Inside Asian Gaming

MAY 2018 INSIDE ASIAN GAMING 25 service provider casinos – operations that are essentially outsourced under the license of SJM predominantly and to a lesser extent Galaxy and Melco – applying for a full license of their own. If this scenario were to play out, Govertsen says, it “would be a negative for SJM as that would result in a cessation of the management fees paid to SJM. It’s a minority of SJM’s profit, but could still have the potential to sting.” There is one other game-changing scenario that presents as a reasonable possibility, particularly given recent controversies surrounding Wynn Resorts: rather than welcome a seventh concessionaire, the government may replace one of the current license holders with another. On that outcome, opinions are divided. “I’m not expecting many surprises or, should I say, bad surprises,” offers Professor Lam when quizzed on this possibility, stating that he “doesn’t believe” any of the current concessionaires are in any danger of being frozen out once new licenses are issued. Zhu isn’t so sure. “With what happened to Wynn, it would not surprise me if Wynn Macau is replaced by a player (or two in the case of a seventh concession) with solid China background, while the other five will remain as-is. “Steve Wynn’s influence, both in the industry and beyond, has been severely diminished. Especially without his involvement and influence in the bilateral politics, the Wynn brand does not have much left in Macau.” Adds Govertsen, “Wynn, for obvious reasons, has recently increased their risk profile. However, many steps have been taken to mitigate this risk including the departure of Mr Wynn, the sale of his shares and the investment by Galaxy (which recently surprised by buying a 4.9% stake in Wynn Resorts). Otherwise, the other five feel secure.” Galaxy’s Wynn investment throws up its own questions, including what exactly the Macau-born casino giant intends to do with its share. Govertsen suggests that Galaxy’s presence is a bonus for Wynn, eliminating some of the licensing risk overhang had Wynn continued to operate “without a takeover or significant outside investment.” In a March note, he also raised the prospect of an acquisition scenario, in which case Galaxy might buy out the entire company, sell off Wynn Resorts’ US assets then split up Macau. “Considering Galaxy’s long-term strategic view that Cotai represents the future and will, on a relative basis, have much longer legs than the peninsula, we could see another trade go up with another entity acquiring Wynn Macau on the peninsula,” Govertsen speculated. “Keeping Wynn Palace on Cotai would give Galaxy the premier high-end asset in that geography (further cementing their status as the premium high-end operator), while also giving them further growth pipeline in the Phase 2 site at Wynn Palace. Combined with Phases 3 and 4 at Galaxy Macau, and Broadway, this would give Galaxy no less than four major projects.” Such a scenario seems less likely now given Wynn Resorts’ recent efforts to settle long-running legal disputes and strengthen its board following Steve Wynn’s departure. It’s also notable that Galaxy’s 4.9% stake falls just below Macau’s current 5% cap on cross-ownership. Zhu expects that cap to remain under the government’s new licensing laws to “prevent cross-holdings from becoming too complicated.” He also believes there has been a good balance under the current concession system in regards to MGM’s Pansy Ho and Melco Resorts’ Lawrence Ho – both of whom hold a small stake in SJM. As for other key requirements under a public tender, McCartney says, “There must be a reflection on what has happened in the last 20 years, the results, and where Macau wants to be in [another] 20 years. “The new competition is a fantastic and unique window of opportunity to present the vision and the path to the future of tourism in the Macau SAR. I hope that these criteria will be designed accordingly.” COVER STORY It has been estimated that a Tokyo IR could generate around US$6 billion in revenue per year.