Abstract
This article discusses the new gaming law in Macau with emphasis on the critical aspects concerning the gaming operators, concession regime, and other regulatory obligations. 1 Thanks to the gaming liberalization commenced in 2001, 2 Macau has experienced tremendous economic growth. The past two decades have seen the rapid development of large-scale integrated resorts, and Macau now ranks among the world's major gaming jurisdictions. 3 Policy and regulatory challenges have also emerged along with the growth of the junket-driven VIP business in casinos. 4 With the recent amendment of Law No. 16/2001 and the subsequent enactment of Law No. 16/2022, Macau has strengthened the legal underpinnings of its system of gaming regulation to oversee various groups involved in casinos and their industry practices.
The present study is among the first to review the scope and impact of the revised gaming law, and associated managerial and operational implications for Macau casinos. Topics covered include policy directions, concession requirements, industry participants, gaming taxes, and fair business practices. This study could provide insights into the “Macau 2.0” project and how casinos are to be operated and managed over the next decade. This article could also provide practical guidance for policy makers charged with formulating gaming policy and regulation in other jurisdictions.
MACAU GAMING LAW: AN OVERVIEW
Gaming laws and regulations
A sound regulatory system is integral to the oversight of the gaming industry. 5 Since the Macau gaming industry was liberalized in 2001, gaming-specific laws and regulations have been published to oversee the local casinos. In particular, the original Law No. 16/2001 was enacted and until last year served as the legal framework for the operation of the games of fortune (chance) in casinos (“casino gaming”). The gaming law was revised and amended by Law No. 7/2022; 6 yet, it is important to note that Law No. 16/2001 has not been repealed and remains in effect. Throughout this article, Law No. 16/2001 refers to the amended legislation enacted in July 2022 unless otherwise stated. Administrative Regulation No. 26/2001, which made detailed provisions for the public tender process for the gaming concessions awarded in 2002, was subsequently amended under Administrative Regulation No. 28/2022 to regulate the casino tender in 2022. 7
In addition to the changes effected by Law No. 16/2022, the regulatory regime for the supervision of gaming promoters and other industry groups has been substantially revised. Specifically, Law No. 16/2022 was enacted in December 2022 to replace the now-defunct Administrative Regulation No. 6/2002, 8 which governed the licensing of gaming promoters and supervised junket activity. 9 This new and comprehensive legislation provides an operational framework for casino gaming and all industry participants, including gaming concessionaires, gaming promoters and collaborators, and management companies operating satellite casinos under the umbrella of gaming concessionaires. 10
Gaming policy and objectives
Law No. 16/2001 expressly states the overarching objectives of the current casino gaming concessions. Among other things, casino operations must be carried out on the premise of safeguarding national and Macau security. 11 In addition to operating casinos in a fair and honest manner, gaming concessionaires must ensure their properties are free from criminal influence with mechanisms in place to prevent money laundering and combat illegal cross-border capital flows. 12 Any individuals involved in the supervision, management and operation of casino gaming must meet the suitability requirements contained within the Law. 13 Moreover, Law No. 16/2001 specifies that the Macau Chief Executive reserves the right to terminate the concessions for legitimate reasons, including threats to national security, public interest, or breach of legal and contractual obligations. 14
The new gaming law also promotes adequate diversification and sustainable economic development in this Chinese enclave. 15 In addition, the Macau government has indicated that the local gaming industry should account for around 40% of the territory's gross domestic product (GDP) in the future. 16 The public tender for gaming concessions was framed, inter alia, to encourage the development of non-gaming elements and tourist markets sourcing visitors from outside China. A total of MOP 108.7 billion (USD 13.5 billion) has been pledged by the gaming concessionaires for non-gaming projects over the next decade. 17 Concessionaires are under obligations to explore international market opportunities alongside the advancement of various leisure offerings.
GAMING CONCESSION REGIME
Concession for casino gaming
Article 7 of Law No. 16/2001 stipulates that the right to operate the games of fortune (chance) in casinos is reserved to the Macau Special Administrative Region. As a civil law jurisdiction, Macau awards rights of exploitation of gaming to the private sector by way of a regime of concessions (concessões). The concessions are evidenced by contracts, which themselves contain provisions complementary to those set out by law for the regulation and supervision of the gaming industry. The Macau government retains the ultimate authority to formulate and enforce gaming policy and award gaming concessions.
