Inside Asian Gaming

June 2008 | INSIDE ASIAN GAMING 13 Government by special case is only a few steps away from rule by decree, and rule by decree is pretty much whatever a government wants it to be, or whatever the most powerful lobbyists or interest groups suggest it should be. Without recourse to a rule of law, created by politicians but accountable to society, rule by fiat may protect or advance the interests of a casino operator one day, but serve to hurt him the next. An example of this is the recent announcement by Edmund Ho of a moratorium on new casino projects. Most of the existing players inMacauwere delighted, and their company share prices picked up as well. They were probably also pleased to hear that the government may move to cap junket commissions. Tinkering The problem is that in the same announcement, Mr Ho indicated a possible cap on the number of gaming tables in the existing casinos. This is a clear case of moving the goalposts for political rather than commercial reasons. Mr Ho even said as much, indicating that Beijing approved of themove,whichmay have come as a surprise to those constitutional scholars who had assumed Macau was indeed autonomous under the Basic Law. Macau’s leaders have gone on record as saying the development of tourism and of a convention industry were key aims in allowing casino liberalisation. Did Macau simply give too much away too cheaply in its eagerness to attract world-class resort operators? When Steve Wynn went public questioning the level of regulation attached to Singapore’s casino business model, it was made clear to him he was welcome to try his luck elsewhere. The recent court case in theUnited States between Hong Kong businessman Richard Suen and Las Vegas Sands Corporation has given a fascinating glimpse behind the scenes into the decision making process surrounding the issuing of Macau’s gaming licences. It has left many people wondering who exactly was governing whom during that process. Market issues Clear goals matter, because as IAG mentioned last month in our editorial, provision of casino services in Macau is not a market based on perfect competition. It is an oligopoly, i.e., a form of imperfect competition with access controlled by government. A condition of that access in a rational world should be that market players serve the public interest, not the other way round. The admission recently by Jorge Oliveira in that Las Vegas courtoom—suggesting Galaxy Entertainment should never have been allowed its own Macau gaming licence after Las Vegas Sands pulled out of its planned partnership with the company— was astonishing. Some may admire Mr Oliveira’s pragmatic decision to allow Galaxy to go it alone and bundle LVS’s permission as a sub concession from the Galaxy licence. It was a way of saving Macau from possibly expensive and lengthy litigation. Other less generous souls might think it was another case of Macau ‘rule by exception’ rather than government by rule of law. Predictability Rule by law rather than rule by decree matters because as the Singapore government recognises, setting up casino businesses is capital intensive and operators need to know that the assumptions they used to crunch their numbers will still have some relevance ina year’s time.Alternatively, they need a clear and transparent timetable for change. If gaming tax is 35% of the gross today, they’d quite like to know whether it will be 35% of the gross in a year’s time. If not, they’d like some warning of possible rises or falls so they can plan their strategies accordingly. When LVS mentioned in its 2007 annual report that corporate tax was due to be introduced on its operations in Macau from 2009, the company hinted that the government might be persuaded through lobbying to limit the imposition of the tax to the gross of non-gaming revenues. Lobbying goes on in all markets all the time, but special case lobbying is more effective when politicians have no clear idea of what their policy objective is in the first place. Focus What is the purpose of the proposed imposition of corporate tax on Macau gaming operators in 2009? Is it to raise money for specific infrastructure work; is it to pay for an engraved gold watch for the outgoing chief executive Edmund Ho? Or is it simply because the politicians have realised Macau is a roaring success and a regular little gold mine so they might as well squeeze the operators until their pips squeak? As any bartender will tell you, squeeze a lemon too hard, and eventually it runs out of juice. Macau might be better to nurture its lemon grove today so it will have plenty of juice in years to come. Rule of Thumb or Rule of Law? Ramshackle development in Macau Singapore: a testament to urban planning Cover Story