Interested in bidding for a Macau casino concession? Buckle up – because you’re in for quite a ride! And be prepared to get out your check book, bring world-class business innovation in a very wide range of fields, and get involved in a truckload of loss-making businesses which are to everybody’s benefit except your own. Oh, and most of them have absolutely nothing to do with casino gaming.
If that doesn’t make much sense to you, well you’re not the lone ranger! Read on, my friends, to find out what on earth I am talking about …
On Friday (29 July) the Macau government released its RFP documents for the tender for the Macau casino gaming concessions set to run 1 January 2023 to 31 December 2032. A key element of the RFP lists the expectations of the Macau government of the tenderers. By closely examining these we can glean much of the government’s ambitions for the SAR for the decade ahead.
The document contains a stated overall goal for Macau:
“Promote Macau as a world travel center, encourage the city’s diversified development and grow its international reputation.”
As Meat Loaf sung, Two Out of Three Ain’t Bad. If that’s too cryptic for you, how about I refer to the overall goal as a “thorn between two roses.”
The document continually refers to the government’s desire to see Macau as an “international” city with “international” or “world-class” offerings. A lofty and noble ambition! More on that below …
As for the diversification bit – well, I have my doubts. But let’s push on.
The document outlines no less than 11 – yes, eleven – specific projects the tenderers must deliver in pursuit of the overall goal. No optionality here. It further insists that tenderers must outline, with specific and annual quantitative metrics, the following information for each of the eleven projects:
- Characteristics
- Content
- Scale
- Location
- Initial investment
- Annual ongoing investments
- Implementation plans
- Economic benefits
- Proportion of non-gaming revenue
- Amount by which Macau visitor stays will be increased
Having completed undergraduate and post-graduate degrees in business schools on two different continents and starting my first business at age 19 some 33 years ago, I will, for a moment, be a bit immodest and say I know a thing or two about business. And my experience has taught me this – don’t try to do 11 things at once! It’s better to do two or three things well than 11 things badly. But anyway, let’s accept we have to do 11 things and just push on regardless …
Below is a description of the 11 (yes, still eleven) projects the SAR is demanding of the tenderers, along with required activities specified in the RFP document for each of the 11.
Project 1: Increase international tourism
- Hold attractive events
- Undertake marketing
- Develop infrastructure
- Increase Macau’s profile overseas
- Make Macau desirable to international tourists
- Optimize Macau service experience
- Consolidate existing overseas feeder markets
- Create new overseas feeder markets
Our commentary: The goal is noble, and the concessionaires don’t need to be told to do this. They definitely want more customers from outside China if they can get them. But Macau does everything it can to discourage international visitation. Non-Chinese are not made to feel welcome. From the lack of spoken English or English signage to foreigners living in Macau being treated as second-class citizens to the never-ending obsequiousness of Macau to mainland China, foreigners just don’t feel comfortable in the SAR in this day and age. Access is difficult with flights to Macau almost all from mainland China. But here’s the big one – borders are currently closed with a quarantine stricter than just about anywhere else in the world! And there is no end in sight to this. Honestly, this one is a total bust.
Project 2: Develop MICE
- Increase and improve the quantity and quality of MICE venues and facilities
- Improve MICE tourism planning, organization and international marketing
- Attract more multinational companies to Macau for MICE
- Hold more international and large-scale themed trade shows
- Cooperate with other GBA cities to develop Macau MICE
Our commentary: You just have to ask one question – why would a multinational company hold a major MICE event in Macau instead of Hong Kong, Shanghai, Tokyo, Bangkok, Singapore or just about any other major city in Asia? Where’s Macau’s comparative advantage? We don’t have enough hotel rooms for major events, the rooms we do have are relatively expensive, and transportation infrastructure is lacking. We can’t even fully utilize the MICE facilities we already have, never mind build more. Another bust.
Project 3: Develop entertainment
- Regularly hold international film and television entertainment performances, music or singing competitions, film and other festivals, concerts, cultural performances, carnivals, and so on
- Improve entertainment venues and their management
- Cooperate with local companies to cultivate entertainment talent
Our commentary: Well, we already have an international film festival and that has hardly set the world alight, has it? The “Indian Oscars” came to Macau in 2009 and 2013 and has not returned since. The only successful resident show Macau ever had was The House of Dancing Water and COVID has killed that. We sometimes have Chinese concerts but why come to Macau to see them when hotel rooms are expensive and transportation infrastructure is lacking – better to see famous artists in Hong Kong, Taipei, Seoul or Shanghai. Yet another bust, I’m afraid.
