Scientific Game

End of the Affair?

Did Wynn Macau make a misstep on its Cotai land rights—or is the government mixing messages?

Sunday, 02 October 2011 16:44
Visit us

What will the Macau government’s recent public statement that it “has yet to make a final decision” over Wynn Macau’s Cotai land rights—in an apparent contradiction of Wynn’s earlier announcement to stock markets— mean in practical terms?

As ever in Macau, it’s dangerous to make assumptions. It could mean something or it could mean nothing at all. That it should be Wynn in particular that has been caught in the ‘open’ apparently without clarity or political cover on a sensitive topic like its Cotai land use rights is very surprising. Of all the foreign operators, Wynn is usually one of the most careful and deft in its approach to government negotiations.

Here’s a quick reminder of the sequence of events that led to the apparent conflict over the Cotai land use issue. On 12th September, Wynn Resorts made a formal announcement to the New York and Hong Kong stock exchanges that on the previous Friday—9th September—Wynn Macau had “formally accepted the terms and conditions of a land concession contract from the government of the Macau Special Administrative Region of the People’s Republic of China in respect of approximately 51 acres of land in the Cotai area of Macau.”

The filing added: “The Land Concession Contract permits Palo [Real Estate Company Ltd] and Wynn Macau to develop a resort containing a five-star hotel, gaming areas, retail, entertainment, food and beverage, spa and convention offerings on the Cotai Land.”

The document listed the total land premium payable as “approximately” US$193.4 million, adding that the development company Palo was required to pay an additional US$0.77 million per year in rent during the construction phase, and a further US$1.08 million in rent per year once the resort is completed.

And yet within hours of that announcement, a Macau government department— the Land, Public Works and Transport Bureau—was telling the local media that Wynn’s request for a land concession “was currently being  reviewed and the administration has yet to make a final decision,” adding, “The procedures concerning this request have yet to be fully completed.”

Possible scenarios

A worst-case scenario for Wynn Macau would be the Macau authorities insisting on formal gazetting of the relevant Cotai land prior to any concrete going into the ground. That could take many months rather than weeks. The act of gazetting—publishing details of the land deal in the government’s Boletim Oficial—would technically give Wynn the legal right to start work on its Cotai resort, according to sources spoken to by Inside Asian Gaming. If gazetting were to come quickly, it’s highly unlikely Wynn would use that fact to try to exert legal or other pressure to speed up the construction timetable against the government’s will. The company values its relationship with the local leadership too highly to resort to the tactics of a hustler. But seen from the government’s perspective, the more transparent and formal its administrative processes become—as long requested by the investment community—the more the  government has to watch its own back against the possibility of formal legal challenge. It’s another good example (from the industry’s perspective) of being careful what you wish for.

There are political and practical reasons why an early gazetting might not be desirable for the Macau authorities. With the government’s current restrictions on imported construction labour, nearly every available pair of calloused hands is busy working for Sands China on its Sands Cotai Central project. (The latter was previously referred to as ‘Cotai 5 & 6’ because of the land plot numbers assigned to that particular site). And the government’s moratorium on land allocations for new gaming projects—announced by former Chief Executive Edmund Ho in April 2008 (at the same time as a 5,500-table cap on live gaming capacity) is, as far as anyone knows, still officially in force. The wider point is that Macau—with the likely acquiescence of Beijing—remains keen on containing if not actually cooling the growth of the market via capacity restrictions.

The best-case scenario for Wynn is that the government relaxes the labour import restrictions early next year, and allows building work to begin (with or without gazetting). That way the property might just be able to open in 2014—after the expiry of the current table cap and in line with Steve Wynn’s original aim, announced during G2E Asia in 2010. Don’t put your house on that scenario coming true.

In the case of The Venetian Macao, work began in 2004—a full three years before actual land gazetting on the eve of the US$2.4 billion property opening in August 2007. The crucial difference back in 2004 was that Cotai was still an undeveloped (and unproven) land reclamation zone—one the government was anxious to see succeed. Now the success of Cotai is clear to the entire world. In August, the four Cotai resorts (The Venetian, The Four Seasons, City of Dreams and Galaxy Macau) accounted for 27.3% of all Macau casino revenue.

Old Versus New

Macau is changing—and so is the government’s way of doing things

The latitude shown to LVS back in 2004 was also a glimpse of how business used to be done in the ‘old’ days of STDM’s monopoly. The government and business worked hand-in-hand with only a nod to the idea of public consultation. Nowadays, the process has become more politicised. That’s for two reasons. The first—as hinted earlier—is that nine years after the ‘Big Bang’ of casino market liberalisation in the territory, and the massive growth in gaming revenues, the presumption is no longer in favour of every casino project being nodded through by a grateful government. The second reason is that although the Macau public is nowhere near as outspoken and politically aware as the populace in neighbouring Hong Kong, there is nonetheless a growing chorus of local voices calling for greater process and transparency in Macau planning. Much of the popular debate locally in the media and on message boards centres on perceptions that Macau is overcrowded and has too many foreign workers. It’s not often that a community agitates for smaller numbers of new jobs. But that’s a function of Macau’s tiny size (29.5 square kilometres); high population density (18,568 people per sq. km., the top ranking in the world) and miniscule unemployment rate (2.7% in August).

Mr Wynn is politically savvy and well aware of the pressure the government is under locally and from Beijing in this regard. That was probably one reason he was careful to target his charm offensive regarding his Cotai land rights on a big donation to a socially-worthy cause. That was a HK$1 billion payment spread over 11 years for the new University of Macau campus on Hengqin Island in the People’s Republic of China (PRC), just over the border from Cotai.

