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(This Jan. 2 story has been refiled to correct Melco's name and stock symbol in the second paragraph)
By Farah Master
HONG KONG (Reuters) - As casinos in Macau begin new licenses to operate in the world’s biggest gambling hub on Jan. 1, the stakes are high on whether they will be able to successfully deliver on a government mandate to diversify away from their cash-cow: gambling.
For the last 20 years, Sands China, Wynn Macau, MGM China, Galaxy Entertainment, Melco Resorts and SJM Holdings, have raked in billions of dollars from their casinos in the Chinese special administrative region, turning the once sleepy fishing village into a glitzy boomtown.
But their 10-year, shortened contracts come at a time when COVID-19 restrictions have decimated Macau’s gambling revenues, with 2022 the worst annual performance on record. Industry net debt is surging and operators face a new era of government oversight and control over their operations.
The recent easing of coronavirus restrictions in mainland China and Macau in December has also resulted in a wave of infections across the city, including many staff.
UPPING THE ANTE
Casinos have committed to investing a total of $15 billion in the coming decade, 90% of which must be spent on non-gaming.
But operators will find it hard to monetise their non-gaming ventures given their poor track record since 2001, when the former Portuguese colony first liberalized the industry, executives and analysts said.
Non-gaming revenues, which averaged around 5% of overall gaming revenues pre-COVID, must grow to more than 30% in the next decade, said Ben Lee, founder of Macau gaming consultancy IGamiX.
“For the past 20 years, none of the operators have managed to establish any significant progress in non-gaming.”
“Contrary to the vaunted Las Vegas model, non-gaming in Asia does not carry the same profit margin as spending behaviour is quite different over here,” Lee said, while adding that Galaxy, Melco and Sands were likely to fare better at diversifying based on their track record and management team.
Macau's visitors have traditionally been male gamblers aged 30 and older, but more young families and women have started visiting in recent years.
Macau, a densely packed territory located on China’s southern coast, is the only place in the country where gambling in casinos is legal.
In December, following the formal awarding of their contracts, casinos unveiled non-gaming plans including indoor waterparks, health and wellness centres, art exhibitions and a large garden attraction by Sands, similar to Singapore’s Gardens by the Bay.