Inside Asian Gaming

February 2012 | INSIDE ASIAN GAMING 33 Macau Policy as Hong Kong—the government is the landlord. You can’t just buy a piece of land privately and then apply to build a casino as you might in the US. So when Jaime Carion, Director of the Lands and Public Works Bureau (known by its Portuguese initials as DSSOPT) reportedly told the local media in early February that two of three Cotai land grant applications “could be approved within this year,” what he was really saying was ‘someone’s going to be unlucky in 2012’. For the record, the three operators that currently have a Cotai land grant application pending with the government are: Wynn Macau; Sociedade de Jogos de Macau (SJM) and MGM China. In comments reported by the local television news channel TDM, Mr Carion stressed that the approval process of the projects was difficult, especially when it came to the calculation of land premiums, overall construction area and fire safety hazards. “Fire safety regulations must be followed strictly. There can’t be any loopholes. The gaming operator had some adjustments regarding this, but in the end they made a decision,” he said, as quoted by TDM News. “In terms of the proposal the operators submitted to the government, they have to be do-able technically, architecturally and legally— then we enter the approval process,”Mr Carion added. If Mr Carion’s take on things is the settled position of the Macau government (and from previous experience of statements by Macau officials, that’s by nomeans certain), it does lead to an inescapable conclusion. One of the three casino operators currently with an application for a new resort on Cotai will be put at a competitive disadvantage to the other two, because its land grant permission will be delayed, and by implication its construction project will be delayed. But is that the correct inference to draw? Let’s break it down. Even if only two of the three pending projects have their land applications approved during 2012, it doesn’t mean the two ‘lucky’ projects will be able to start construction in 2012. Unless the government radically changes its policy on labour importation, there will still in likelihood be a shortage of construction staff in the Macau market. In that context, all Mr Carion is really telling us is that the government plans to give us more of the same; i.e., a policy of drip feeding new casino supply into the system, rather than a second ‘big bang’ of the sort we saw in the first building phase from 2003 to 2009. Rumours around town that MGM China has been actively recruiting labour for its pending Cotai project doesn’t mean MGM has been given the nod as one of the lucky ones on land permission. It could simply be a defensive posture to garner as many construction staff work permits as possible ahead of its market rivals; given the amount of time it can take to process them (three to six months is not unusual). The Macau government’s ‘we’re too busy’ defence wouldn’t wash in a litigious society such as the United States, where it would most likely expose public servants to a lawsuit for maladministration. We must also throw into the mix the fact that Sands Cotai Central—the US$4.2 billion ‘extension’ to Las Vegas Sands Corp’s Cotai infrastructure—is only just concluding its first phase. Arguably, the second phase should be given priority for labour permits over any rival Cotai schemes. This is because the company’s Hong Kong-listed unit Sands China already has land permission from the government for the whole Sands Cotai Central site (a.k.a. Cotai 5 and 6) and is paying a land premium for the whole of 5 and 6, not just the phase one portion (according to a statement on page six of LVS’s 2011 annual report issued recently). LVS has a covenant from the government that it must develop the whole of 5 and 6 by May 2014 or risk losing the unfinished portion, although in reality it’s likely the company will be given an extension. Another poser is the land grant status of Studio City, Melco Crown Entertainment’s planned second resort on Cotai; which it took on from a deadlocked outside consortium last year. Studio City had already been given land rights and an initial premium had been paid to the government. But there’s now a technical question about whether the Studio City land application process must go back to the starting line if, as seems likely, the construction isn’t completed by the originally mandated date of 2013. All these factors—and possibly some others that are not yet public knowledge— could combine to result in horse trading between the Government and the industry over timings on outstanding Cotai land permissions and gazetting for building work to commence or (in the case of Studio City) recommence. MGM China, SJM andWynn all have available to them powerful arguments for special treatment. “Given the high stakes, we can certainly envision the operators continually enhancing their proposals to include amenities (e.g. room counts and types, amount of expected local employment, scale of non-gaming attractions, total dollar investment, etc.) perceived to be the most likely to result in first approval,” said Union Gaming Research in a note on the news. Union Gaming adds that if the principle of ‘first come first served’ were applied, then the chronological order would be: 1) Wynn Macau, 2) SJM Holdings and 3) MGM China. “This jibes with certain operator commentary, with Wynn having already announced an agreement, as well as the land premium payment,” stated Union Gaming. “SJM more recently noted that an agreement had been reached in principle, although the land premium payment had not been determined.” MGM China operates on a gaming sub- concession from SJM. SJM’s concession— and thus the related MGM sub-concession— expires in 2020, two years earlier than the other concessionaires and sub- concessionaires in the market. The anomaly was created because when Dr Stanley Ho’s original 40-year gaming concession expired Cat among the pigeons—Jaime Carion, Director of Macau’s Lands and Public Works Bureau