The Gaming Inspection and Coordination Bureau (Direcção de Inspecção e Coordenação de Jogos, DICJ) acts as the regulator to administer concessionaires and other gaming groups involved in casinos. 18 Amid the gaming laws being amended and enacted, the tender for the new 10-year gaming concessions concluded in late 2022, with the then-incumbent concessionaires all awarded new concessions. A total of six casino gaming concessionaires (hereafter referred to as “concessionaires”) are authorized the right to operate casinos in Macau, i.e., Galaxy Casino, Melco Resorts (Macau), MGM Grand Paradise, SJM Resorts, Venetian Macau – Sands China, a subsidiary of Las Vegas Sands, and Wynn Resorts (Macau).
Unlike the situation which pertained in the previous concession period (2002–2022), Law No. 16/2001 restricts the total number of casino gaming concessions to six. 19 The concession period is also limited to a maximum of ten years, with the possibility of a three-year extension under exceptional circumstances. 20 Concession contracts in the form of administrative contracts must be made between the Macau government and the locally-incorporated public companies awarded the right to operate casinos. Sub-concessions are expressly forbidden in all gaming concession contracts concluded with the government. 21 Any encumbrance, transfer or assignment of the concession status to a third party is also prohibited, including the right to operate casinos, rights and obligations of concessionaires, and the concession contract. 22 The concessions limit the concessionaires to the establishment and operation of land-based casinos; therefore, concessionaires are not allowed to operate interactive gaming (online gaming). 23
Defining “casino”
Gaming establishments must be authorized by the Macau Chief Executive. 24 Specifically, casino properties must be owned by concessionaires and are subject to reversion to the Macau government upon the expiration or earlier termination of concessions. 25 The scope of a casino is further delineated under Law No. 16/2001. A casino comprises gaming areas, cages and count rooms, casino entrances/exits and work areas for surveillance and control, areas for transport, deposit, storage and custody of casino chips or cash, and areas for logistics services as specified in the concession contracts. 26 Casinos must be operated 24 hours a day without interruption unless otherwise directed or permitted by the government. 27 The Law also stipulates that only table games and gaming machines are allowed in the gaming areas, which can be general casino floors or specific gaming zones designated for certain players (e.g., VIPs or foreigners). 28 At present (February 2023), Macau has authorized a total of 30 casino premises operated by the six concessionaires. 29
Suitability requirements
Suitability is a fundamental prerequisite for any entities and concerned parties in applying for and maintaining the concessions for casino gaming. Article 14 of Law No. 16/2001 states that concessionaires must have their suitability assessed by the DICJ. Among other criteria, key factors to be considered in determining suitability include experience, reputation, business association, responsible business conduct, economic and financial conditions, source of funds, any inappropriate transactions with criminal groups, and previous criminal charges/convictions. 30 In addition to concessionaires, the suitability requirements apply to key employees, directors, and shareholders possessing 5% or more of the corporate capital (“5% plus shareholder”). 31 All parties are required to maintain their suitability for the duration of the concessions continuously.
Law No. 16/2022 also requires a determination of suitability for gaming promoters, their collaborators, and management companies of satellite casinos. 32 Therefore, all entities involved in the operation of Macau casinos and their specified associates (e.g., key employees, directors, and shareholders) must meet the suitability requirements. No approval will be issued to the designated industry participants until the DICJ has satisfied itself as to the suitability of any such person. Concessions, licenses or other permissions will be revoked should the holder fail to maintain continuous suitability. 33 Table 1 details the suitability requirements of various gaming groups and their concerned parties in Macau casinos.