Project 4: Hold major sporting events
- Regularly hold international or regional major sports events (on land and water and including eSports), which must be internationally renowned, large, attractive, diversified, entertaining and innovative
- Improve the quantity and quality of facilities at the event venues
- Strengthen cooperation with local SMEs
Our commentary: We have the Grand Prix, and that’s it. We have a comparative advantage on that event for historical reasons. Galaxy is to be congratulated for trying with the FIVB volleyball event and the Macau marathon, but they are hardly world-class events. Who can forget the 2012 marathon when the 42.2-kilometer course got around three “bonus kilometers” due to the human error of the marshals! Macau doesn’t have world-class sporting facilities and why would the concessionaires invest in such facilities when they are already way overcapitalized under the “new normal” of Macau GGR maybe a quarter of the 2013 peak? Sorry, another bust.
Project 5: Promote art and culture
- Regularly hold exhibitions of internationally renowned art, craft, cultural relics, animation, fashion, pictures and luxury goods
- Build distinctive, large-scale, high-quality iconic art and cultural venues including theme museums, art galleries and theaters
- Invite international art masters to Macau for exhibitions and to hold lectures
- Regularly organize world-class literary and art events
- Cooperate with the local arts community
- Support the production of film and television products
- Contribute to the sustainable development of the cultural and creative industry
- Support and promote art education
- Develop projects that promote the exploration, use and showcasing of Macau’s historical and cultural resources
- Revitalize external urban spaces of business premises
- Set up public art teahouses and similar structures
- Develop landscaping and hold outdoor exhibitions and other events
Our commentary: Macau does have a bit of an arts scene. It’s hardly world-class (think New York, Paris, London, Tokyo) and the concessionaires already do a little bit here. But it’s pure charity, not a pataca in revenue to be seen. Not quite as much of a bust as the others, but still pretty much a bust.
Project 6: Develop health-based tourism
- Develop health-oriented tourism products such as health management, medical care, traditional Chinese medicine health care, beauty, spas and other projects and products
Our commentary: What? Remember Malo Clinic in Venetian? Bust. Why on earth would people come to Macau for cosmetic surgery when they can go to Thailand or Korea, or even Vietnam, which has been excelling at this kind of tourism for decades. And as for TCM, what does Macau have that any other major city in China doesn’t? Nothing. You want spa and massage? Go to Zhuhai or Shenzhen and get it for less than half the price! Total bust.
Project 7: Create themed amusements
- Create an international brand with scale, attractiveness, new styling or application of new technology, with original panoramas and storylines
- Attract groups of people diverse in age and other characteristics
- Developments should complement similar facilities in neighboring areas
Our commentary: Meh. Theme parks are so 1990s. And we have Chimelong in Hengqin, and Disneyland and Ocean Park in Hong Kong. And plenty of theme parks in mainland China. And where’s the land in Macau for this? Busto.
Project 8: Promote Macau as a “City of Gastronomy”
- Strengthen the diversified expansion of food elements
- Cooperate with local SMEs to promote local food specialties
- Introduce a range of international standard fine dining
- Develop international standard fame and creativity to be recognized by famous international evaluation agencies
- Develop special food and wine culture and video content
- Periodically hold a range of food events, exhibitions, festivals and so on
Our commentary: Finally, one that makes sense! F&B goes hand in glove with IRs. Everyone loves to eat fantastic food at international five-star resorts, and we already are doing this well in Macau. Look at all those Michelin stars! It is a loss-leader, but a loss-leader that makes sense within the overall marketing of world-class IRs. Green light this one!
Project 9: Develop community-based tourism
- Use Macau’s historical and intangible cultural heritage elements
- Cooperate with the community to plan, organize and launch tourism products which activate, use and explore the cultural charm and tourism resources of the old part of the city and communities with unique Macau characteristics
Our commentary: Actually, there is something here. Not much, but something. Macau does have a unique east-meets-west culture quite different to anywhere else on the planet. Think of the mosaic footpaths, the pastel-colored buildings, the blue and white decorative tiles, and other unique characteristics of Macau. However, given the very short time visitors have in Macau, they’re not going to be exploring Old Taipa Village or the winding back streets of the peninsula. A better idea is to bring some of these cultural elements into the IRs à la the Grand Praça at MGM Macau or the Food Street at Broadway. Not a complete bust, but there’s no separate revenue to be made here.
