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[email protected] Waiting on the Table Count I n a market currently plagued by a perfect storm of regulatory risk, the next major indication of where things are headed will be the allocation of gaming tables for the upcoming second wave of Cotai resorts. The final decision on the table allocation for Phase 2 of Galaxy Macau, scheduled to open on 27th May, is going down to the wire. On 19th March, Francis Lui, vice chairman of Galaxy Entertainment Group, said “We believe that we will start soon the discussions with the government on the number of tables [that will be allocated].” With an exact number needed to finalize crucial opening-day details such as staff count and layout of the casino floor, Galaxy will need to be highly responsive to adjust to whatever it receives. Also anxiously awaiting its table allotment is Melco Crown Entertainment’s Studio City Macau, expected to open in the third quarter. Both Galaxy Phase 2 and Studio City were designed with capacity for 500 tables. Phase 2 is priced at US$2.5 billion, with a further $641 million spent on the adjacent Broadway at Galaxy Macau, which will open on the same day on the former Grand Waldo site. Studio City costs $2.3 billion. Recouping those investments could be difficult given expectations of an allocation of around 200 tables at each. Analysts at UBS Securities Asia note the Macau government’s allocation of tables remains “a near term overhang” for the sector’s battered share prices, and warn that the eventual outcome could well disappoint on the downside. There are two possible explanations for why the government has left the decisions to the last minute. The simple one is that they’re disorganized, an assessment corroborated by lengthy delays on several critical infrastructure projects. A more positive view is they’re perhaps waiting to see whether there’s any let-up in the market’s softness over the following weeks before finalizing the allocations. Of course, continued weakness could signal to the government either that it should support the operators by giving them more tables or, alternatively, that given declining demand, operators simply need to move the less productive tables at their existing properties into their new ones. The government first resolved to limit the market-wide number of gaming tables in March 2010. At the time, there were around 5,000 tables throughout Macau, and the government said the total would be capped at 5,500 through 2013, after which the annual increase would be maintained at 3%. The government has already demonstrated willingness to disregard the cap. The market-wide table count at the end of 2013 was 5,750—250 in excess of the limit. By the end of 2014 the gap between the cap and reality had narrowed, with the market’s 5,711 reported tables just 46 more than the notional ceiling. There’s not much chance that gap will narrow further, however. Even if the government allocates a mere 150 tables each to Phase 2 of Galaxy Macau and Studio City, it’d exceed the 2015 limit by 176. Continued failure to stick to the cap could encourage the government to increasingly disregard it. These are also starkly different times to 2010, when the government felt compelled to rein in the overheated gaming sector. Now, there seem to be too many brakes on the industry, including China’s widespread anti-corruption campaign and slowing economy, the crackdown on illicit fund flows out of the mainland and the imposition of a smoking ban on all Macau main-floor gaming areas from October. There’s talk of Macau seeking a “new normal,” but surely the path to that new growth trajectory doesn’t have to entail such big steps backwards—the 49% year-on-year decrease in gaming revenue in February is expected to be followed by a 39% drop in March. The hoped-for relief brought by new resort openings could be hindered if they’re not given a decent allocation of tables. The question then is how much pain is the Macau government willing to inflict on the market to get it onto a sustainable growth track that encourages economic diversification? Year No. of Tables 2013 5,500 2014 5,665 2015 5,835 2016 6,010 2017 6,190 2018 6,376 2019 6,567 2020 6,764 Capacity Constrained Notional Limits Imposed by Macau’s Table Cap