Casino Industry in Macau Essay

Published: 2020-04-22 08:25:56
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I intend to evaluate the Casino Industry in Macau including the reasons for its high demand and growing success and compare it to the Casino Industry in Las Vegas. The gaming industry is the livelihood of Macau. It is responsible for 75% of the governments income and provides the people of Macau with millions of jobs. Even though gambling was first legalized under Portuguese rule to finance the government, it remains the same under Chinese rule today. The rules and regulations set forth oversee the casino industry and grant companies with casino concessions.

It is dramatically more profitable than Las Vegas because of the devastating effects of the American Recession. Introduction Gambling in Macau has been legal since the 1850s, although it had existed illegally long before that. It has become a major source of income for the country and can be attributed to the increasing number of tourist visits. The gambling industry in Macau is the countrys number one reason for its economic success. Due to its achievements in the gaming industry, Macau is known as the Monte Carlo of the Orient and is Asias richest territory (Booming).

Casino table games are the main form of gambling in Macau. The other two most popular forms are horseracing and greyhound racing. Some other forms of gambling are becoming increasingly popular such as lotteries and sports betting. Background and History Gambling was legalized in 1847 in an attempt to generate revenue. At the time, Macau was under control of the Portuguese. The government issued a licensing system for the Chinese gambling houses. Each house was given a license only if they gave money to the government in return.

This was in the form of taxes on the revenues of each house. While gambling is normally something a government at that time would not condone, the current state of the economy called for desperate measures (Gambling in Macau). In 1937, the first casino monopoly concession was granted. It was given to the Tai Xing Company. This company, however, was very conservative. Because of this, they were unable to fully supply the people with the high demand that the gaming industry had to offer in Macau. The company lacked the ability to generate enough money to meet the markets potential.

The casino monopoly concession for the Tai Xing Company was soon revoked (Loughlin and Pannell). In 1962, the monopoly concession was given to the Sociedade de Turismo e Diverseos de Macau (STDM). Stanley Ho and his family founded the company. In English, it translates to Macau Tourism and Amusement Company. The STDMs acquisition of the license for the monopoly marked a revolutionary turning point in the casino industry in Macau. Soon after gaining control, STDM introduced many western-style games to the casino industry. It also renovated and updated the oceanic transport between Hong Kong and Macau.

This allowed millions of Hong Kong citizens to travel to Macau and gamble. It dramatically increased the revenue of the gaming industry and improved the economy of Macau (The Gaming Industry). STDM was taxed 31. 8% of their total profit. This accounted for 50% of the governments annual income. It also accounted for 33% of the countrys Gross Domestic Product (GDP) (Loughlin and Clinton). The government extended STDMs license in 1986. In 1999, Macau became independent from Portugal and joined the Peoples Republic of China.

Eventhough the Chinese are strict and would usually not allow gambling, they understood Macaus dependence on its gaming sector and also their own dependence on the profits they received from this industry. The new government did not make any changes to its gambling policy. STDMs license extension, however, recently expired in 2001. The government decided to cease operating the gaming industry as a monopoly. While some believed that STDM was too powerful, the government decided making the industry a free enterprise sector would increase competition and have many benefits (The Gaming Industry).

By increasing competition, many casinos had to reduce prices in order to keep customers away from their competitors casinos. This only attracted more tourists to the country and encouraged locals to gamble more. The construction and operation of new casinos also dramatically increased employment rates. Who Regulates the Casino Industry in Macau? After the casino monopoly ended in 2001, the government formed rules and regulations that would administer the gaming industry. The dissolution of the monopoly meant that companies besides STDM were now allowed to build and operate casinos in Macau.

Theses rules and regulations were to ensure that the new casinos were operating properly and fairly (Loughlin and Pannell). Soon after the monopoly ended, the Legislative Assembly passed a law (No. 16) that clearly outlined the definition gambling and casino. The law stated what would be acceptable and what would not be acceptable in terms of gambling in Macau. It also explained the guidelines for the concession system and the procedure for bidding. In order to enforce these rules and regulations, the Legislative Assembly established the Casino Commissions Committee.

This committee consists of eight members and is overseen by the Secretary of Economics and Finance. At the time of its establishment, this man was Francis Tam Pak Yuen. The bidding process began in November of 2001. The Casinos Commissions Committee started to give prospective investors information about building a casino in Macau. They also started to receive many proposals from hopeful investors. In one month, the Committee received 21 tenders from bidders from numerous countries. Some of these countries included the United States, Hong Kong, Malaysia, and several others.

After taking all tenders into consideration, the committee decided to grant temporary casino concessions to three companies. This meant that they were eligible for a twenty-year contract to run their casinos. These companies included Wynne Resorts, Sociedade do Jagos de Macau, and Galaxy Casino Company. The government of Macau Special Administrative Republic allowed these companies to operate games of luck in their respective casinos (The Gaming Industry). By the end of 2008, in just seven years, there were 31 casinos in Macau. Today there are 33.