Project 10: Develop maritime tourism
- Effectively use the sea areas around Macau and create new non-urban tourism projects
- Design and launch coastal tourism products with creative and interesting maritime offerings such as sightseeing, recreation and sporting competitions
- Develop international water sports events and festivals
Our commentary: Oh please. No. Have you seen Macau beaches? Compare our beaches and coastal waters with those of Thailand, Malaysia, the Philippines or Australia and you’ll soon realize this makes no sense.
Project 11: Develop other projects
- Supporting technological innovation in Macau
- Drive the development of technology-related industries
- Creating a world-class tourism and leisure experience for tourists from all over the world which brings development opportunities to Macau SMEs
- Develop non-gaming projects that drive Macau economic diversification and sustainable urban development
Our commentary: Tech? Really? We’re going to beat Silicon Valley or Shenzhen? I don’t think so. Scrap that idea right now. Bust.
Understanding comparative advantage
We should focus on activities we have a comparative advantage at. The City of Gastronomy idea is very good for Macau and we’re already well underway with that one. We could possibly focus on increasing international tourism and developing a world-class MICE industry if the government is truly prepared to do the three things necessary to make that work:
- Make Macau an international-friendly destination (which it is currently very far from)
- Fix Macau transportation infrastructure (international access including flights, internal transport issues)
- A massive increase in the number of hotel rooms and a reduction in room rates
However, over the past decade the government has demonstrated very little motivation to do any of these three things.
I’ve repeated several times that to successfully diversify into other industries, Macau needs to find areas it has a comparative advantage at. Any undergraduate business school student can explain that concept. A comparative advantage can arise because of history or location, the skills of the people, or other factors. We need to ask the question, “What industry or activity is Macau better at than other places?” Only once that is answered will we know what diversified industries will succeed.
And the honest answer to that question might just be, “Nothing – other than casino gaming.”
Government abdication
It seems to me that via these demands the government is abdicating city development responsibilities it should be addressing itself to a private sector which is already on its knees. Through the pandemic these companies have suffered hundreds of millions or even billions of USD in losses and are now as a group burdened by debt which has grown from US$5 billion to over US$20 billion to fund those losses, yet the government is asking them to invest in many activities which are destined to fail financially. Where is the money for all this coming from?
While the government itself is sitting on tens of billions of US dollars of tax revenue accumulated over the past 18 years courtesy of one of the highest casino gaming taxes in the world, the concessionaires are being pummelled by the COVID-zero (read economic-zero) policy and the government’s socialist economy-style dictate that thousands of excess workers continue to collect monthly pay checks despite being totally redundant – just so that Macau’s unemployment numbers don’t skyrocket.
Isn’t it the government’s job to engage in most of these activities? Just look at the fine job the Singapore Tourism Board, the Las Vegas Convention and Visitors Authority, the Tourism Authority of Thailand and even the Philippines’ Tourism Promotion Board do in their respective markets, with the enthusiastic support of their political masters. I actually have some sympathy for the Macao Government Tourism Office (MGTO). Macau’s issue is not necessarily at their level, which should be one of execution, but at the “think tank”, strategic and political level.
Mission impossible
Another astonishing aspect to all this is the completely unreasonable time frame offered for the tenderers to do all this work. We’ve known these concessions were going to expire for 20 years, yet what the government is asking tenderers to do is essentially create dozens of separate business plans for world-class business ideas in each of these 11 project areas in six weeks.
If a consulting client asked me to create dozens of business plans in 11 separate areas complete with quantitative metrics or qualitative descriptions in 10 categories for each of the dozens of business plans, I’d estimate perhaps a year to do a world-class job. Six weeks is a total mission impossible, no matter how much money you throw at the task. The Macau concessionaires have done stupendous work developing Macau over the past 18 years, but they are not magicians or sorcerers.
Given the stone cold economic-zero of the current Macau market, the incredibly onerous expectations being imposed upon concession tenderers and the wide-ranging concerns of the international investment community about any investment connected to China, I suspect the Macau Tender Commission is in for a rude awakening. Aside from the already pot-committed existing six concessionaires, who on earth is going to be interested in investing in Macau?
