquidity will see them emerge out of this pandemic in better shape than the others,” he told the Times.
New license tenders
adding to the burden
If the indefinite closure and very low performance of the casino tables were not trouble enough, the rules set by the new gaming law for the tendering of the 2023-2033 licenses add to the burden. The operators, while battling their cash drain, must comply with the rules that establish a minimum of cash, or like cash, of 5 billion patacas to be able to meet the requirements. They also must possess additional cash to cover the equivalent of the face value of all their chips in circulation, Lee highlighted.
Questioned if any of the existing six players would potentially pull out of the race because they were unable to meet the criteria, Lee said, “I doubt it. They are all in the ‘pot’ and walking away right now would leave them with next to nothing.”
Lee also noted the new regulations show the government is well aware of the times of doubt and they are “looking to insure themselves against future downturns and uncertainty by inserting the new clause on minimum average GGR per table and gaming machines.”
This rule, although not being completely new, now gives extra power to the executive to change the capping amount when they feel necessary.
