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Howard Stutz

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Vegas gaming companies may face bigger tax bite in Macau

21 Jan 2015

By Howard Stutz
A Chinese government official is hinting at a potential gaming tax increase ahead of license renewals for Macau's casino operators.

A Hong Kong-based gaming analyst said Monday the comments — reported by several Chinese media outlets — was the first evidence that a government review of Macau's gaming industry will be linked to any gaming concession renewal talks.

"This will elevate policy overhang on the sector as the uncertainty on concession will add further risks to Macau investors in addition to recent gaming revenue slowdown and crackdown on the junket system," Macquarie Securities gaming analyst Janie Zhou told investors in a research note.

The move would come as Macau's casino market has experienced seven straight monthly gaming revenue declines, culminating with December's 30.4 percent dip — the market's largest-ever single month drop.

Macau's 35 large and small casinos saw gaming revenue fall 2.6 percent in 2014, the region's first-ever annual decline.

Macau casinos pay a tax rate of 39 percent on gross gaming revenue — 35 percent directly to the government with the remainder for various community efforts.

In an interview with reporters over the weekend, Macau's Secretary for Economy and Finance, Lionel Leong Vai Tac, said the government would explore a potential change in gaming tax rates after conducting a "mid-term review" of the industry.

Macau has six gaming license holders. The 20-year concessions begin expiring in 2020. Zhou told investors a decision on new licenses was likely to be made before Macau Chief Executive Fernando Chui's term expires in December 2019.

Three Nevada companies — Las Vegas Sands Corp., Wynn Resorts, Limited, and MGM Resorts International — operate casinos in Macau and are currently expanding their holdings with new developments in Macau’s Cotai Strip region.

MGM Resorts' concession expires in 2020. The concessions of Las Vegas Sands and Wynn Resorts come due in 2022.

Spokesmen for Las Vegas Sands and MGM Resorts declined comment on the report.

Zhou said the Macau government vowed to conduct a thorough review of the gaming industry this spring following a December visit by China President Xi Jinping to commemorate the 15th anniversary of Macau’s handover from Portugal.

The Chinese leader noted “deeply rooted conflicts” between the Macau gaming industry’s dominance and its people last month.

“Although highly uncertain at this point, a potential outcome on concession renewal could range from no change to an increase in gaming tax, or even re-tendering of the current six-concessionaire structure,” Zhou wrote.

Macau’s casino industry has suffered since June. A crackdown on corruption by the Chinese government has focused on junket operators. The junkets bring high-end baccarat gamblers to the casino’s ultra-exclusive private gambling rooms, but several operators have been linked to Chinese organized crime triads.

The crackdown has scared away high-end business, which was largely responsible for Macau’s record $45.2 billion gaming revenue total in 2013.

Macau produced $44.1 billion in gaming revenue in 2014, a figure that is still more than seven times the amount of annual gaming revenue produced by Strip casinos.

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