Macau - Gaming GGR may suffer from new money exchange law

Analysts warn new Macau law criminalizing illegal money exchange to cause short-term pain to gaming stocks

 by Ben Blaschke Tue 13 Aug 2024 at 05:37
www.asgam.com/index.php/2024/08/13/analysts-warn-new-macau-law-criminalizing-illegal-money-exchange-to-cause-short-term-pain-to-gaming-stocks/

A new law being discussed by Macau’s Legislative Assembly to criminalize illegal money exchange in the city’s casinos and integrated resorts is likely to negatively impact investor sentiment and further impact gaming stocks in the near-term, according to Citibank.

In a Monday note, analysts George Choi and Ryan Cheung issued a Downside 30-day Short-term View on the Macau gaming sector due to potential near term share price volatility.

“In our opinion, the news about the Macau government decision to criminalize illegal money exchange activities could bring some noise and lead to near term share price weakness,” they wrote.

“Although most players have their own legitimate ways to get their funds over to Macau and these small money touts are unlikely the main fund facilitator for premium mass players, we are afraid that this negative news could add uncertainties and hurt the already fragile investment sentiment against the Macau gaming sector.”

Citi’s concerns came on the same day that Bloomberg Intelligence noted a collective 3.4% decline in Macau casino stocks in response to Macau’s moves to criminalize illegal money exchange. This included a 5.7% fall for Galaxy Entertainment Group and 5.2% for Sands China.

As reported by Inside Asian Gaming, a new bill to be introduced will impose a penalty of up to five years’ imprisonment on anyone found guilty of exchanging money for the purpose of gambling. It also stipulates that an offense will include unsanctioned money exchange business conducted in a casino or an ancillary facility of a casino, including hotels, entertainment complexes or other commercial facilities.

Despite such short-term concerns, Citi noted that latest visitation trends continue to show that Macau remains one of the top outbound travel destinations for mainland Chinese.

It also described the currently low trading level of Macau gaming stocks as unjustified and therefore a unique investment opportunity form long-term investors.

“The share price correction on the sector year to date is overdone and beyond fundamentals, in our view,” Citi’s analysts wrote.

“What some investors are now concerned about Macau (GGR growth, sustainability, intense competition etc) cannot be worse than COVID – arguably the most catastrophic event in its history. At that time Macau had close to zero revenues and there was no visibility on reopening. Industry daily burn rates amounted to millions of US dollars and casino operators had to borrow to stay afloat.

“In contrast currently visitation has been gradually recovering, averaging 120,000 a day in early August. Mass GGR has recovered to 115% vs pre-COVID and shown positive year-on-year growth for consecutive months contrary to concerns about the weak Chinese economy to hurt demand.

“[As such], share prices of some Macau names are unjustifiably trading at below or near COVID levels and we suggest long-term investors accumulate Macau.”

Money touts may sidestep Macau criminalisation: experts

Aug 13, 2024 Newsdesk
www.ggrasia.com/money-touts-may-sidestep-macau-criminalisation-experts/

Money touts may sidestep Macau criminalisation: experts

Macau’s intended criminalisation of unlicensed money-changing within a casino setting for the purposes of gambling may have the effect of driving such trade out of casinos to other places in the city, say several experts canvassed by GGRAsia.

The provision, part of a draft bill being scrutinised in the city’s Legislative Assembly, specifies that unlicensed money-changing would be criminalised when taking place in gaming or non-gaming areas of casino venues.

Criminalisation “may slow down the flow of ‘money changers’ in and around casinos,” but “it’s unlikely to end” their presence in the market, said António Lobo Vilela, a former adviser to the Macau government on gaming-related matters.

“They will likely proliferate elsewhere, in some other scenario – outside of casinos or their surroundings – or guise,” he noted.

Mr Vilela added: “The business could be reduced to a ‘cash courier’ activity: the money change is done outside Macau, and Macau is the place where the funds are made available.”

Macau lawyer Bruno Ascenção told GGRAsia: “The money exchange activity in Macau will likely shift away from casinos but will continue as long as there is a steady flow of tourists to the region.

“The capital flow restrictions imposed by mainland China create a need for mechanisms to bypass these restrictions. And these mechanisms will persist until such restrictions are lifted.”

Mr Vilela said that were Macau’s criminalisation step to make a major dent in such unauthorised activity, the cash “amount at stake is tremendous, and probably none of the players want it to disappear completely”.

He observed, referring to the decline of the Macau junkets – known officially as gaming promoters – that traditionally helped arrange Macau gambling credit for VIP players from the mainland and beyond: “The void left by the casino gaming promoters’ ‘disappearance’ involves significant money. The junket activity was valued at around US$17 billion in 2019 and moved around US$600 billion.”