The Suitability Requirements of Various Groups Involved in the Macau Gaming Industry
Financial capacity
Concessionaires must demonstrate the necessary financial capacity for the operation of casino gaming. 34 The key criteria in determining the financial capacity of concessionaires are as follows: economic and financial conditions of concessionaires, controlling shareholders and “5% plus shareholders”, as well as that of their closely associated business entities (e.g., entities that provide financing to concessionaires); nature and type of the casino properties and other associated resort infrastructure. 35 All concessionaires must continue to be financially capable during the concession period and are subject to the government's ongoing reviews, which may include a requirement for special audit. 36 Controlling shareholders of concessionaires could also be required to provide guarantees on any commitments and obligations imposed on the companies. 37 Similarly, gaming promoters, collaborators, and management companies of satellite casinos must meet and maintain the relevant financial capacity requirements. Failure to do so can result in the revocation of their respective permits. 38
STRUCTURING THE GAMING INDUSTRY
Gaming concessionaire (casino operator)
Law No. 16/2001 stipulates that concessionaires must be Macau-incorporated public companies limited by shares (sociedades anónimas). The requirements on capital and directorship have been strengthened under the new gaming control system. The minimum capital for concessionaires is set at MOP 5 billion (USD 625 million). The share capital of concessionaires must be fully paid up in cash upon incorporation, and the net worth (situação líquida) cannot be less than that amount during the concession term. 39 The “5% plus shareholders” must obtain prior regulatory approval pertaining to the transfer or encumbrance of the corporate shares and attribution of voting rights. 40 Concessionaires cannot be listed on a stock exchange, but this rule does not apply to their parent companies. 41
Furthermore, each concessionaire must delegate management powers to one managing director (administrador-delegado) who must be a permanent resident of Macau and hold at least 15% of the share capital in the concessionaire (previously 10%). 42 The designation of managing director, along with the individual's scope of powers, 43 is subject to the determination of suitability and the authorization of the Macau Chief Executive. 44 Law No. 16/2001 and Law No. 16/2022 impose specific obligations for concessionaires and their gaming operations in casinos. 45 Among others, Macau prohibits concessionaires from sharing gaming revenue with any parties (e.g., junket promoters and management companies of satellite casinos). Concessionaires must comply with the Minimum Internal Control Requirements (MICR), responsible gambling, and other instructions issued from time to time by the DICJ. In addition, gross gaming revenue is subject to daily inspection by the regulator. Casinos must be equipped with appropriate surveillance and operational technologies, and the respective surveillance records must be kept for a minimum of 60 days. Concessionaires are subject to a government review every three years to ensure their compliance with the concession contracts. All concessionaires are also prohibited from granting other entities the authority to manage the affairs and business of the concessionaires.
Management company (satellite casino)
The Macau government also seeks to resolve the legacy issue of satellite casinos in the new gaming law. 46 Satellite casinos are gaming establishments operated by concessionaires but owned and otherwise managed by third parties. 47 Law No. 16/2022 regulates satellite casinos and the concerned parties, who were excluded from the ambit of the previous legislation. Management companies (sociedades gestoras) refer to entities responsible for managing the casino premises under the “management contracts” with concessionaires. 48 While management companies of satellite casinos must be approved by the Macau Chief Executive, the companies in question cannot provide such casino management services to more than one concessionaire in the new gaming law. 49 As discussed, management companies and their concerned parties (i.e., key employees, directors, and “5% plus shareholders”) are subject to suitability assessment. These companies are also required to provide a guarantee of MOP 1.5 million (USD 187,500) to the Macau government. 50
Law No. 16/2022 prohibits concessionaires and management companies from entering into all revenue-sharing and commission-based arrangements. Management companies can only be remunerated by management fees under the new gaming control system. 51 Management companies are also prohibited from managing the financial activities of satellite casinos, particularly accounting, settlements of casino chips and funds arising from gaming. 52 In addition, management companies are prohibited from taking deposit of casino chips and cash from others. 53
Prior to the employment of management companies, management contracts must be authorized by the Macau Chief Executive. Such contracts must contain the following information: service coverage, casino scope, contract duration, management fees and payment method. 54 Any contract amendments must be approved by the Secretary for Economy and Finance. Management companies are also required to prepare and submit casino management plans to the DICJ. Among the 30 local casinos, eleven gaming establishments are classified as satellite casinos that continue to operate under the new 10-year gaming concessions at the start of 2023.