Mr Wynn probably had some grounds for believing this gesture had gained him enough political capital in Macau (in terms of ‘giving back’) to make a formal announcement about gaining his Cotai land rights. What we don’t know for sure is whether a memo went out from Wynn Macau to the government prior to Wynn’s stock market announcement to the effect: “Is it okay if we say something publicly on Cotai now?” That would certainly have been the sensible course given the sometimes unhappy experience of other Macau operators with premature public announcements. And if that protocol was followed by Wynn, then subsequent statements by public servants saying the thing isn’t yet decided imply that the government isn’t speaking with one voice. It’s true that there is a third party involved in rights to the Wynn Cotai land. But that’s unlikely to create major legal difficulties provided that all parties are working together for an amicable and equitable outcome—as they currently seem to be.

Errors—But Not Much Comedy

The East-West culture gap can catch even the smart operators unawares

Why do the Macau authorities and the foreign gaming companies so often seem to end up talking past each other rather than to each other in the discussion of the industry’s future? When discussing that topic, it’s generally not helpful to think only in stereotypes. The typical stereotype from the Chinese side is that Western operators bring the mind-set of their domestic business practices with them when they come to Macau and other parts of Asia and are not sufficiently respectful or understanding that local practices might be different. The Western stereotype about the Macau government is that it’s somewhat lacking in administrative experience and sometimes lacking in coherence on policy-making. That can lead to different branches of government giving conflicting signals from one moment to the next, goes the Western-generated stereotype.

An alternative reading is that there is no ‘good guy’ or ‘bad guy’ in this situation and that it’s principally a function of miscommunication. Despite the surface similarities between the human beings from the operator and government sides that make up this dialogue—people wearing smart suits, designer glasses and carrying smartphones—the cultural differences between them really are profound. Those differences are such that even in translation, what Party ‘A’ says and what Party ‘B’ thinks it hears can be very different. And that can happen even if—like Wynn Macau—the casino operator concerned has at least one Chinese executive at very senior level. By that reading, it’s a wonder there aren’t more misunderstandings than actually do occur.

There’s been a perception outside the territory (vocalised also occasionally by some Macau insiders) that prior to casino market liberalisation in 2002—and even for some years after that— the place was run almost as a private fiefdom by a handful of influential families with business interests in every key sector of the economy. For a while, goes that reading, this level of nod-and-a-wink government cooperation was also extended to Macau’s emerging new gaming industry. This was on the understanding that the industry would show its ‘gratitude’ in the traditional manner when the time came—i.e. by being suitably publicly respectful to Macau’s hereditary powerbrokers and by privately giving ground on important issues when the government found the political need for that. But there was a problem. That’s not generally how business is done in the West. There, any yielding on a rule or any other form of latitude by government is often perceived as weakness and as a cue for business to press for even more.

The fact that the casino operators haven’t always ‘bought in’ or at least maintained their side of this implied social contract on offer from the government is not necessarily due to bloody-mindedness. The two sides sometimes have conflicting needs. The pressure on the Macau casino operators—in common with all public listed companies— is to get the good news on things such as construction permissions and regulations out there as soon as possible in order to support the share price and reinforce investor confidence. The pressure on the Macau government is to be seen as maintaining the dignity of not only Macau sovereignty but Chinese national sovereignty over what foreign investment is made in the territory. That, in essence, means doing things at whatever pace and whatever format is comfortable for the government.

Dignity is an intangible thing. It’s whatever a person or a public body perceives it to be. Perhaps if the Macau SAR government had been around for more than 12 years it wouldn’t feel under such pressure on this issue and wouldn’t feel such a strong need to stand on its dignity. That dignity would be assumed and unspoken. But we are where we are. And the foreign operators haven’t always helped themselves in this regard. In the face of constant indicators from the Macau authorities on what cards to play and when to play them, operators have on occasion tried to play the cards THEY prefer—regardless. In other words, they tried to get local reality to conform to their idea of how things should be. That rarely brings satisfaction for anyone involved.

Current Issue

MGM “all-in” on Cotai

MGM “all-in” on Cotai Almost five years to the day since MGM first broke ground on its second Macau integrated resort, MGM Cotai finally opened its doors to the public on 13 February with the US$3.4 billion investment pinning its future on the premium mass market and an array of innovative features. By Ben Blaschke “... Tuesday, 27 February 2018 14:50

European vacation

European vacation Novomatic is targeting both the US and Asian markets with its recent acquisition of a 52% stake in Australian slot machine developer Ainsworth Game Technology.By Ben Blaschke WHEN Austrian gaming giant Novomatic Group confirmed the completion of its AU$500 million purchase of a 52.2% stake in Austra... Tuesday, 27 February 2018 14:48

Problem solving

Problem solving Inside Asian Gaming speaks with Davis Fong, Associate Professor in International Integrated Resort Management and Director of Institute for the Study of Commercial Gaming at the University of Macau’s Faculty of Business Administration, about the extent of gambling disorders in the Asian gaming hub... Tuesday, 27 February 2018 14:44

Gaming and the nine intelligences

Gaming and the nine intelligences Sudhir Kale explores the nine types of intelligence as defined by Harvard psychologist Howard Gardner and how they apply to the gaming industry.  DURING my decades of involvement in the gaming industry, I have had the pleasure of knowing many senior executives from all over the world. They are all... Tuesday, 27 February 2018 14:40