The first figure is based on Macau regulator data for the MOP135.23 billion (US$16.9 billion) in VIP gross gaming revenue – most of it via junkets – generated in 2019.

Mr Vilela added that even in the post-junket era, “high-rollers probably don’t use the ‘money changers’ in and around casinos,” as likely “they arrive in Macau with everything organised in advance”.

‘Premium mass’ risk

More vulnerable, suggested the former government adviser, was the so-called ‘premium mass’ segment.

“The VIP market has long since been replaced by the premium market, and it seems inevitable that the latter will suffer from the decline in ‘money changers’,” suggested Mr Vilela.

He referred to a past route also aimed at getting round China’s limits on the amount of its currency that can be moved from the mainland into Macau.

“Remember the putative sales of pawnshops, the point-of-sale linked to mainland China, so [sales] operations carried out in Macau could be deemed domestic,” he observed.

The criminalisation provision – announced on Friday in an updated draft of the ‘Law to Combat Gambling Crimes’ – will carry a penalty of up to five years’ imprisonment for those found guilty.

The amended bill is likely to receive its second and final reading at a plenary session of Macau’s Legislative Assembly before the end of the calendar year, said on Friday veteran legislator Chan Chak Mo.

Mr Vilela told GGRAsia he would “have to review the final draft,” to understand whether criminalisation would cover “a broader spectrum than ‘money changers’ in and around casinos”.

He added: “If not, it will only drive them outside casinos and their surroundings, which makes little sense.”

Mr Ascenção said that “as with many similar regulations concerning financial transactions,” the issue was not only the wording, “but rather how it is implemented”.

Though he also observed: “Most big players probably have funds outside of the mainland without having to resort to money exchangers.”

Nonetheless, a number of brokerages said in notes after Friday’s announcement of Macau’s criminalisation plan, that such a step could hurt investor sentiment on Macau’s listed casino firms.

Lawrence Ho: Seasonality more than money exchange crackdown behind recent softness in Macau gaming market

 by Ben Blaschke Wed 14 Aug 2024 at 05:37
www.asgam.com/index.php/2024/08/14/lawrence-ho-seasonality-more-than-money-exchange-crackdown-behind-recent-softness-in-macau-gaming-market/

Melco Resorts Chairman and CEO Lawrence Ho has played down the impact a recent crackdown by authorities on Macau’s illegal money exchange activities has had on the gaming market, describing seasonality and the Euro 24 football championships as more meaningful contributors to recent softness.

He also noted that gaming volumes have shown steady improvement since mid-July, with the impending completion of upgrade works at both City of Dreams Macau and Studio City expected to further support growth for the remainder of 2024.

Ho was asked about the impact of the money exchange crackdown – first announced by mainland authorities in May – during Melco’s 2Q24 earnings call overnight. The issue again hit the news late last week when Macau’s Legislative Assembly unveiled plans to criminalize money exchange gangs under the “Illegal Gaming Offences”, which is punishable by up to five years of imprisonment.

“I think the money changer issue, it’s not new,” Ho said. “It’s been talked about for over a year now so it’s not a surprise to us.

“Of course, it has a bit of an impact in terms of liquidity to players, but I think the bigger issue in terms of the softness in June – and we saw growth in July already and August is off to a very good start – it’s more related to the Euro champs, which lasted from mid-June to mid-July.

“Also, this year the Chinese school holiday started two weeks later, so it didn’t really start until mid-July. What happens there is parents want to stay home and make sure that the kids done with final exams before they travel.

“So, I think some of the softness that was seen in June and July, that was more of an impact rather than money changers. And with regards to the money changers, we’ve seen this in Macau over the years. I think this has been a story 10 years in the making. I don’t think it’s going to change the thesis into Macau dramatically.

“If anything, we’re very positive and optimistic about the future. I think what we’ve seen so far in August is a more typical summer so we’re happy heading into the second half of the year. And I believe that we will continue to see growth.”

Melco, meanwhile, continues to revamp its gaming floors, with work ongoing on the mass floor at City of Dreams Macau, new VIP slots areas in the works and a “reactivation” of the property’s entrance facing MGM Cotai and Wynn Palace.

At Studio City, recent work includes floor repairs, the repositioning of some tables games slots, and the opening of a new stadium and high limit area.

Ho said the work was designed to “re-establish our former premium mass leadership position.”

On the rollout of smart gaming tables, Melco said there were currently 30 tables online at Studio City with all 215 baccarat tables scheduled to become “smart” by October. City of Dreams Macau will follow suit by March 2025.