Gaming promoter (junket promoter)
Macau operates a licensing system for gaming promoters sourcing VIP players for the casinos. 55 Gaming promoters (promotores de jogo) refer to companies engaged in authorized gaming promotion (junket) activity in casinos. 56 Macau junkets traditionally act as marketing agents for casinos and are responsible for recruiting and servicing VIP players who generally participate in high-stakes casino games. 57 Different from the past two decades, the issuance, renewal and cancellation of the junket promoters' licenses are now within the purview of the territory's Secretary for Economy and Finance, rather than the DICJ. 58 Macau also prohibits the transfer of a gaming promoter license to another party. 59 The annual maximum number of gaming promoters across Macau casinos and for each concessionaire might also be capped, subject to the local gaming development policy and concessionaires' overall operating conditions. 60
Law No. 16/2022 stipulates that the minimum capital for junket companies is MOP 10 million (USD 1.25 million). 61 A guarantee of MOP 1.5 million (USD 187,500) must also be provided for their license. 62 Since all concessionaires are prohibited from sharing gaming revenue with other entities, gaming promoters can only be remunerated by way of commission, based on an agreed percentage of rolling chip volume. Macau also limits the junket commission rate to a maximum of 1.25% of the net amount bet (net rolling). 63 Junket companies, together with their shareholders, directors and key employees, are subject to the determination of suitability (Table 1). The licensing of gaming promoters has been tightened under the new regulatory framework. As of the latest official release (January 2023), Macau has 36 gaming promoters licensed to carry out junket activity in casinos, down from the 2013 peak of 235 junket licensees. 64
Collaborators (junket agents)
Macau junket promoters generally have an extensive network of self-employed collaborators. Collaborators (colaboradores) refer to the natural persons selected by gaming promoters to assist in their gaming promotion business, and these subordinate agents must be authorized by the Director of the DICJ. Collaborators are generally tasked with sourcing players and selling dead (non-cash) chips in exchange for commissions from junkets. 65 Law No. 16/2022 keeps collaborators under stringent control. The new gaming law stipulates that collaborators must meet the suitability requirements (Table 1).
Furthermore, collaborators are prohibited from extending gaming credit to players and taking deposit of casino chips and cash from others, on their own or in the name of any other person. 66 Though these authorized agents can work with more than one junket, the DICJ can determine the annual maximum number of collaborators in casinos. 67 A guarantee for approved collaborators is currently set at MOP 500,000 (USD 62,500). 68
GAMING TAX REGIME
Gaming taxes
The gaming tax system in Macau comprises a special gaming tax, special levies, and annual gaming premiums. Specifically, concessionaires are required to pay a special gaming tax at the rate of 35% of gross gaming revenue (GGR). 69 Macau also requires concessionaires to contribute 2% of GGR to a public foundation for social, economic and cultural development; 70 moreover, an additional 3% levy is payable for urban development, tourism promotion, and social security. 71
Independent of the 40% gaming taxes above, there are annual fixed and variable premiums. Concessionaires are obligated to pay a fixed premium of MOP 30 million (USD 3.75 million) per annum for their gaming concessions. As for variable premiums, each mass-market gaming table is taxed at MOP 150,000 (USD 18,750) per annum, each gaming table reserved for particular uses (e.g., VIPs) MOP 300,000 (USD 37,500), and each gaming machine MOP 1,000 (USD 125). The effective tax rate on casino gaming is generally more than 40% of GGR. The gaming tax structure in Macau is illustrated in Table 2. In addition, concessionaires are required to pay the government for the use of the reverted casino areas and gaming equipment each year, and such annual rent payment effectively operates as an additional tax on concessionaires. 72
Gaming Tax Regime in Macau
Unit: The exchange rate is approximately 8 Macau patacas (MOP) per U.S. dollar.