A total of 23 casinos can be found on the Macau Peninsula while the other 10 are located on Taipa Island (a small island located off of Macau). All of the casinos, however, operate under the same regulations set forth by the Casino Commissions Committee. The biggest of these 33 casinos is the Venetian Macau (Macau Casinos). Gambling in Macau vs. Las Vegas When gambling was first liberalized in Macau, it was the governments goal to make it as equally successful as its competitors, mainly Las Vegas. Right out of the gate, it was at a good start.

The gaming industry dramatically increased the economy in Macau and attracted millions of tourists. According to Phillip Loughlin, Professor of economics and finance at Maryville University, The first of the new casinos was the successful Sands Macao, which opened in 2004 to a raucous crowd pushing and shoving to get inside. By mid-2009, there were 32 casinos where there had been only 11 in 2002. From 2003, the last year before the Sands Macau opened, through 2008, the number of annual visitors to Macau almost doubled from 11. 9 million to 22. 9 million.

More than half of these came from mainland China (Loughlin and Clifton). The success of the gaming industry in Macau, like many other markets in Asia, boomed quickly, almost as if it were happening overnight. No one could have predicted that the gaming industry in Macau would be so successful and become the livelihood of the country (The Gaming Industry). Today, the casinos in Macau are taxed 35% on their gross profit each year. This accounts for over 75% of government income. The companies must also pay an additional 3% of their profit for urban development and an additional 2% for a public charity.

As if the companies are not being taxed enough, they are also required to pay an annual $9. 4 million just for the right to hold their concession. Because the taxes on the gambling companies are so high, it allows taxes on other things to be very low. This is very beneficial to other industries as well as to the citizens of Macau. With low tax rates, citizens have the extra money to go the casinos and gamble. This creates a never-ending cycle. The casinos of Macau pay an extravagant amount in taxes, so the people do not have to.

With the money the people do not have to spend on taxes, they go to the casinos and spend probably more money than they would have paid in taxes in the first place. And that money goes right to the government. Phillip Loughlin also reports that, During the same period of time, the total gaming gross revenue”that is the casinos income before any expenses are deducted”grew by a multiple of almost four, going from US$ 3. 6 billion to US$13. 7 billion. This growth was in spite of the economic downturn of 2008.

Gross revenue of US$ 13. 7 billion is more than the two largest U. S. markets”Las Vegas, NV, and Atlantic City, NJ”combined. Part of the reason that the gaming industry in Las Vegas is not as successful as the gaming industry in Macau is the economy (The Gaming Industry). Las Vegas has been unable to recover since the recession of 2008. The state of Nevada had more foreclosures, bankruptcies, and unemployment than any other state in the U. S. The economic failure and decline of the gaming industry in Las Vegas played a large role in this because it is the states main lure (Macau vs. Las Vegas).

With a fewer number of tourists, many casinos were forced to lay off thousands of employees. Properties such as Fontainebleau and Echelon had to halt construction due to lack of finance. While the economy was suffering from the recession, casinos in Las Vegas kept expanding, even though their market was dwindling. One analyst notes, In 2006, the Las Vegas market had 132,600 hotel rooms and served 38. 2 million visitors. By last year (2010), visitor numbers had shrunk to 37. 3 million, but expansion projects had increased the number of hotel rooms to 140,429.

If fewer and fewer tourists were come to Las Vegas, then who, exactly, were these casinos building more rooms for? They were spending billions of dollars expanding for a market that did not exist and does not look hopeful in the future (Allen). Steve Wynn owns casinos in both Macau and Las Vegas. To many people, Wynn is considered a visionary. He is arguably one of the smartest businessmen in the world and over the years, has become one of the most powerful people in the gaming industry. In a press interview, Wynn recently said that he is considering moving his company headquarters from Nevada to Macau (Velotta).

Symbolically, this is very bad for Las Vegas. It means that Las Vegas is not the gambling capital of the world anymore and there is no chance it will ever be again. Las Vegas can no longer compete with the Asian gambling markets such as those in Macau and Singapore. Other companies such as MGM and the Las Vegas Sands also have casinos in both Las Vegas and Macau or Singapore. The companies properties in Asia seem to be their only hope as well as their only escape from this harsh American Recession (Allen). Conclusion The gaming industry is the pillar that supports Macau.

It is responsible for 75% of the governments income and provides the people of Macau with millions of jobs. It is also responsible for the alleviation of taxes in many other industries in Macau as well as on the income tax of its citizens. Even though gambling was first legalized under Portuguese rule to finance the government, it remains the same under Chinese rule today. The casino industry in Macau drastically outshines the casino industry in Las Vegas, once referred to as the Gaming Capital of the World. It is now time, however, for Las Vegas to step out of the limelight and allow Macau to step in.

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