Also expected to open in early 2025, slightly later than previously planned, is the new-look House of Dancing Water resident show following a four-year hiatus, with Ho noting that rejuvenating the experience has proved more challenging than expected.

“It’s not just a return of the old show – we are adding some new elements into it,” Ho said. “You know, by next year it will be close to 15 years since we first opened [House of Dancing Water) and there has been some advancement in technology.

“The grand reopening, we want it to be a real spectacle, so we’re still hoping for end of the year but given how it’s a technologically heavy show with a lot of machinery, we are having some difficulties with some of the machinery.

“So, I think potentially it will probably open in Q1. At the same time, because it’s a grand reopening, I don’t want to eliminate certain acts from it at the beginning. I want to make sure that everything is available from day one.

“House of Dancing Water traditionally has given us thousands of people of additional traffic to City of Dreams Macau and it’s always been an icon of the tourism office of Macau. So, we’re excited about that.”

Macau legislative amendments to target illicit money exchange operations follow mainland China directives

Nelson Moura - August 20, 2024
agbrief.com/intel/deep-dive/20/08/2024/macau-legislative-amendments-to-target-illicit-money-exchange-operations-follow-mainland-china-directives/

Recent legislative amendments in Macau aim to tackle the rising problem of illicit money exchange operations, a key issue that has caught the attention of both local and mainland Chinese authorities, a gaming researcher and academic tells AGB.

Professor Carlos Siu, Center for Gaming and Tourism Studies, Macao Polytechnic University

“With the increased number of cases related to illicit money exchanges—such as unauthorized credit services, cross-border money remittances, and group fights among casino patrons—it’s clear that such acts are not vastly different from those of junket operations in the past. There is a pressing need to suppress these activities”, Siu told AGB.

Recently, it was revealed that Macau is set to criminalize illegal money exchanges at casinos.

The proposed law, currently under review by the 2nd Permanent Committee of the SAR’s Legislative Assembly, includes provisions for a maximum penalty of five years in prison for anyone involved in unauthorized currency exchange for gambling purposes. This legislation will also cover any exchange activities in casinos and surrounding tourist facilities.

All related facilities used for games of chance or other business activities will be deemed part of the ‘casino,’ expanding the scope of regulation significantly.

Beyond prison sentences, offenders may be banned from entering Macau casinos for periods ranging from two to ten years. These changes are expected to go to a vote later this year, reflecting the government’s commitment to tackling this issue head-on.

The president of the 2nd Permanent Commission of Macau’s Legislative Assembly has highlighted that the activities of money exchange groups have intensified and have led to disruptions for other players and the overall functionality of casinos.

Following orders from the above

China, illicit money exchanges, Macau

The response from the SAR authorities comes after China’s Ministry of Public Security urged enhanced cooperation between security forces in Macau and the mainland to address these illegal operations effectively.

The emergence of unregulated “money changers” near Macau’s casinos has become a pivotal method for shifting funds across jurisdictions, particularly between the mainland and Macau.

The link between these illicit practices and the earlier junket system highlights the desire for tighter regulatory control to ensure a safer and more stable gaming environment.

The question of whether more policies will arise to combat these illegal activities has also been addressed by Siu, who commented to AGB that more policies to handle these activities and operations are expected from both sides of the border.

When asked about the potential impact on Macau’s gross gaming revenue (GGR), Carlos Siu stated that “such acts will have some effect on the revenue from the VIP segment. For the mass floor, it is not going to affect the revenue.”

Macau Mass Gaming Market

For Siu, this suggests that while high-stakes gambling may see a decline due to stricter regulations, the broader mass gaming sector is likely to remain stable.

According to Chinese authorities, criminal groups illegally exchange large amounts of Hong Kong dollars, via clandestine banks, in places such as Zhuhai, and then smuggle this money to Macau, where it is distributed to gamblers from the mainland.

These illegal money changer groups allow Chinese gamblers to bypass Beijing’s restrictions on moving money out of the country by offering currency exchange services, often at hotel properties.

The movements of the mainland Chinese authorities have been followed by operations by local authorities, with Macau’s gaming watchdog – the Gaming Inspection and Coordination Bureau (DICJ) – reporting that the police authorities in Macau and mainland China have carried out exclusive actions to combat illegal scalpers.

Between January and May this year, Macau police said they intercepted 1,924 illegal money changers, whom they banned from entering the territory.

Additionally, 927 individuals were added to the casino no-entry list, and administrative sanctions were applied to 30 residents for illegal currency exchange.