Tax incentive scheme
Developing the foreign tourist market is among the key components of Macau's policy for the development of a diversified gaming industry. Law No. 16/2001, as amended in 2022, introduces a tax incentive provision for concessionaires to attract leisure and business visitors outside the Greater China region. 73 As an alternative to general casino floors, exclusive gaming areas for foreigners can be established in casinos. The gross gaming revenue generated from such designated areas is exempt from the abovementioned special levy contributions (5%) at the time of writing. 74
Maximum table number and minimum GGR
Law No. 16/2001 stipulates a maximum number of gaming tables and gaming machines for each concessionaire. 75 The annual number of tables and machines awarded to each concessionaire varies, and that hinges on factors such as the conditions of the Macau economy, gaming policy, and the operational aspects and investment (including non-gaming projects) of the respective concessionaires. The maximum limit on the number of tables and machines that all concessionaires can operate is currently set at 6,000 and 12,000, respectively, at the time of writing. 76 In addition, concessionaires are required to generate a minimum revenue for their gaming activities. 77 The annual gross revenue targets for each table and machine are currently MOP 7 million (USD 875,000) and MOP 300,000 (USD 37,500), respectively. 78 Failure to meet the required minimum revenue, a special premium equal to the tax amount difference will be charged to compensate for the shortfall in tax collection. 79
FAIR BUSINESS AND COMPETITION
Responsible gambling
Law No. 16/2001 requires concessionaires to reduce gambling harms through awareness and safeguards. Concessionaires are under obligations to implement responsible gambling policy and programs in casinos. Specifically, any gaming-related information or activities can only be disseminated in the gaming areas of casinos, and such dissemination outside Macau must comply with the laws of the respective jurisdictions. 80 Responsible gambling programs must be integrated into the gaming operations, including player-facing communications, responsible gambling training for casino staff, and specialized teams providing adequate assistance and counseling services. 81 In addition, concessionaries must ensure individuals under 21 years of age are prohibited from entering, working and gambling in casinos, as well as observing other requirements under the city's responsible gambling law. 82 Concessionaires are required to submit annual reports that include the execution of their responsible gambling programs and relevant plans for the subsequent year.
Corporate social responsibility
Macau gaming law also mandates concessionaires to conduct business ethically and contribute to the city's socio-economic development. The corporate social responsibility (CSR) assumed by concessionaires includes the following directions: support for the local small and medium-sized enterprises (SMEs); support for the diversification of the local industries; guarantee of labor rights and interests (e.g., on-the-job training and upward mobility for local employees); inclusive employment; and support for the activities of public interest, education, science and technology, environmental protection, culture, and sports. 83 Concessionaires have always been committed to various CSR initiatives, which can trace the origin to the monopoly concession period (1962–2002). 84 With gaming being a pillar industry in Macau, CSR can enable concessionaires to secure the “social license to operate (SLO)” and ongoing acceptance by the local community.
Anti-competitive practices
Law No. 16/2001 ensures fair competition and observes market economy principles since its enactment in 2001. 85 Macau gaming law specifies that the government must treat all concessionaires in a non-discriminatory manner, fostering healthy and fair competition among concessionaires. Likewise, concessionaires are not allowed to engage in any conduct that has the object or effect of restricting competition in the local gaming industry. Notably, Macau prohibits all agreements and concerted practices that prevent, restrict or distort competition among concessionaires; moreover, concessionaire(s) must not abuse their market dominance in ways that harm competition. Any anti-competitive agreements, abuse of dominant position, and the like will be deemed void. 86 In addition, Macau prohibits a person from simultaneously serving as an employee or on the governing bodies in any two or more competing entities, including concessionaires, gaming promoters, and management companies. 87
MANAGERIAL IMPLICATIONS
Enhanced control for casino gaming
Macau has recently strengthened its regulatory system for the gaming industry. Following the revision of Law No. 16/2001 and the enactment of Law No. 16/2022, the entire casino gaming ecosphere is under stringent supervision and oversight by the Macau government. In particular, the new gaming control system regulates and supervises various groups involved in casinos. All concerned parties are required to maintain a clean background and not to have any association with unsavory characters. Concessionaires can no longer remunerate their junkets and others under the revenue-sharing model, as opposed to traditional industry practices. No persons other than concessionaires are entitled to revenue generated from the gaming operations.
