Gaming insights Gaming

Will Macau’s table cap go too far?

Written by Ben Blaschke

The impending opening of Galaxy Phase 2 and Broadway at Galaxy late next month signals the start of a busy two years in Cotai with a total of eight new properties due to open their doors by the end of 2017.

Galaxy Phase 2 will open on 27 May

Galaxy Phase 2 will open on 27 May

It is hoped their arrival will help spark a resurgence in Macau following a tough 12 months, but attracting crowds is far from their only concern with a lack of gaming tables threatening to derail the long-term plans of Macau’s concessionaires. For all the fancy new attractions Cotai’s impending arrivals will unveil in an attempt to stand out from the crowd, it’s the tables that bring in the big bucks – and Cotai wants a lot of them. Around 3,000 to be precise. With the exception of two boutique casinos Broadway and Louis XIII, which will have only about 100 tables combined, the big six are hoping to have between 400 and 500 tables each in their sprawling new properties to ensure they can cover their significant investments.

An artist's impression of Melco-Crown's Studio City, due to open by October

An artist’s impression of Melco-Crown’s Studio City, due to open by October

So you can understand why the concessionaires are getting a bit nervous about the government digging its heels in over Macau’s controversial table cap. In a 14 April press conference, Macau’s Secretary for Economy and Finance Lionel Leong insisted there would be no change to the cap which limits the increase in live dealer tables across Macau to three percent compound annual growth for 10 years from 2013 to 2022.

To put that in perspective, the two big properties set to open this year – Galaxy Phase 2 and Melco Crown’s Studio City – have budgeted for around 900 tables between them but will receive just 171 if we use a strict 3 percent of the 5,711 table games in operation in Macau at the end of 2014 as a guide.

If we look ahead to 2016 the situation becomes truly absurd with the Parisian, Wynn Palace and MGM Cotai to share 177 tables between them instead of the 1,450 they had budgeted for, however it is Galaxy 2 and Studio City in the immediate firing line.

Melco Crown claimed last week that it could technically default on its HK$11 billion loan obligations if Studio City isn’t open for business with at least 400 tables by 1 October – potentially enabling lenders to demand full and immediate payment or take enforcement action. Incredibly, Galaxy 2 still has no idea how many tables it will be allocated with less than a month to go before opening.

The table cap is one of a number of measures being taken to slow Macau’s phenomenal growth and force operators to put more effort into non-gaming offerings. Without doubt they needed a nudge in the right direction and Macau will benefit in the long term if managed well.

But with China’s anti-corruption crackdown and tough anti-smoking laws already savaging gaming revenues, it’s hard to imagine any of the new properties being profitable were the government to also apply the cap to the letter of the law.

Fortunately the Macau government has a long history of changing its mind on a whim so although Galaxy 2 can forget about the 500 tables they really want, many analysts believe some leeway will be given with around 150 to 200 tables allocated to each of the big six.

Whether that’s enough remains to be seen. It seems implausible that the government would put the squeeze on to the extent that their viability was put at risk, although the fact they’ve left Galaxy Phase 2 in the dark about its allotment so close to opening is about as ridiculous as it gets. Let’s just hope that when push comes to shove, they get the balancing act right.