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Macau Gaming Law Series Part 3: Problematic Consequences of Satellite Purge

MGEMA calls for Macau’s satellite casinos to be licensed by law

Welcome to the third in a series of approximately 10 articles on Macau Gambling Law AGI publishes throughout the month of March:

Part 1 (March 2): Here is the extension… June 26 now seems impossible
Part 2 (March 4): Cross-ownership provisions cross the line?
Part 3 (March 7): Problematic Consequences of the Satellite Purge

One of the strangest features of Macau’s casino gaming industry has been the existence of arrangements that have allowed certain entities to participate effectively, despite not being granted a gambling concession from casino.

A highly publicized example of this has been the so-called “satellite casinos”. There is no definition or concept of “satellite casino” in Macau law, but the term has become vernacular in the industry to describe certain contractual arrangements between a dealer and another party (sometimes referred to as “Party B “) under which Party B owns the real estate of a hotel-casino property and undertakes all non-gaming operations on the property. The concessionaire undertakes the gaming operations, with the gaming staff (pit managers, croupiers, cage staff, etc.) being employed by the concessionaire, and all other staff (F&B, hotel, etc.) being employed by the Part B.

The concessionaire receives a share of the “top line” (GGR) and/or the “bottom line” (profit, however contractually defined), in fact as a royalty for the “rental” of its casino concession, the Party B receiving the remainder of the gaming revenue in addition to all non-gaming revenue.

At best, these arrangements could be seen as an effective strategy by businessmen seeking to own a piece of the Macau gambling pie; at worst, they could be seen as almost a charade to escape all the hassle and expense associated with obtaining a casino gaming franchise – while partaking in the spoils of the industry.

Such satellite arrangements have been considered problematic by the Macau Gaming and Inspection Coordinating Office (DICJ) and the wider government for years. While, on a strictly technical basis, gaming in satellite casinos is conducted by a licensee, these gaming operations take place within the larger cocoon of a Party B-owned hotel-casino, all operations unrelated to the game being led by Party B, so Party B’s on-site influence is profound. Indeed, over the years it has not been unusual for Part B owners to use terms such as “our casino” or “our gaming operations”.

When the government released its public consultation document on Macau’s gambling law, there was no mention of satellites, so most commentators (save yous truly) assumed they had been relegated to the basket too hard.

So it was a surprise when the draft new Macau Gaming Law was released, with a new provision under Article 5.3 stating: “A licensee shall operate games of chance in casinos at a place where he owns the property…” This new provision has been widely interpreted as a satellite killer, although a three-year grace period will be introduced for existing satellite agreements if the affected concessionaire(s) are awarded a new concession. as part of the upcoming bidding process.

The wording of Section 5.3, as it currently stands, does not provide for partial ownership or ownership by a related entity of the Concessionaire’s group of companies. If this is the final version passed by the Legislative Assembly, then it means that all casino real estate must be 100% owned by the Macau Concession Entities, which are Macau-registered subsidiaries of the six entities. listed on the stock exchange.

There are 18 casinos in Macau that have always been considered satellites, operating under the concessions of SJM (14), Galaxy (3) and Melco (1), but these are not the only properties affected. Most Macau dealerships own gambling properties in multiple companies, with a new subsidiary often created for new casino properties. Take Sands China for example. Sands Macau, The Venetian (along with the Plaza at Four Seasons and the Parisian), and The Londoner are owned by three different companies within the Sands China group of companies. Melco also faces this situation in Studio City because it is not owned by Melco’s concession entity.

This problem is exacerbated by the fact that these properties are extremely difficult to subdivide into strata titles, which operators would want to do before considering a transfer of ownership – since this is only real estate associated with the game which must belong to the concessionary entity, and not to the entire complex. But Macau law has certain requirements for a property to have separate stratum title, such as separate entrances and exits, independent HVAC (heating, ventilation, and air conditioning) systems, and more. That would be impossible for Macau’s integrated resorts – the word ‘integrated’ is the clue! And such transfers of real estate could lead to all kinds of unintended consequences, such as financial problems, insurance coverage, environmental factors and many others.

Macau Legislative Assembly Second Standing Committee Chairman Andrew Chan Chak Mo appeared to acknowledge this difficulty late last week, suggesting to the media that dealers may possibly hold some kind of “share” record. property” (the precise Chinese term used was “份額”). He gave the example of a floor functioning as a casino in a building where that floor occupies, say, 10% of the building. Chan suggested that the dealership could make a floor plan showing that this 10% is the casino area, and just record that area.

Chan’s suggested course of action probably raises more questions than answers, the least of which would be how this concept might fit into the gambling bill, if at all. Here’s another one: if a provision in a new bill is so problematic that it creates the need for a whole new concept of property ownership in Macau, why not consider changing the provision rather than creating the new concept!

Another huge difficulty would be to find an agreement between the Macau operators and the DICJ on how to precisely calculate the “ownership share” relating to the games in an integrated station. But that’s a subject for a later article in this series!

The fourth article in this series will be published later this week.

Part 1 (March 2): Here is the extension… June 26 now seems impossible
Part 2 (March 4): Cross-ownership provisions cross the line?
Part 3 (March 7): Problematic Consequences of the Satellite Purge