Non-gaming takes precedence over gaming
Economic diversification is at the root of the current gaming concession contracts. Macau's stated policy has always been to broaden the economic structure to diversify away from gaming. Concessionaires are highly encouraged to act in furtherance of the economic diversification in Macau. A wide variety of non-gaming projects are contractually required to be inaugurated by concessionaires to meet the concession requirements and multiple consumer needs. It has to be acknowledged that concessionaires are expected to make some near-term financial sacrifices to ensure the gaming industry's sustainability in the long run.
Concessionaires will instigate a variety of capital-intensive projects over the next 10 years. The pledged investment in non-gaming amenities and attractions is expected to translate into diverse leisure offerings; eventually, it will not be just casinos that are the sole source of tourism and entertainment in Macau. Yet, the success of these non-gaming projects largely depends on how each concessionaire identifies and attracts the target market segments. Concessionaires need to be realistic about their ability to stimulate their potential customers to visit and patronize their properties.
Collapse of the junket system
Third-party involvement in casinos has always been a major challenge facing the gaming authorities in Macau and other jurisdictions. Indisputably, the rapid growth of Macau casinos has long been overshadowed by undesirable junket practices. Junkets might be effective in the short term to bring in high rollers and their profligate spending; however, this business model is not operationally sustainable and tends to be socially harmful over time. The new gaming law, together with the national anti-gambling policies, has transformed the landscape of the local gaming industry in general and profoundly impacted the VIP market in particular. While the new gaming regulatory system keeps junket promoters and their associates in casinos, the promoters can no longer operate VIP rooms and collect any gaming revenue. The national and city-wide crackdown on junkets and their informal practices also casts doubt on the future of gambler recruitment activity in Macau casinos.
Strategic pivot to premium mass
It is government policy for concessionaires to attract tourists from overseas. Macau casinos can no longer rely on VIP-centric business, which does not serve the city's strategic goals. With the business focus shifting away from the junket model, foreign markets are where concessionaires are doubling down on both premium and recreational players. In particular, the premium mass market targeting the upscale clientele is considered the strategic focus for most Macau casinos and potentially a key revenue driver for the local gaming industry. 88 In addition, the 5% tax break for gross gaming revenue generated from non-Chinese players will galvanize concessionaires to go beyond China for more international market opportunities. The tax policy also indicates the determination of the local authorities to transform Macau into a prime destination for both foreign and domestic travelers.
Talent and skill development
Hospitality and gaming are capital- and labor-intensive businesses. Admittedly, Macau remains in the shadow of a weak labor market and macroeconomic uncertainty. The gaming and tourism sectors have gradually been recovering since the lifting of pandemic restrictions in early 2023. Despite that, concessionaires might have struggled to fill service-related jobs on their properties. 89 Since Macau is seeking to increase foreign visitation, concessionaires need to address the shortage of skilled labor facing the industry.
Furthermore, Macau casinos receive most visitors from mainland China (or who are of Chinese descent). The local population is also predominantly ethnic Chinese with a relatively homogeneous culture and language. In addition to optimizing talent acquisition and retention, concessionaires should place greater emphasis on skill development and enhancement within the organizations. Communication competence, for instance, is essential for industry practitioners to serve, connect and empathize with guests from diverse cultural and linguistic backgrounds.
FINAL REMARKS
Macau has been a victim of its own success. With the commencement of the new 10-year concessions, stricter regulation of the gaming industry is now in place to protect the local casinos against persons exercising improper influence. The changes brought by the new gaming law are set to have a profound and positive impact on the economic, social and cultural development in Macau. The overhaul of the gaming law not only reflects the government's efforts to strengthen the oversight of the industry, but also provides practical insights to other jurisdictions contemplating casino development and expansion.
The local gaming industry is still in the middle of a paradigm shift. The vision for a diversified “Macau 2.0” has set a clear direction for the casino and non-gaming development in the Chinese enclave. Considerable resources and efforts are already underway to reduce the city's reliance on gaming. Concessionaires are presented with new opportunities and risks associated with the transition. While the city's economic diversification plan requires some time to take shape, the strategic and operational implications in light of the new gaming law will be felt much sooner. The regulatory and industry-wide changes will gradually be compounded into substantial differences over the next decade and beyond.